Union Budget 2021—22: A Fiscal Rudder for Fast Recovery

29 Jan 2021

The Union Budget for 2021-22 is to be announced soon. The upcoming Budget is expected to prioritise growth-oriented measures to ensure the momentum of recovery seen in the economy recently is sustained.

The focus of the Budget is likely to be on rekindling durable consumption and encouraging private investments. To alleviate the crisis caused by the pandemic on small businesses, further measures targeted to strengthen MSMEs, reduced costs of doing business, and enhanced ease of exports could be announced.

All these steps require the raising of resources by the government, which currently are limited, given the major shortfall in revenue collection on account of a sharp decline in GDP growth induced by the COVID-19 crisis. During the first eight months of FY2020, total receipts are anaemic at 37% of the budget estimates even as the total expenditure has increased over 60%.

Thus, one of the critical thrusts of the budget should be on augmenting revenue sources to ensure that the adherence to the fiscal discipline path is achieved with minimum disruption.

In order to achieve this, it is suggested that the non-debt capital receipts, which mainly consist of disinvestments, are sped up. The disinvestment line-up for FY2021 was impressive, which caused the disinvestment target to be budgeted at an ambitious Rs 2.1 lakh crore in FY2021, of which the realization so far has been in the neighbourhood of only Rs 200-250 billion.

Though much of the performance could be attributed to poor investor sentiment due to the pandemic, it is critical that going forward the process of disinvestment is streamlined by delineating strategic & non-strategic sectors and disinvesting all government holdings in the non-strategic sectors.

There is also the need to improve the quality of non-debt capital receipts by going in for genuine disinvestment rather than having one PSU invest in another.

There is also a need to monetise idle assets of the PSUs to raise additional resources. At present, there is a considerable appetite among investors for buying fully completed Indian infra assets with stable cash flows.

This opportunity should be leveraged fully and one of the channels for achieving this is through asset monetisation. Specifically, entities such as NHAI, Power Grid Corporation, state transmission utilities, Airports Authority of India, and others may tap this route and monetise their existing assets to raise funds.

In the same vein, the surplus land assets of railways and defence should also be monetised and reinvested in rail & defence infrastructure.

Apart from these revenue generation measures, all efforts must be made to rationalise non-productive expenditure such as non-merit subsidies, which are additional subsidies provided beyond the merit subsidies of food, education, and health. Adopting measures such as using Aadhar enabled direct benefit transfer (DBT) for food and agri-input subsidy, carrying out urea price decontrol, and rationalizing fertilizer subsidy based on soil health card scheme data among others, can be used for this.

If the government still falls short of its target, it should look to a larger deficit. Spending on key areas such as infrastructure, health, and education must be stepped up.

The forthcoming Union Budget for FY2022 can be expected to be notable for measures to accelerate the post-pandemic growth momentum, as per the Government’s focus. In this context, in the pre-budget memorandum submitted to the government, CII has laid out key areas where higher spending will reignite investor sentiment and support households and businesses that have been deeply affected by the pandemic.

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