Awaiting historic Budget: Anything less than 1991 redux could be missed opportunityJanuary 25, 2021
By Jagadish Shettigar, Pooja Misra
Indian Union Budget 2021-22: With the virus having negatively impacted economies worldwide it led to a contraction of 23.9% in GDP for India (Q12020-21). GDP growth numbers for nations such as the United States of America, United Kingdom etc. have also been in the range of (-9.1%) and (-20.4%) resp for Q1, 2020. However, with the Indian economy showing signs of recovery in Q2 FY21, GDP growth estimates saw a revision. As per the first advanced estimates released by the National Statistical Office (NSO), the agriculture sector showed positive growth and services sector was the worst hit. India’s real GDP is estimated to contract by (-7.7%) in 2020-21, compared to a growth rate of 4.2% in 2019-20.
However, despite faster than expected economic recovery making experts revise their forecasts for 2020-21 and 2021-22, there are few signals such as falling wholesale price index (WPI) and current account surplus which do not gel well with the recovery mode. Fall in exports by 15.8% from USD 200.55 billion during April-December, 2020 from USD 364.18 billion in the previous year is a challenge though it reflects a negative external market. More disturbing is the continued fall in imports though it has improved in December 2020. Imports which stood at USD 258.29 billion during April-Dec, 2020 saw a 29.08% fall as compared to the last year which clearly indicates that the manufacturing sector has still not regained its normalcy point.
In December 2020, the trade deficit widened to USD 15.71billion with imports growing by 7.6% and exports contracting for the third month in a row. The fall in exports has been attributed to declining demand in sectors such as petroleum, leather and marine products. IIP contracted 1.9% in November 2020 slowing the trend in increasing factory output seen in the previous two months. Mining and manufacturing witnessed a contraction of 7.3% and 1.7% respectively. Similarly, WPI at 1.22% may appear music to consumers; but certainly does not reflect a positive investment environment.
Thus, keeping the above mentioned economic scenario in mind and in view of the ambitious target set by the Prime Minister of building the country into an Atmanirbhar Bharat, the Union Budget to be announced on February 1, 2021, is the occasion to unfold the road-map in terms of increased government expenditure, increasing purchasing power of the common man who is expected to play a proactive role in demand boosting and building of a robust policy environment.
With the general election being three years away, in any normal circumstance the government could have easily opted for tough measures. However, under the prevailing situation and with the virus resulting in the economic scenario being thrown out of gear the government might not be able to enjoy the mid-term luxury of opting for path breaking economic policy reforms and fiscal measures. The government has to carefully walk through political nuances coupled with a deteriorating fiscal balance, an outcome of the pandemic on one side and economic compulsions on the other and get back on the trajectory of economic growth. Thus, a well-designed and carefully laid out road-map to usher economic growth back on track at the cost of short term political gains would make the budget a historic one.
This is an opportune time and an apt moment for the Government to reiterate its commitment to big-ticket reform measures required to give the requisite boost to the economy. In this direction, fine-tuning of GST in terms of slabs and also intention to bring petroleum products within its ambit would help in bringing down cost of production-thereby, boosting consumption demand.
With the RBI stating in its Financial Stability Report, December 2020 that the banks gross non-performing assets are estimated to rise sharply to 13.5% by Sept 2021 it is time that banks brace themselves for a rollback of the regulatory forbearance announced in light of the pandemic. Similarly, returning to implementation of the bankruptcy code that too at a time when there is no liquidity crunch in the economy would give a positive signal, though at the cost of annoying vested interests in the industry.
With the Make in India programme being envisioned to evolve into Make for the World and the call being given for Vocal for Local thereby laying the building blocks for India to be the manufacturing hub for the world, the government may also have to unfold its reform intentions revolving around labour and land if a big-push is to be given to infrastructure projects as stated by the PM. Today’s youth constitute tomorrow’s working population. NEP 2020 which aims for universalisation of education and bringing quality into higher education by helping students build a scientific temperament from a young age seeks to build a base for a Vibrant India. The budget should ensure that there is adequate provision for an effective implementation of the NEP.
Not to miss the fact that it is equally important to consolidate the goodwill amongst the poor, educated middle class and marginal farmers. This is all the more the need of the hour when an attempt is going on to mislead the public and build a perception of the Government being anti-farmers. This notion has to be disproved in terms of a big jump in rural budget allocation and kisan-related measures such as substantial allocation on agri-infrastructure like cold chains, ripening chambers and refrigerated transportation alongwith promotion of food processing units.
Last but not the least, the middle class population segment certainly is looking for higher disposable income resulting from a cut in tax burden. With a higher marginal propensity to consume the middle class can effectively contribute to revival of demand. A confidence booster from the Union budget can lead to increase in discretionary spending which had taken a backseat during the pandemic. Higher spending would lead to increased production, increase in employment numbers and higher income levels which would set the ball rolling on the economic growth track. Until and unless the February 2021 budget is a 1991-like budget, if not better than that, the nation is bound to feel disappointed to miss a historic opportunity.
(Dr. Jagadish Shettigar, Professor, Economics, Birla Institute of Management Technology, Greater Noida and former Member of the Prime Minister’s Economic Advisory Council. Dr. Pooja Misra, Associate Professor, Economics, Birla Institute of Management Technology, Greater Noida. The views expressed are the author’s own.)