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Budget 2021-22

09 February 2021

Seven-dose potent VACCINE for the Indian Economy

Several pathogens had infected the Indian economy – namely consumption dip, fragile jobs ecosystem, pandemic-led social spending, reduced revenues, and fiscal-deficit tight rope walk.

A plan to combat these was well laid out in the first paperless Union Budget, through what is akin to a 7-dose “VACCINE” shot.

While the economic hygiene had been maintained all through 2020 by the Reserve Bank of India’s monetary policy, the penultimate boost to the frail economy has come in the form of Budget 2021-22.

V-shaped Recovery in sight

The Economic Survey has indicated a V-shaped recovery in the next FY 2021-22 even as an economic contraction of 7.7% has been forecasted for the FY 2020-21.

Pushing the growth multiplier rather than stoking consumption with steroids has been high on the Government’s radar.

While the easy way out could have been to induce consumption through tax rebates and money in the hands of consumers, the challenging path of concrete growth inducers such as infrastructure and investments spends were adopted.

Atmanirbhar Bharat

Taking major stride towards the aim of self-reliant India, a cushion worth Rs 1.97 lakh crore was offered to the manufacturing sector to spur domestic facilities. The electronics, automobiles and auto ancillary, telecom, pharma and textiles industries would be able to utilise the amount over a period of five years.

Additionally, seven large Mega Investment Textiles Parks (MITRA) would offer a playground of sorts to nurture global export businesses through the plug and play model over the next three years.  

Capex-led revival

There is a tectonic shift in the mindset of the NDA Government that is ready to bite the risk-bullet. It has shed the crisis-management garb and adorned the capex-investment outfit, ready to tackle economic contraction head on. It is unperturbed by the additional weight of fiscal deficit.

Enhancing FY 2022 capital expenditure allocation by 26% year-on-year, the Government would spend a whopping Rs.5.5lakh crore more on creating assets like roads, railway lines, factories, ports. Spearheading the infrastructure creation drive would be the freshly created Development Finance Institution with a bounty of Rs 20,000 crore, which emphasis the thrust on physical assets.

Cleaning-up Act

There are strong indicators from the Government that it is looking to clean up its books winding down to FY 2026. The first indicator is the decision to bring all the food subsidy on its books rather than the funding through Food Corporation of India, which was an off-balance sheet funding mechanism. 

Also, reliance on off-balance sheet funding through National Highways Authority of India and other extra-Budgetary resources has been reduced.

Apart from, the cleaning up drive, the Budget calculus seems to have undergone a shift toward moderate projections keeping in view the growth estimates. As a result, the estimations drawn in the Budget 2021-22 have a flavor of credibility to them.

Backing this claim is the fact that the divestment targets for FY 2021-22 have been judiciously placed 17% lower than the previous year. Gross tax revenue projections too have been pegged in line with 14.4% year-on-year rise in nominal GDP. 


Both physical and financial infrastructure augmentation would be carried out through various moves.

Capital expenditure has always been restricted to 13.5% of the GDP. But the infrastructure-push message has been made loud and clear with a significant allocation of 15.6% of GDP to expenditure, thereby dampening even the inflation worries.

Equity infusion of Rs 20,000 crore has been allocated for public sector banks, even as a new asset reconstruction company would take over bad bank loans. These steps are vital to improve the access to credit.

Divestment and monetization of operation assets through Infrastructure Investment Trusts would offer the Government additional strength to fund various initiatives.

No tax hikes

Similar to all the four Budgets presented after a year of contraction, the Finance Minister steered clear of any income tax raise. No hike was proposed in personal, corporate taxation or even indirect taxes. Nasty surprises in cess, capital gains or wealth tax too were kept at bay.

The move was well thought to avoid any hurdle in the way of consumption. Contemporary ways to fill the revenue gap were thought of in the form of additional borrowing, divestment, increase in insurance foreign direct investment limit and zero coupon bonds.  

The sensitive side of the Government came to the fore with the advance tax alteration with respect to dividends and even offering foreign portfolio investors a reduced lower Treaty Rate for dividends income tax.

Expansionary not austere

There was a realization through various allocations that even as the fiscal deficit would expand, the purse strings will have to be loosened for growth. Developed nations too have struggled with austerity.

Back home, the Finance Minister set sights on fiscal deficit target of 6.8% of GDP getting rid of the shackles of the 3% fiscal deficit target specified by the Fiscal Responsibility and Budget Management Act. It reflects the intentions that fiscal consolidation path would extend a little longer.

The deviation in the fiscal deficit roadmap had already been trigged in FY 2020-21 owing to the pandemic-led growth infusion, which pushed the figures to 9.5% of GDP. Hence, the audacious attempt at spurring growth – even if it took longer to achieve 4.5% fiscal deficit – was undertaken. 

This move would have an expansionary effect as the investment would have a spill over across multiple sectors due to improvement in employment opportunities and in turn money in the hands of individuals.


Just like the six pillars that the Budget 2021-22 was placed on, the seven key VACCINE doses are pertinent.

To conclude, the medicine in the right dosage will have to be administered if the economy has to bounce back and hurl past the reach the $5-trillion GDP mark by 2024-25. There could be certain adverse reactions (read: ballooning fiscal deficit). But the prescription seems to be based on the correct prognosis of what Bharat needs in the long run.

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