A missed opportunity

With the Budget coming at a time of deep economic crisis caused by the global pandemic, one expected a much bolder step when it came to expenditure for the next fiscal (2021-22). The Budget has projected a total spend of ₹34.8 lakh crore (BE) for 2021-22, which is almost the same as the revised estimates for the current fiscal. At a time when the demand is low, unemployment is high, and businesses are not able to function, there was a need to boost demand. For doing this, expenditure had to go up, which has not been the case going by the overall expenditure numbers for the next fiscal.

To boost demand further, there was a need to step up expenditure beyond this ₹34.5-lakh crore. Comparing this BE of ₹34.8 lakh crore for 2021-22 with BE of about ₹30 lakh crore of 2020-21 is not correct. The opportunity to do more has been lost. The Finance Minister still seems to be worried about the fiscal deficit overshooting the targets. The fiscal deficit for the current fiscal is likely to be much higher than the 9.5 per cent estimated for 2020-21. This is because the government is factoring in a contraction in GDP of just 7.7 per cent while the actual could be much higher. Therefore, the revised estimate will get revised again.

This being a crisis year, even in January major segments of the economy have not revived — travel, hotels, restaurant and entertainment has not gone back to the 2019 level. The unorganised sector has not come back to full employment. My estimate is that the economy is down by 10 per cent while the government is saying that in Q3 and Q4 the economy is almost at the same level as that of 2019. My point is the economy’s growth is much lower (sharper contraction) than the contraction of 7.7 per cent projected by the government.

Therefore, the projection for the next year will be incorrect as they are incorrect for the current fiscal. The government is betting on higher revenue for next year. This trend keeps happening from time to time. The fiscal deficit for the next fiscal, it is felt, will be higher than the projected 6.8 per cent.

So when the Budget Estimates start going wrong, governments invariably cut capital expenditure. The government should have come up with more accurate figures and provided for higher expenditure so that demand goes up. If demand does not rise, then investment by the private sector will not go up. Suppose capacity utilisation comes down to 70 per cent, why should the private sector invest.

The government should have pushed purchasing power in the hands of those who lost employment. If you give more money to the upper middle-class, then they will only end up saving that money. But if you had given it to the unemployed and poor, they would have spent all of it. Therefore, the government should have stepped up the rural employment guarantee scheme or introduced an urban employment guarantee scheme. Instead, the allocation for MGNREGA has been drastically cut — from ₹1.1 lakh crore this fiscal to ₹73,000 crore in the next.

PM Awas Yojana, PM Kisan and ICDS allocations have been cut. Food subsidy has also been cut. All the schemes that pushed up the purchasing power of the poor people have been curtailed.

In the health sector also, expenses have been curtailed by ₹8,000 crore.

What has gone up substantially in the expenditure side is the interest payment from ₹6.93 lakh crore to ₹8.1 lakh crore for the next fiscal.

Also, the announcement on increased capital spend of ₹5.5 lakh crore should be offset by the disinvestment receipts of ₹1.75 lakh crore budgeted for the next fiscal. The Budget should also have done a lot more to boost internal investments, rather than focus on attracting foreign investments.

Attempts should have been made to make the public sector more functional rather than look at privatisation. As part of Aatmanirbhar, the public sector should have been used to deliver the goods. This approach unfortunately has not been taken in this Budget.

The writer is an economist