The talk during the last Budget was how to make India into a $5-trillion economy. For the 2021-22 Budget, the talk is on how to get the economy to the pre-Covid level.

But declining industrial production, increasing non-performing assets, widening the size of revenue-expenditure gap, uncontrollable inflation are all indications that the economy is unlikely to come back to pre-pandemic level in the forthcoming fiscal year.

However, the government has taken all efforts to bring the economy back on track and save the human lives. The Centre and the RBI have together provided a total fiscal stimulus of ₹29.87 lakh crore — almost 15 per cent of the GDP. Moreover, the government implemented the necessary quarantine and social distancing measures to contain the pandemic and save lives.

The kick-starting of the vaccination drive will not only saves lives but also boost the economy.

The country was in complete lockdown for 68 days followed by various phases of unlocking since June. Thus, the economy had contracted by 23.9 per cent in the first quarter and 7.5 per cent in the second quarter of the current fiscal year. According to the first advance estimate of NSO, the contraction of the economy in FY21 will be 7.7 per cent. The GDP at current price is likely to touch ₹194.8-lakh crore in FY21 against the provisional estimate of GDP of ₹203.4 lakh crore for FY20. The total loss to GDP in the current fiscal year could be around ₹8-9 lakh crore.

Due to the huge jump in the expenditure, the gross borrowings of both Centre and States have increased to ₹15.6-lakh crore in FY20. This has increased interest cost and has become a financial burden. Therefore, the fiscal deficit for 2020-21 would rise to 7-8 per cent of the GDP as against the budgeted target of 3.5 per cent. To bring down the fiscal deficit below 4 per cent of GDP, the government might announce a new framework for fiscal policy and will accordingly change FRBM Act through the Finance Bill.

However, there is some evidence of green shoots emerging in the economy. GST revenue collection has reached to almost pre-Covid level. Inflation has come below the upper limit of the RBI’s tolerance level of 6 per cent for the first time since March. But the fall in factory output in November is a matter of concern. The unemployment rate that had climbed up to 23.5 per cent in April, has now fallen to 8.3 per cent in January 2021. The bank credit growth is increasing by 5.1 per cent and deposits by 10.12 per cent. The forex reserves rose by $4.48 bn to a lifetime high of $585.32 billion during week ended January 1, 2021. These are signs of recovery. The government should increase spending especially in infrastructure to create demand and provide employment. The focus on providing relief to small and medium enterprises should continue.

The Centre must take advantage of the booming stock markets and crank up its disinvestment plans.

The government has already initiated the long-awaited labour reforms along with agriculture reforms. But it should keep its eyes on the ball because these reforms are being opposed. Some crucial reforms are still required, especially simplification of GST and rationalisation of GST rates. It is time to make GST a perfect tax system. The year 2020-21 is likely to end with a contraction in GDP of around 7-8 per cent, the year 2021-22 aims to correct this fall in GDP and the year 2022-23 will be the year of growth.

The writer teaches Finance at I.T.S Ghaziabad