Will Budget 2021 Get India on $5 Trillion Trajectory?

The third budget by Finance Minister Nirmala Sitharaman is set to determine our collective economic destiny. It comes at a time when India – as the fifth largest economy – is aiming to establish itself as a strategic heavyweight with economic heft to act as a counter balance to China in Asia, and the world. If the Indian economy achieves $5 trillion by 2025 and $10 trillion by 2030, it will be able to overcome many geo-political headwinds it currently faces. To that effect, the FM’s phrase that this would be a once-in-a-century budget is a correct estimation since it will be a key determinant of India’s place in the post-Covid world order. A thriving economy, firing on all cylinders, will create enough money for India to fortify its borders, upgrade its military and match China’s cheque diplomacy effectively in its neighbourhood, besides bringing prosperity for its citizens. So, does the Union Budget for FY22 put the Indian economy onto a high-growth orbit? Well, it is the execution that holds the key.

Going into the budget, Finance Minister Nirmala Sitharaman had to perform a tough balancing act to bring back growth, create jobs, kick start manufacturing, address economic woes of those disproportionately hit by the pandemic, all while being fiscally prudent. The FM’s third budget aimed to overcome some of these challenges by focusing on growth and those sectors that could aid larger economic recovery. But the real test of the government will be to translate its intent into action. All announcements- including plans to fund its massive investment programme – hinge on the Government’s ability to execute.  

An earlier announcement of investing Rs 100 lakh crore over a five-year period in infrastructure will lead to a cascading effect since it will spur growth in allied sectors like cement, steel, auto etc. Coupled with plans for additional infra boost it could bring faster economic growth and also increase India’s ability to attract big ticket global manufacturing companies. However, the biggest and most recurring problem for infrastructure development has been land acquisition. Timely decisions related to the infrastructure projects is key to ensure the policy yields the desired multiplier effect. The highways ministry has estimated that road and highway projects can provide a 10X growth in GDP, that is, for the Rs 1 lakh cr investment, the GDP rise could be an additional Rs 9 lakh crore. The Government needs to bring in two specific measures to ensure timely execution of infrastructure projects- one for all approvals and clearances including land, and second for providing funding. In fact, the FM – in line with her earlier record of bringing in a series of ‘mini-budgets’ through the year- should announce a roadmap for deepening India’s bond market. Around the world, infrastructure is financed by long term bonds and India needs to create the same to ensure it has enough capital to finance the projects it has announced.

Likewise, the budget has set a target of Rs 1.75 lakh crore as proceeds from disinvestment, which may not be very simple to execute. Not only has the government failed to meet its disinvestment targets in the last two years, it has also been unsuccessful in finding investors for some blue-chip companies like BPCL. Of course, this is failure to execute in a time bound manner- the responsibility for which rests more on bureaucracy than politicians; but this also highlights the teething problems that lie ahead in a year where raising money is crucial. Multiple efforts to find buyers for Air India have failed, to assume the result will be different this time requires tremendous political capital and push from all quarters. Given the present buoyancy in equity markets, it will be unfortunate if the divestment targets are not overshot since listing of LIC alone could provide enough revenues to the Government.

Another area where execution will be extremely crucial is fast tracking the proposed textile parks. For centuries, India has been the clothier to the world- a moniker it lost in the last few decades. The ability of the textile parks to provide India with linkages in global manufacturing and generate large scale job creation will determine how efficiently it gets off the ground. The FM should have also announced setting up of food parks which would enable Indian agriculture to become aligned with the global food processing industry. It would have also served as an opportunity to provide protesting farmers with a vision of what the future holds for farming. Indian agriculture held out firmly during the worst phase of the lockdown in India, it now needs a vision to become more prosperous and move up the value chain. To view agriculture only through the prism of MSP comparison robs it of its ability to be part of the global food processing industry. Setting up more cold chains – with technological innovation – could have also provided more boost in this direction.

Lastly, allocation for MSMEs has gone up from Rs 7572 crore in FY21 to Rs 15,700 crore in FY22. The bulk of the allocation will go into the Emergency Line Credit Guarantee Scheme that will provide capital to MSMEs. If MSMEs recover, the economy will revive soon since they contribute 45 percent to Indian manufacturing and nearly 40 per cent to Indian exports. The middle class though has every reason to be disappointed by the budget. This segment-which faced economic hardships during the pandemic- was expecting a tax cut since corporate taxes have already been slashed significantly. They can take heart from the fact that there’s no ‘Covid cess’.

The FM’s task to revive the economy has not ended with the Budget. It has just begun. She needs to ensure delivery – both politically and administratively. After all, India’s economic future is at stake.