Finance Minister Nirmala Sitharaman had many choices ahead of Budget 2021. The one choice she perhaps didn’t have was to present a ‘business as usual’ budget. And in her choices, she has exhibited remarkable boldness and ambition. Budget 2021 is a historic one that sets the stage for a big reset of the economy. It talks to the economic and business realities of the post-Covid world and gives primacy to reviving growth. The expansionary fiscal stance that enabled this growth push does not come as a surprise.
The fiscal deficit target of 6.8% for FY22 is reasonable and acknowledges the changed global economic landscape. More importantly, the higher deficit in FY22 is largely to finance capital expenditure and not revenue expenditure. This is evident in the almost 35% increase in the government’s capital expenditure.
In fact, capital expenditure in FY22 is estimated to be 2.5% of the GDP from 1.9% in the previous year. The glide path for fiscal consolidation over the medium term creates the space for growth-enhancing measures over the next few years as well.
The government’s capex plans seem to be focused mainly on roads, railways and other infrastructure sectors. The move to identify alternate sources for development finance is welcome. This is manifest in the constitution of a new development financial institution with a capital of Rs 20,000-crore, and a target lending portfolio of Rs 5-lakh-crore. The zero-coupon bonds for infra debt funds and policy tweaks to incentivise investment by sovereign wealth funds will also provide a boost to the infrastructure sectors.
This Budget also makes a bold statement on big-bang reforms. The move to privatise state-owned banks marks a seminal shift in mindset. The government has also announced a new framework for divestment, signalling its intent to stay invested in just a clutch of strategic sectors. The creation of an SPV to monetise land holdings of the government has the potential to unlock significant economic value.
These are bold next-generation reforms that signal faith in market forces and in the dynamism of private enterprise. The move to consolidate stressed assets of the banking sector under a single umbrella entity should help address the legacy NPA problem.
The ambitious reform measures of Budget 2021 couldn’t have come at a more opportune moment. The economy is already showing signs of a very strong rebound and this bold and unconventional stimulus will sharply accelerate the wheels of economic activity. A resurgent India is now ready for take-off.
Kumaramangalam Birla, Chairman of Aditya Birla Group