17 February 2021, 11:02 AM

Budget 2021-22: FM overlooks rising deficit, raised capex to perk up growth

Budget 2021-22: FM overlooks rising deficit, raised capex to perk up growth

 

India has hailed the 2021-22 Budget. The stock market greeted it with more than 3,000 points rise in benchmark BSE Sensex in two post-budget trading sessions – something Indian bourses did not witness in years. The industry seems optimistic about the proposed big hikes in capital expenditure overlooking the escalating fiscal deficit. The Union Finance Minister Nirmala Sitharaman has opened up the banking and the insurance sector further to foreign investment and has declared to privatise loss-making public sector undertakings which continue to bleed the precious public resources.

 

It is a daunting task to bring the demand back to the pre-Covid-19 levels. But while presenting the Budget, FM has stated that ‘this moment in history, when the political, economic, and strategic relations in the post-Covid world are changing, is the dawn of a new era – one in which India is well-poised to truly be the land of promise and hope.”

 

The FM has laid out India's path to economic recovery by boosting healthcare, giving infrastructure a big push and extending support to the agriculture sector in her Budget. The Covid-19 pandemic has led to massive economic disruptions worldwide. India’s GDP has reduced from `71.19 lakh crore in the first half of last year to `60.03 lakh crore in the current year.

 

The budget deficit is projected to increase to 9.5%t of GDP in the 2020-2021 fiscal, up from 3.8% in the previous fiscal year and well above the government's budget estimates of 3.5%. This would be the largest budget deficit on record, as the Covid-19 pandemic severely affected the government revenues while exerting pressure to increase public expenditure. At the same time, the real GDP growth is seen contracting by 7.7% in 2020-21 as against a growth of 4.2% in the previous year.

 

 

 

Fiscal deficit

 

Year

 

as % of GDP

 

2018-19

 

3.4

 

2019-20

 

4.6

 

2020-21BE

 

3.5

 

2020-21RE

 

9.5

 

2021-22BE

 

6.8

 

Source: Union Budge 

 

2021-22

 

 

And now in 2021-22 Budget FM has risked a higher fiscal deficit of 6.8% of GDP to pump in more funds in the economy in a bid to revive economic activities. The government is committed to an all-round development and making India self-reliant, the FM has declared. The coronavirus outbreak came as an opportunity for India to emerge as 'the land of new hope'. If the budget now gives FM the chance to articulate the government’s revival programme, Atmanirbhar Bharat and Pradhan Mantri Yojana introduced earlier to fight the backlash of lockdown were mini-budgets in themselves. Covid-19 support measures accounted for 13% of GDP, while measures by the government and RBI amounted to another `27.1 lakh crore, the minister said.