Pandemic and the Union Budget 2021: Implementation and the way forward

By Soumyadip Chattopadhyay, Arjun Kumar, Ritika Gupta

The Indian economy was quite sluggish even before the pandemic made the unfortunate appearance. Inefficient policies and structural issues took a toll on the economy, further exasperated by the pandemic. Now that we are emerging from the shadows of the ill-planned lockdowns and inefficient bailout packages, the growth rates have still not returned to a healthy pace. We are also faced with new challenges of ensuring universal vaccination and the emergence of new variants of COVID-19. Given all these uncertainties, there is a need to focus on what the government can do, what the budget has done, and what it ought to have done, remarked Dr Arun Kumar, Malcolm S. Adiseshiah Chair Professor, Institute of Social Sciences, New Delhi.

Dr Kumar was speaking at a Panel discussion held on 08 February 2021, on the topic, ‘Pandemic & Union Budget 2021: Implementation and the way forward’ he chaired. This pertinent deliberation was organized by IMPRI – Impact and Policy Research Institute, New Delhi and Counterview. The eminent panelists for the discussion included Ms Malini Chakravarty, Associate Director- Research, Centre for Budget and Governance Accountability (CBGA), New Delhi; Dr Jyotsna Jha, Director, Centre for Budget and Policy Studies (CBPS), Bengaluru and Prof Jyoti Chandiramani, Director, Symbiosis School of Economics; Dean, Faculty of Humanities and Social Sciences, Symbiosis International (Deemed University), Pune.

Budget 2021: A Brief Analysis by Ms Malini Chakravarthy

Ms Chakravarthy shared the analysis of Budget 2021 brought out by the Centre for Budget and Governance Accountability (CBGA)1. She outlined the unusual context in which the Budget was prepared and presented this year. The pandemic, the unfolding economic crisis, high unemployment rates which hit a 45 year high of 6.1% in 20192, increased hunger and destitution, widening social and economic inequalities, overburdened and under-resourced health system and the strained state finances added a lot of expectations onto the Budget 2021.

She highlighted that despite the total budget outlay increased from 30,42,230 crores in the 2020 Budget estimate, and 34,50,305 crores in the 2020 Revised estimates to 34,83,236 crores in the 2021 Budget estimates, 65-70% of the increase is not additional spending but instead includes payment dues that were cleared. Hence the fiscal deficit is an overestimation, she added.

Regarding taxation, she noted a fall in tax revenues across the different tax components, except excise. This is because of the imposition of additional levies on fuel, she maintained. This focus on indirect tax revenues, especially excise is inflationary and regressive, which is proving counterproductive to the need to put money in the hands of the people and revive the fallen demand, remarked Ms Chakravarthy.

Talking about the allocation towards the social sectors, she refutes the claim of a 137 per cent rise in health expenditure. On close examination, one would notice that the allocations for drinking water and sanitation, vaccines etc, have been included under the health and wellness pillar, causing an apparent increase in the health sector’s allocation, she noted. The core allocations for the Ministry of Health and Family Welfare and the Ministry of Ayush have seen only a meager increase compared to the 2020 Budget estimate and decline compared to the 2020 Revised estimates, added Ms Chakravarthy. On the nutrition vertical, the allocation for Mission POSHAN 2.0 in 2021 Budget estimates shows a drop of 18.5 per cent compared to the combined allocation for the four merged schemes in 2020 Budget estimates. This comes at a time when the pandemic has increased the inaccessibility to nutritional food for the poor, and the National Family Health Survey 5 showing increased rates of malnutrition3, she remarked.

She noted that there have been no allocations towards the Nation Education Policy that was recently passed regarding education. Water, Sanitation, and Health – WASH sector did see a large leap in allocations, mainly owning to the Jal Jeevan Mission and the Swachh Bharat Mission. However, she expressed concern over the decrease in funding for preventing manual scavenging through the Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS) scheme. Dwelling on the agriculture sector, she noted that there is a decline in allocations to the flagship Pradhan Mantri Kisan Samman Nidhi – PM KISAN, which was highly inappropriate given the agriculture and rural distress that is at play.

Ms Chakravarthy also briefly touched upon the allocations towards the marginal sectors. She held that violence against women has seen a rise, however, there is a decline in funding for schemes aimed at protection and empowerment of women. Similarly, the allocation for child schemes also saw a drop and there have been no measures for the Accredited Social Health Activist – ASHA workers, Anganwadi workers despite longstanding demands. There is a reduction in allocations for minorities including for scholarship schemes and a severe cut in various schemes targeted at Persons with Disabilities – PwD’s, on whom the COVID-19 impact has been the harshest. On a whole, there is a critical reduction in allocation seen across several social and economic sectors and nothing much for equitably raising revenues, she added.

Budget 2021: The Intricacies by Dr Jyotsna Jha

Dr Jha unearthed certain intricacies of the Budget. She remarked that the Budget is an annual financial statement, a tool of accountability and therefore it is a serious issue when the truth is tried to be masked. She added that the GDP growth estimates seem to be too optimistic and the degree to which the economy is shown to have shrunk is an underestimation.

Regarding increase investments proposed in infrastructure, she appraised it as a step in the right direction, however, she added that the kind of infrastructure that is being planned needs to be accounted for considering that each type may have varying multiplier effects on employment and growth. She briefly touched upon the proposal to open the insurance sector to a higher Foreign Direct Investment – FDI, stating that this may create a problem since the system is health finance-oriented and not health service-oriented.

Commenting on the revenue sources of the government, she noted that the income from corporate tax has fallen while there is an increase in revenue from instruments like cess which does not go into the divisible pool of taxes, thus having a bearing on the Centre-State financial relations. Also, such a taxation regime is highly inflationary and unequal in its impact, she remarked. On the expenditure side, she reiterated the decline in allocations to schemes promoting women and child development, education, agriculture, despite the prevalent distress seen in these sectors.

Dr Jha maintained that the Budget talks only about growth and not about mitigating inequalities. Growth may lift people above the poverty line but that is indifferent to the concept of inequality and distress. She remarked that the growth achieved may even be a jobless growth or a job loss growth that does not address inequality.

Budget 2021: The Urban Context by Prof Jyoti Chandiramani

The budget was well camouflaged, opened Dr Prof Chandiramani. In unravelling the document’s various contours, she touched upon the 6 pillars of the Budget 2021. She appraised the push for health and wellness, investments, and the insurance sector’s opening to higher Foreign Direct Investment proposed in Budget 2021. However, regarding a few allocations made over five years, she sought to understand whether this is to be regarded as a tool for a one-year assessment of the budget or as a longer five-year plan. While commenting on the sixth pillar of Minimum government, maximum governance, she pointed out that certain components under the Ease of Doing Business Index like registration of properties, India still ranks quite low despite the substantial rise in the overall ranking.

Prof Chandiramani called the decade of 2010-20 as the lost decade. The capital investment has come down by ten per cent (39.8% in 2010 to 29% currently) and the Savings to GDP ratio has seen a dramatic fall. It is amidst this bleak environment and with limited fiscal space that the Budget 2021 has come out with certain allocations which broadly echo the framework mentioned in the bare necessities chapter of the Economic survey, however, the emoluments under several critical heads are not as high as it has been shown to be, she emphasized.

Speaking on the urban context of the Budget 2021, she highlighted the decline in allocation towards the Clear Air Program. Increase in outlay for the Atal Mission for rejuvenation and Urban Transformation (AMRUT) and the Shyama Prasad Mukherji Rurban Mission (SPMRM) is commendable but the allocations are very marginal. This is largely because the definition of urban is very stringent, she opined.

Dr Jha estimated that about 2231 more census towns will be added after the current census’ to ‘Dr Chandiramani estimated that about 2231 more census towns will be added after the current census. However, this will only lead to being defined as urban but governed by rural structures. On the other side, there are 24,000 large villages housing 190 million people who do not fit the stringent definitions of what urban is. They will be denied the basic amenities and public services and they don’t feature in the budget analysis, she added.

Budget 2021: Ignoring the Macroeconomic Picture by Dr Arun Kumar

Dr Kumar presented a macroeconomic picture based on his article published in the Economic and Political Weakly (EPW) on 26 September 2020 and his latest book titled, ‘Indian Economy’s Greatest Crisis’. He opined that the country is heading towards a new normal that the budget hasn’t adequately planned for. The framework of the Atmanirbhar package of the government envisaged to revive the sinking economy focuses on the supply side, rather than the demand side which is the need of the hour, he remarked.

From a critical standpoint, Dr Kumar opined that there should be more spending on creating health infrastructure, relieving agriculture distress, promoting rural development and defense in the budget. There has been a demand shortage and rising unemployment. The decline in private sector demand needed to be compensated by increased public sector expenditure, but this was missing, he remarked.

He reciprocated Ms Chakravarthy’s remark that the fiscal deficit is an overestimation as about three lakh crore accounts for transfers to India’s Food Corporation. Hence the demand boosting component of the Fiscal Deficit remains more or less stagnant. He quested that if the overall expenditure has remained the same and the Fiscal Deficit is small, how will the demand that is required to revive the economy be generated? He outlined the social sector schemes which could have been allocated more funds to revive demand quickly like the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), National Social Assistance Program (NSAP), Pradhan Mantri Awas Yojana, Pradhan Mantri Kisan Samman Nidhi (PM Kisan) and food subsidy.

He vociferously pointed out how the pandemic has shown that the Public Sector is most needed but the government under its slogan of ‘Minimum Government, Maximum Governance’ aims to dismantle the Public Sector. “We need a more efficient Public Sector rather than a disinvested one”, he remarked. He maintained that the crony capitalism that has crept up in Politics and the Public sector needs to be cleaned up and more accountability needs to be achieved.

Commenting on the investment allocations, Dr Kumar noted that an increase in the disinvestments offsets the increase in capital expenditure from 4.39 crores in 2020 Revised estimates to 5.54 crores in 2021 Budget estimates. He added that disinvestment needs to be netted out of the government’s capital expenditure. He also noted that most of the investment is into capital intensive projects which do not create employment. Hence, the focus should be on investing in local infrastructure, education and health. Dr Kumar strong opined that the Finance Minister has not taken the correct macroeconomic framework into account and missed a chance to rapidly shift the economy onto its tracks.

Budget 2020: Pressing Issues by Dr Arjun Kumar

Dr Arjun Kumar, Director at Impact and Policy Research Institute and the Chair, Dr Arun Kumar convened the panel discussion and raised several pertinent topics for the panelists to address.

Increased Capital Expenditure and Infrastructure Development

Ms Malini Chakravarthy: Pointed out that on one hand, the increase in capital expenditure is focussed on three sectors of which railways take the largest share. And on the other hand, the capital expenditure in many critical sectors like health where there is a pressing need to create infrastructure has seen a decline.

Dr Arun Kumar supplemented the point raised about Ms Chakravarthy about the Railway sector and cited formed finance secretary Mr V K Garg’s observation that the railway account has been fudged. The loss of the railways has now been funded, and this is entered as a capital item when it really should have been a revenue item. He added that such entries must be looked into while interpreting the budget. He also remarked that whenever Fiscal Deficit tends to rise, it has been quite usual to cut back on capital and social expenditure and this could be the case with India too in the coming year.

Extension of PM Kisan to Rural Non-Farm Households and Cash Transfer Scheme for Urban Poor

Prof Jyothi Chandiramani highlighted the need to extend such schemes, however, she doubted about the fiscal space available to achieve this.

Prof Kumar stated that he has been advocating such a policy for the past two years. Regarding the Fiscal space needed to fund this, he pointed out that the Reserve Bank of India has been complaining that around six-eight lakh crore is being invested in the Reverse repo because there is not enough demand for credit. He suggested that this could be utilized along with raising funds through bonds from companies that are flushed with funds like telecoms and IT industries.

Regarding the Fiscal Responsibility and Budget Management Act (FRBM)

Dr Arun Kumar stated he was never a votary of the act and that in a situation of crisis the governments can always borrow more. He cited the example of the United States of America which is at 20-25% of GDP as its Fiscal Deficit. He maintained that India could have done more.

Regarding Disinvestment Targets

Ms Malini Chakravarthy believed disinvestment has to be thought of in terms of the future. Since Public Sector Undertaking (PSU) profits have played a huge role especially in the wake of falling tax revenues, while disinvesting these, we must also try to bring in more tax income and stop relying on regressive taxation.

The New Normal That We Are Heading into And How the Budget Addresses This? Or How Should It Have Addressed It?

Dr Arun Kumar said, the new normal will emphasize on automation and e-services which will cut back on employment generation. To compensate there should be a focus on local infrastructure as it is more employment-intensive. The poor should be provided with a living wage and other services such as WIFI, which may be made a public good to ensure universal access to services. Health and education, which are public goods should have better quality. The new normal has also been inclined towards deglobalization and hence focus should be on internal investment.

Ms Malini Chakravarthy said, healthcare, education, workforce generation and better spending are the needs to tackle the new normal.

Macroeconomic Situation

The macroeconomy is not in a good position given that the rate of growth is down, the rate of capital investment is down, savings are down and the Fiscal deficit is high, said Prof Kumar.

Make in India And Investment Program

Dr Jyothi Chandiramani highlighted the push for Make in India would not bring any palpable success until the basics of economics do not work well. It will be difficult to rack in investment. There is an absence of the ‘animal spirits’ in the economy and hence the onus lies on the government to invest.

The Pattern of Recovery That We Will See?

Dr Arun Kumar said, the recovery cannot be ‘V’ shaped, rather it will be gradual. It is a shallow recovery.

The Supply Side Package Put Forth by The Budget to Revive Growth

Ms Malini Chakravarthy said, in a demand-led crisis, supply-side incentives will not work. There is a need to put money in the hands of people.

Prof Jyothi Chandiramani highlightes the rationale behind going for supply-side measures probably is that the government thinks that the people will be hesitant or more cautious to spend money given the market sentiments are low. However, this wouldn’t bring in the growth that you are looking for nor address the inequalities in income.

Budget 2021: Way Forward

Ms Malini Chakravarthy:

  • We need growth and redistribution, more investment in social sectors like health and education.
  • There should be a focus on providing extensive agriculture extension services which can lead to better productivity and income for farmers.

Dr Jyotsna Jha:

  • Increase the capacities of public schools and Higher Education Institutions.
  • Social mobilization against child labour and child marriage and focus not only on growth but also on mitigating inequalities.

Prof Jyothi Chandiramani:

  • Demand in the economy needs to be revived.
  • New banks like a National Bank for Urban Transformation and Development and other Development Finance Institutions should be created to facilitate long term infrastructure funding.
  • There should be a focus on employment generation.
  • An export policy should be put in place.

Dr Arun Kumar:

  • Focus on the distressed unorganized sector which contributes 94 per cent of the employment and 45 per cent of the output. Provide a living wage to every worker and improve living conditions, access to water and quality shelter.
  • Focus on local infrastructure and employment generation.
  • Develop high-quality public goods like health and education.
  • Library of the equipment’s where the poor can access computers and other electronic devices. Universal vaccination.
  • Massive investment in Research & Development.
  • Focus on reviving the demand.

References:

  1. Budget in the Time of the Pandemic: An Analysis of Union Budget 2021-22 by CBGA
  2. Periodic Labour Force Survey (PLFS) – Annual Report [July 2018 – June 2019]
  3. National Family Health Survey-5 (2019-20) For 22 Phase-I States/ UT’s

Acknowledgements: Sunidhi Agarwal, Nikhil Jacob, Nishi Verma, Manoswini Sarkar, Researchers at IMPRI

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