A Post-contraction Budget with a Difference

Context: Union Budget 2021-22 presented after a year of GDP contraction is similar to other post contraction budgets, but is bold in many ways.

Major feature of a post-contraction Budget: based on earlier experiences

• It will be devoid of any major taxation proposals: The present Budget also largely followed this path
  • Excise duty had already risen in the year 2020: helped the Centre register a 50% increase in its excise revenue in 2020-21 and hence no need for further increase in rates.
  • Expectation of a stable international crude oil prices.
• Refrain from major or bold moves on policy: Like Jawaharlal Nehru in 1958, Sachindra Chaudhuri in 1966, Yashwantrao Chavan in 1973 and R Venkataraman in 1980.

Major or bold moves on policy in Budget 2021-22: differs from past post-contraction Budgets

• It made a promise of customs duty rationalization: To help domestic industry and simplification of direct tax procedures for individuals.
• Reducing off-Budget borrowings: To make Budget numbers on fiscal deficit more transparent.
  • Proposed to slash it to just Rs 30,000 crore in the coming year from Rs 1.26 trillion in 2020-21.
  • Thus, National Small Savings Fund (NSSF) would not be used at all to finance the food subsidy bill in 2021-22 and the quality of the fiscal deficit would be less problematic.
• Increase in the government’s capital expenditure: 31 % increase from 2020-21.
  • At the same time, Revenue expenditure in the coming year would decline by 3% over Rs 30 trillion in the current year.
• Measures to improve the confidence of taxpayers in the tax administration:
  • No attempt at nibbling at the direct taxation base.
  • No tinkering with tax slabs or raising the exemption level for individuals.
  • Creation of a tax dispute settlement committee.
• Series of announcements and new schemes:
  • Allowing foreign direct investment in insurance companies up to 74%.
  • Privatising two public sector banks and an insurance company.
  • New policy on the strategic sale of public sector undertakings.
  • Monetisation of assets in a host of infrastructure sectors.
  • Decriminalisation of laws pertaining to limited liability partnerships.
  • Creation of an institutional framework to ensure expeditious implementation of projects under the National Infrastructure Pipeline.

Problems in Budget 2021-22

• Proposal to set up a bad bank: as it may not address the real challenges of providing funds to the infrastructure sector.
• Tougher targets for states: While the Centre will reduce its fiscal deficit to 4.5 % of Gross Domestic Product (GDP) by 2025-26, the states have been given a tougher target of returning to the level of 3 % of GDP by 2023-24.