Search & Rescue Operation

Context: 2021 Budget has thrown a huge lifeline for growth, but more actions are required to further its cause.

Challenges confronting Indian Economy

• High fiscal deficit: In 2020-21, it is likely to rise to 9.5% of Gross Domestic Product (GDP).
• Not a desired kind of recovery:  Recovery is K-shaped rather than V-shaped.
  • Key sectors such as oil and gas, cement, fertilizers, and tourism and travel are still down.
  • Unevenness between corporates, Micro, Small and Medium Enterprises (MSMEs) and the unorganized sector.
• Poverty will Increase: The increase in demand for Mahatma Gandhi National Rural Employment Guarantee Act  (MGNREGA) work in 2020-21 shows the impact of pandemic on livelihoods.
  • 80-100 million people projected to fall back into poverty.
• Low capacity utilization: at 50-60%, India is unlikely to see immediate recovery in private investment. 
• Rising Non-Performing Assets (NPAs): RBI projects the NPAs to reach almost 14% by June 2021.
• High debt to GDP ratio ( close to 90%): increases the risks put forth by ‘Spend and Grow Budget’.

Budgetary measures (in Union Budget 2021-22) to enhance growth and recovery.

• Increased Capital Expenditure: an increase from 12.5% pre-Covid to 16% for 2021-22.
• Privatization: as an agenda to finance higher capital expenditure;  Divestment was called as Privatization for the first time. (Proposal for Monetization of assets is another such move)
• Financial sector reforms:
  • Setting up of Bad Banks: to deal with NPAs.
  • Development Finance Institution (DFI): to provide long-term finance.
  • Privatization: of two State banks.
• Prioritization of Health: an increase of 37% over the previous budget, (50% for vaccination).

Way forward: To further enhance growth and recovery.

• Capital Expenditure to achieve multiplier effect: By spending in shovel-ready and unfinished projects under the National Infrastructure Pipeline (NIP).
• Attract more investment: by
  • Crowd in of private investment: By improving public infrastructure.
  • Smartly implementing Production-linked Incentive (PLI) and linking it with state-level initiatives.
• Introduce professional management: For institutions like DFI.
• Provide support to the poor: 
  • More cash transfers and increase MGNREGA budget allocation if the demand for jobs remains.
  • ‘One Nation, One Ration Card’ for migrants should be expedited to encourage them to return.
• Push for Export-led growth: textile parks, Export Processing Zones (EPZs) and port-led development to attract FDI in labour-intensive exports may give India a better way to enter Global Value Chains (GVCs).