What would Make this a Budget Like no other India has Ever had

Context: In order to have sustainable growth and adequate employment generation in post-covid times, the government should ensure a macroeconomic environment conducive to growth and reforms in critical areas.

Challenges to Indian economy

• Rising fiscal deficit: The fiscal deficit (states plus central government) is expected to be more than 13%.
  • Due COVID-19 effect: falling private consumption and weak investment combined with revenue collapse for the government.
  • Expenditure commitments by the government: which include -
    • A credible vaccination programme,
    • Income support to the poorest (hot hard by a K-shaped recovery) (e.g. via MGNREGA),
    • Recapitalize banks to deal with non-performing assets,
    • Rise in defence expenditure to manage geopolitical situations.
• Issues with fiscal consolidation:
  • Low tax ratio: further negatively affecting fiscal consolidation.
  • Issues with Goods and Services Tax (GST): Its implementation has reduced its revenue-raising power. (Today’s top rate of 28% is too high and applies to many intermediate goods.)

Way forward: Reforms for a higher growth

• Budget reforms: Include off-budget borrowings under fiscal deficit which will enhance the credibility of the government.
• Deep tax reforms: will achieve fiscal consolidation in the long term as both revenues and Gross Domestic Product (GDP) will grow faster.
  • Setting up a group of experts like the Chelliah Committee (1991)
  • Fixing the Goods and Services Tax (GST): by including the exempted goods and reducing the number of tax brackets.
• Strengthening the banking sector: by following six-fold path -

1. 1. Strengthening the RBI’s powers over public sector banks (PSBs) – for proactive supervision.
   2. Avoid delays in the insolvency process under the Insolvency and Bankruptcy Code (IBC).
   3. Set up a government-owned “bad bank”: would take up the stressed assets of PSBs and concentrate on recovery.
   4. Privatize a few PSBs by bringing in strategic partners from the private sector.
   5. Implement the Nayak Committee recommendations: Put government equity holdings in PSBs into a separate professionally-managed holding company and let each bank be board-managed.
   6. Establish a new development finance bank: to provide long-term loans for core infrastructure development with the government having minority ownership and other investors, including sovereign wealth funds contributing capital and having a say in management.

• Turn railways as an independent public sector corporation: as china did ten years ago; It would give the railways more flexibility to raise market funds and engage in public, private partnerships.
• Public vaccination program for COVID-19: should be made free.
  • Private hospitals should be allowed to participate: this will give a choice to people and also reduce the financial burden of the government.