Search & Rescue Operation

The Economic Times     11th February 2021     Save    

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).