For the last two consecutive budgets, the financial markets had tanked as Nirmala Sitharaman read her budget proposals for the year. However, her third budget got a massive approval, as the equity market indexes jumped by nearly five percent, the best ever budget performance since 1997. The finance minister appeared visibly relieved as the budget was seen as boosting growth to recover from the pandemic induced impact. She charted a road map for increased government spending in the next few years, without worrying too much about the fiscal deficit—9.5 percent of the GDP.
As Prime Minister Narendra Modi had remarked that this budget would be an extension of the five mini budgets presented during the last year, this year's budget focussed on the ingredient that was missing in the previous ones. Sitharaman focussed on the expenditure in infrastructure and health sector to boost growth, create jobs, and revive the economy. The focus on creating health infrastructure, and substantial road network, as provisioned in Modi government's eighth budget could pave way for visible change by 2024, when it will again go to the hustings.
Sitharaman’s effort appeared to be not to displease any section, at least, if no relief has been provided, as she refrained from presenting a populist budget. Quoting Tamil poet Thiruvalluar, Sitharaman said 'the ruler is one who creates wealth.' The wealth creation will come by reviving the economy.
Two other things were also on her mind, the farmers’ agitation, and the poll bound states. Instead of levying a Covid cess to build health infrastructure, and related facilities, she proposed agriculture infrastructure and development cess on petrol, and announced an increase in agriculture credit target to Rs 16.5 lakh crore in FY 2021-22. She spent some time in reading out money paid by the government to the farmers through MSP, which was much higher than during the Congress government.
Sitharaman did not disappoint her party as she allocated more funds and schemes for the five election bound states—West Bengal, Tamil Nadu, Kerala, Assam and Puducherry. In fact, the two poets she invoked in her budget speech—Tagore, Thiruvalluar—happen to be from these states.
These sops included works on 3,500 km of National Highway in Tamil Nadu at Rs 1.03 lakh crore; Rs 25,000 crore road construction works in Bengal; Rs 65,000 crore for 1,100 km of national highways in Kerala; 1,300 km of highways in Assam, new phases of Chennai and Kochi Metro; setting up of seaweed park in Tamil Nadu; Kochi-Chennai-Visakhapatnam fisheries hub, and welfare fund of Rs 1,000 crore for tea estate workers of West Bengal and Assam. The BJP is aiming to improve its performance in these states, by retaining power in Assam, and dislodging Mamata Banerjee government in West Bengal. Sitharaman's proposals are expected to provide the BJP with sufficient talking points to appeal to the electorate.
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Sitharaman had divided the budget into six parts, with health and well being coming at the top as a signal to people who braved through a year of lockdown and pandemic. It reflected in enhanced allocation for nutrition, clean air, ensuring piped water and scrapping policy for vehicles.
By increased allocation for the health sector, the Modi government has aimed to use the pandemic to ramp up the poor facilities, a move which will win the government goodwill at national and international level. “The Budget outlay for health and wellbeing is Rs 2,23,846 crores in BE 2021-22 as against this year’s BE of Rs 94,452 crores an increase of 137 percentage.”
These expenditures will come through schemes like PM Atma Nirbhar Swasth Bharat Yojana to develop capacities of primary, secondary, and tertiary care health systems. Sitharaman allocated Rs 35,000 crore for vaccine during the current fiscal. The emphasis on health is what the government hopes that urban middle class and rural population will thank it for. Though there was no tax relief or change in the Income Tax slabs, the finance minister tried to ease difficulties for the senior citizens, above 75 years of age, by exempting them from filing ITR.
The next big highlight of her budget was proposals to boost growth through investments, infrastructure which came with boosting MSME sector, buildings highways, boosting public transport, disinvestments in PSUs, and banks. Sitharaman announced capitalisation of the public sector banks at Rs 20,000 crores to consolidate their financial health.
The finance minister announced that the National Infrastructure Pipeline launched in December 2019 with 6,835 projects has now expanded to 7,400 projects and around 217 projects worth Rs 1.10 lakh crore under some key infrastructure ministries have been completed. She announced that a sum of Rs 20,000 crore has been provisioned in the budget to capitalise Development Financial Institution to act as a provider, enabler and catalyst for infrastructure financing. The ambition is to have a lending portfolio of at least Rs 5 lakh crore for this DFI in three years time.
The minister gave the reform signal in the banking sector as she announced that two public sector banks and an insurance company will be disinvested. She did not disclose the names of these entities. FDI in insurance sector has also been increased from 49 to 74 percent.
The government bit the bullet as it announced setting up of an asset reconstruction company – a bad bank - to manage NPAs in the banking sector. “The high level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books. An Asset 16 Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt and then manage and dispose of the assets to Alternate Investment Funds and other potential investors for eventual value realization,” Sitharaman said.
On the cultural front, Sitharaman announced setting up of schools for tribals. But her announcement of setting up of Sainik Schools with the help of NGOs is in keeping in line with military education with nationalist values, a demand made by saffron bodies.