Before we begin discussing the budget announced by our honourable Finance Minister, I would like to throw light upon the Eisenhower Doctrine given by the former US president Dwight Eisenhower. The doctrine states that for every $1 invested in infrastructure, you get a return of $5. This budget also proposes a model that is aimed at getting maximum returns and pulling the economy out of the recession. We must acknowledge that just like there was a change in the world order post world war, there will be change in world order with different economies leading the global supply chains. The post COVID era will be totally different from the pre COVID era. This budget will prove to be the foundation for India to assume the role of a global superpower in the coming decades.
Before we begin assessing the budget it is also important to acknowledge the kind of challenge our economy faces due to the pandemic. People losing jobs, a large chunk of the population being pushed into poverty, MSMEs getting wrecked, Service sector taking a massive dip, manufacturing almost dead, consumer demand at a historic low and a massive fiscal deficit of 9.5%. Now does the budget pull India out of this massive recession?
I would start by saying that this budget is not aimed at boosting immediate consumption but focuses on long term growth. The budget focuses on four pillars: healthcare, Asset management & disinvestment, Infrastructure and strengthening the financial sector. India has been lacking in providing a solid healthcare infrastructure to its population. A small example, the total no. of ventilators were roughly 49000 for a country with a population of 1.38 billion. 56000 ventilators have been added alone in the period of March-September 2020. The government has had a strong focus on healthcare since day 1, the fact that the Pradhan Mantri Jan Aarogya Yojana (PMJAY) makes India home to the world’s largest healthcare program is an evidence of that. In this budget, there has been a whopping increase of 137% in healthcare allocation compared to previous year’s Budget estimates. The pandemic has clearly made us realize the importance of upgrading the healthcare of a nation. The allocation made to health will be spent in a course of 4-5 years covering various parameters including hospitals, infrastructure, Research, and access to clean drinking water & sanitation for all.
Second major focus is on disinvestment and asset monetization. There’s no debate in the fact that privatization ought to bring growth. Public sector enterprises are bodies that gobble up investments and give no returns. Privatization will help generate growth that is needed. Government will generate revenue by privatizing and monetizing assets that give no returns. This will help the government in creating a strong balance sheet, and also help those sectors achieve rapid growth. The Third major focus is the massive outlay for capital expenditure and infrastructure. This as I may sum it up, will ensure our economic bounce back. Power infrastructure, complete modernization and revamping of railways, creating highways, roads, rural infrastructure, agricultural infrastructure, and capex is what was needed in these dire times. Construction of infrastructure boosts both the primary and secondary industries. Coal, cement, steel and all the raw materials required, their processing, and transport will be stirred up. Also, engineers and architects for designing and manufacturing are needed, and labourers of all sorts are required for construction; in short it will stir up employment, people will be given wages hence boosting aggregate demand through multiplier effect, construction of new roads especially in rural areas will prompt people to buy cars thus giving a boost to the auto sector. Since demand for cars increases all the industries involved in processing the raw materials required in automobiles will be incentivized. This is the reason I mentioned the Eisenhower doctrine. Next is about strengthening the financial sector. Government will be setting up Asset Management Companies and Asset Reconstruction Companies that will help India’s overstressed banking sector. PSBs will be recapitalized and a deposit insurance is being introduced which is a commendable move. FDI limit in insurance has been increased to 75%. Stability to the financial sector is immensely important for a healthy economy. Other major things include an allocation of 50000 crore for Research & Development, a Production Linked Incentive scheme for the manufacturing sector that will stir up manufacturing, vehicle scrappage policy, a significant allocation for R&D in Hydrogen based fuels and renewable energy especially Solar power, allocation for exploring the oceans and a massive allocation of 1.42 lakh crores to agriculture and allied industries. Now there are a certain important misses in this budget that need to be highlighted. First is the lack of direct stimulus of the MSMEs. The budget has been doubled for MSMEs but still it is not enough. MSMEs have taken a major hit as they account for 49% of India’s employment and 30% of exports. Formalization of 6 crore MSMEs is pending that has not been taken up. Secondly, there has been no importance given to start-ups which is utterly disappointing. Budget for defence hasn’t been significantly increased which in my opinion is not a big deal but yes, education was a setback. With the New Education Policy, reducing the budget is unexpected and bizarre. The least the government could have done was to keep the allocation unchanged. Hospitality and tourism have been shrugged off as if it holds no importance. This industry is one the backbone industries of India. The government assumes that with the pandemic being slowly rolling back, this industry will revive on its own through consumer confidence due to vaccines and also due to reviving aggregate demand. Now I would briefly explain how this budget accompanied with previous reforms will pave the path for India to be a superpower in the post corona era if implemented correctly. The economic development through privatization and infrastructure has been explained. We must now look at how the revenue generated will be potentially invested in future. India has already been ramping up its healthcare. Now, India looks to spend 6% of its GDP on education by 2026. This means that a huge allocation might be made in upcoming budgets. The Economic survey of 2020-21 already pushed for an increase in R&D from 0.7% to 2% of the GDP; considering the push given by the government to R&D in this budget, and also the importance given to technology, space research, biotech, defence and medical research in general; with marine research being added this year; R&D appears to be a favourable spending arena. MSMEs are bound to see growth despite no relief. This is because previous reforms were centred around MSMEs but due to the stressed banking sector, many were not able to avail the credit relief promised. Now, after the setting up of ARCs and AMCs, credit relief will take place. The MSMEs linked to manufacturing will benefit through the PLI scheme. The previous packages when rolled out completely alongside the budget will prove to be a stimulus for the MSMEs. The three historic farm laws, alongside the 1.4 lakh crore allocation and increased credit limit of 16.5 lakh crore will take the agricultural sector to new heights and pave way for the $5 trillion economy goal. Fisheries, animal husbandry and dairy industries will also be ramped up through upgradation of infrastructure alongside agriculture. India’s 3 new labour codes that have been hailed internationally, are path breaking reforms that merge 44 existing labour laws. These laws are set to boost confidence among labourers, will employ thousands and strengthen legal support for the poor workers. Reforms in IT industries and BPOs that normalize work from home and boost efficiency are set to give a major push to the IT sector.
Let’s take a look at the energy sector now. Allocation has been made up for power infrastructure as mentioned earlier and combined with previous reforms, the government has already planned to pump liquidity in DISCOMS, Power distribution is set to be privatized, Coal mining and evacuation infrastructure will be developed and existing infra is to be upgraded. The Indian government has already opened the market for Natural gas and aims to make India a gas based economy. Significant incentives have been given to Solar energy and renewable energy resources since 2015. India has increased its solar energy output by leaps and bounds. India aims to produce 175 GW through renewable energy alone by 2022. This budget allocates capital for Hydrogen based fuel too. This budget alongside India’s record FDI, and previous reforms that incentivize made in India technology especially in defence will make India’s manufacturing sector achieve new heights. Last but not the least, Environment. Reforms in renewable energy are set to be beneficial for the environment. The government had already set up funds for afforestation and plantation in urban areas and artificial regeneration. Let’s now focus on India’s poor. India has been uplifting it’s poor through various schemes. Infrastructure creation will provide employment and better living standards, existing schemes like PMJAY (health program), free gas cylinders, free housing, rural electrification and now provision of rural healthcare and access to clean water in this budget for all will continuously uplift India’s poor in the coming decade.
The Corona period was a period of reforms for India. To sum it up, this budget, in addition to existing schemes, is set to bring reforms in health, education, R&D and innovation, Manufacturing, infrastructure, IT, agriculture, energy sector and environment. Also, not forgetting India’s rapidly evolving defence and space technologies. Brace yourself Indians, it’s the post Corona era and the world order is set to change in the coming decade.