CII BLOG

Search

The Budget 2021-22 is being announced under the lingering shadow of the pandemic which has caused economic activity to sink to an unprecedented trough. This has made it difficult for tax collections to cope with the Budgeted number which in turn has limited our fiscal space.

No doubt, the government has firmly responded to headwinds by timely intervention and landmark measures to manage the impact of the pandemic on the economy and industry. And it is the outcome of the decisive relief and reform measures that the economy is on the mend and both industry and services sectors are on the recovery track.

However, the challenges remain. While some sectors such as FMCG are exhibiting some signs of revival, there are others such as hospitality, tourism, etc. which continue to be under stress. Besides, private investment is not forthcoming, and demand is weak.

Hence, before the Union Budget 2021-22, there are hopes and expectations that the Finance Minister would trigger the requisite policy levers to deliver the ‘never before’ Budget which would help restore the investment momentum in the economy to pre-pandemic levels and accelerate economic revival even if it means deferring fiscal prudence by another year. 

At this time when the economy is at the cusp of recovery, the government should focus on increasing public expenditure to take growth forward. The spending, which should be confined to areas such as physical and social infrastructure including construction, would reinforce the nascent recovery and have a positive impact on employment through a huge trickle-down effect.

Unless public expenditure on infrastructure is stepped up, GDP might shrink not just during this fiscal but even in FY22 despite the favourable base effect. In fact, gross fixed capital formation as a share of GDP, which had peaked to 34.3% in 2011-12 has fallen to a low of 24.2%% in 2020-21 and should be perked up.

Fiscal space should be created for public spending up to 1 per cent of GDP for investment in infrastructure projects in areas such as road, rail, ports, airports, waterways, urban infrastructure, industrial parks, freight corridors, etc.

Moreover, the government should notify the shelf-ready projects, that are in the National Infrastructure Pipeline (NIP), for implementation. It could also consider bringing the projects, which are supposed to be actioned in the next few years, to this year.

The government should fast track infrastructure projects nearing completion i.e. open stretches of new road construction for traffic, commission new railway lines, electrification projects, and complete the townships planned under the Delhi-Mumbai Industrial Corridor.

The Budget should also set aside funds for use by the state governments to spend on infrastructure.

Further, investment in new infrastructures such as schools, renewable energy, and digital networks will create jobs and deliver tangible assets that will fuel long-term economic growth. Priority should also be given to public investment in housing, construction, and real estate due to its large backward and forward linkages with the rest of the economy.

The pandemic has exposed the inadequacy of our healthcare infrastructure at the district and panchayat levels. India needs to build up government expenditure on health to at least 3 per cent of GDP by 2025, and the Budget must work towards this target.

High spending on infrastructure will pave the way for higher growth, and this itself will be an antidote to bring the fiscal deficit down. Hence, the government should, at this juncture, contemplate an expansionary budget with the Center’s fiscal deficit being pegged at somewhat higher levels in FY22 to meet the expenditure required to support the incipient revival.

Leave a Reply

Your email address will not be published. Required fields are marked *