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Budget 2021: How can it get the economy back on its feet

Pubali Neogy
·3-min read

Budget 2021 is super-critical. And a hard-pressed finance minister Nirmala Sitharaman has already promised that it would be like “never before”.

Her topmost agenda, goes without saying, is putting the economy back on the growth track.

Having entered a recession in the year just gone by because of the stringent lockdowns to contain the spread of COVID-19, the economy will likely continue contracting in the near future too. An advance estimate by the statistics ministry shows that it would shrink 7.7 percent in the financial year ending March 2021.

On the ground however, notwithstanding that dismal forecast, things aren’t looking that bleak anymore. Demand has gathered pace, and with the pandemic under control, there is a good chance to undo the massive economic damage.

The government now needs to focus on sustaining the momentum by spending big in various areas.

Acutely aware of it, Nirmala Sitharaman has already hinted at fast tracking some of the investments under the Rs.100 crore National Infrastructure Pipeline. This means more funds being allocated towards the completion of infrastructure projects in the upcoming budget.

The housing sector, along with rural schemes such as MGNREGS and PM Kisan, are also expected to be a beneficiary of the government’s largesse.

This would simply translate as more jobs to absorb the low-skilled workers rendered unemployed by the pandemic and an increase in their collective disposable income. The resultant multiplier effect can go a long way in speeding up the recovery.

Public spending aside, the government also needs to find ways to fuel domestic manufacturing. The mega scheme Atmanirbhar Bharat, launched in May last year, has already set the ball rolling with policy and monetary incentives meant to make India a manufacturing powerhouse. The budget can further boost it by disincentivising imports with higher taxes and ushering in more changes to promote ease of doing business.

Small and medium industries, that suffered heavy losses and saw their working capital dwindle, can ride out of the storm with such supportive policy changes, a simplified GST and lower taxes.

Alongside such measures, a combination of lower borrowing rates and lower taxes, both for individuals and commercial establishments, can also spur consumption and growth.

But for the growth to continue in the long-run, the government needs to build solid foundation vis-a- vis the human capital.

Focussing on the underfunded, ailing healthcare and education sectors can help accomplish it.

The government is already working on making India the hub for vaccine development. The budget can help accomplish it by earmarking funds and framing helpful policies to promote healthcare infrastructure, research and development and pharmaceutical manufacturing.

Similarly, funnelling large amounts to bring quality education to the doorstep of the poorest of the poor living in far-flung remote outposts can also go a long way in fostering development and alleviating poverty. The pandemic has already shown us the game changing power of technology with remote working and remote schooling becoming a new normal thanks to high speed internet, smartphones and laptops. Using the same, an inclusive education system can be built.

Such ambitious programmes, needless to add, would need money to the tune of trillions of rupees. But desperate times call for desperate measures and the government, for the time being, can forget about the yawning fiscal deficit – result of the lower tax collection in the pandemic-hit 2020 – to loosen its purse strings.

Going forward, it can expedite its disinvestment plans in the state-owned companies to offset some the revenue deficit, advise experts.