Many economists and opposition leaders had criticised the Rs 20 lakh crore package announced last year for offering little through budgetary allocation.
The government has increased expenditure by 13% for FY 2020-21 despite a tax collection shortfall of 18% resulting in a fiscal deficit of 9.5%, almost three times the budgeted number and much higher than analysts were projecting.
This means an additional 6% is due to the expansionary fiscal stance taken by the government, coming through higher government spending to negate the criticism and provide an impetus to growth.
When the other levers, consumption and investments, are not working due to a myriad of factors, the government has focussed on increased spending to boost growth.
The nature of spending is also important in the current context. While revenue expenditure is projected to decline by 3% in the next financial year, capital expenditure is expected to grow by 35%.
The focus is clearly on creating long term assets and building infrastructure, the benefits of which will accrue for many years to come. At a time when the country is facing an unemployment crisis, this strategy will provide a fillip to job creation.
People who get jobs will earn incomes and spend the same on goods and services, thus boosting demand and leading to an increase in sales / profits of corporates.
Increased demand will lead to higher operating rates across industries and ultimately companies will need to invest in fresh capacities to match demand and supply.
Higher government spending will unlock the consumption and investment levers leading India to grow at its full potential.
COVID-19 has exposed chinks in India’s healthcare infrastructure. India has just 5 beds for 10,000 Indians as per Human Development Report 2020 and is ranked 155th out of 167 countries in bed availability.
Mindful of this fact, the budget has more than doubled the health and well being allocation to Rs 2.23 lakh crore including Rs 35,000 on vaccination.
The government is expected to award projects for building 8,500 km of highways by March 2022 aggregating Rs 2.17 lakh crore. West Bengal will see highway projects worth Rs 25,000 crore, Kerala Rs 65,000 crore, Tamil Nadu Rs 1.03 lakh crore and Assam Rs 34,000 crore.
An additional Rs 18,000-crore has been provided to augment public transport in urban areas. The allocations include Rs 5.54 lakh crore for capital outlay for infrastructure and Rs 1.04 lakh crore capex by oil Oil PSUs.
The Indian Railways has prepared a 'National Rail Plan for India - 2030' under which a 'future-ready' railway system will be created by 2030.
To fund the long term lending requirements for infrastructure projects, the finance minister announced the creation of a Development Financial Institution (DFI).
The Budget has allocated Rs 20,000 crore to capitalise it. The DFI will aim for a portfolio of Rs 5 lakh crore within 5 years.
The Finance Minister also announced the launch of a "National Monetization Pipeline" which will act as a very important financing option for new infrastructure construction.
Core infrastructure assets that will be rolled out under the asset monetization programme are - NHAI operational toll roads; transmission assets of PGCIL; oil and gas pipelines of GAIL, IOCL and HPCL; AAI airports in tier II and III cities; other railway infrastructure assets; warehousing assets of CPSEs such as Central Warehousing Corporation and NAFED, among others.
As per ratings agency S&P’, “The budget's emphasis on capital expenditure marks a noteworthy shift, and higher investment in India's physical infrastructure should help raise investment potential and competitiveness in the economy over time.”
Due to the above measures, GDP is expected to grow by 11% in FY 21-22 against a contraction of 7.7% in FY 20-21.
In a way Modi 2.0 has shown an intent to spend its way out the economic crisis precipitated by the pandemic and resultant lockdowns.
How far this will be successful remains to be seen.