February 01, 2021
The Finance Minister presented the Union Budget 2021-22 earlier today, with significant focus on infrastructure, health, and agriculture sectors. Pradeep S Mehta, Secretary General, CUTS International, noted, “The Budget is path breaking, and this is fact and not flattery.”
The budget focuses on building institutional capacity of healthcare sector, with the total outlay for health and well-being being INR 2,23,246 crore. “The focus on health is heartening to note and will result in preserving human capital. Time bound implementation will be the key through coordinated actions at central, state, and district levels”, noted Mehta.
The budget has also recognised the need for infrastructure financing and has proposed setting up of a professionally managed Development Financial Institution. “Infrastructure development can contribute significantly to job creation and push demand in the economy. However, we need to learn from our experiences of the public-private-partnership (PPPs) model. The recommendations of Kelkar Committee on PPPs and adoption of People first PPP model will be essential to ensure that citizens are not short-changed”, quipped Mehta.
To finance development, the fiscal deficit has been pegged at 9.5 percent of GDP, and the government hopes to get back on the fiscal consolidation path by FY26. Waiver from fiscal consolidation path was expected owing to pandemic and economic downturn, however, this can unreasonably burden future taxpayers.
An efficient fiscal management system is required to ensure that funds are raised, managed and spent in the best interest of citizens. For this, a Fiscal Council can be set up comprising experts in public finance to support the government.
The budget notes that monetizing operating public infrastructure assets is a very important financing option for new infrastructure construction. On the similar lines, it has proposed strategic disinvestment of public sector undertakings. These steps are in the right direction, must be completed in a time-bound manner, and support must be provided to state governments to replicate them.
The budget also aims to promote consumer choice by enabling competition in electricity distribution sector. While a step in right direction, there is a need to clean out the debt of discoms and institute real independent regulators to ensure arms-length distance from politically influenced governments, noted Mehta.
To further consolidate the financial capacity of public sector banks (PSBs), recapitalization of INR 20,000 crores is proposed in 2021-22. There is a need to link these efforts to performance and professionalisation of PSBs.
In furtherance of Atmanirbhar Bharat vision, the budget intends to launch a scheme of mega investment textile parks, in addition to production linked investment schemes. While focus on textiles sector is extremely important, evidence suggests that constraints faced by the sector include unreasonably high costs in the areas of inputs, power, infrastructure, finance, logistics, research, innovation and compliance. Any incentives without addressing such fundamental issues are unlikely to result in desired outcomes.
In addition, experience suggests that such mega parks and PLI schemes have suffered from infirmities like sub-optimal conditions, delays in release of funds, complicated compliance processes, absence of transparency and grievance redress mechanism for investors.
“Efforts will be required to improve design and implementation of such schemes, making them more inclusive, and providing incentives for creating jobs with decent working conditions, investing in research and development, and supporting technology transfer”, highlighted Bipul Chatterjee, Executive Director, CUTS International.
The budget has proposed increase in rates of duties for several intermediate goods. Such measures add to costs of inputs for local industry, make it difficult for domestic firms to compete internationally, boost exports, and integrate with global supply chains.
“There is need to ensure coherence in design and implementation of industrial, trade, and sector specific policies. An integrated industrial strategy with a policy coherence unit at the Prime Minister’s Office for its implementation can be effective in preventing and addressing inconsistencies in policy design and ensuring coordination in implementation. This model can be replicated at the state level as well”, noted Chatterjee.
To provide adequate credit to farmers, the budget has enhanced the agricultural credit target to INR 16.5 lakh crores. The allocation to the Rural Infrastructure Development Fund and The Micro Irrigation Fund have also been increased. To boost value addition in agriculture and allied products and their exports, the scope of ‘Operation Green Scheme’ is also being enlarged. The Agriculture Infrastructure Fund would also be made available to APMCs for augmenting their infrastructure facilities. A citizen centric approach will be important to realise bold vision of the budget.
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