A budget for growth: It addresses Covid’s shadow on the economy, while also taking a longer view


Markets have reacted euphorically to the Budget. First, it clearly addresses India’s economy in the second year of a global pandemic. Yet, at the same time, it takes a longer view. The Budget not only shows the kind of policy support necessary for the economy at this moment, but also provides a foundation for the country that India will need to be in the next decade.

The announcements about health, protections for informal workers, infrastructure, and strengthening the financial sector clearly show this intent – a pattern of reforms focussed on boosting growth and removing bottlenecks across several industries. And by not touching direct taxes, it has protected purchasing power and encouraged demand – a move that will be rewarded as the pandemic recedes. It provides direction to businesses and people, rather than create a punitive environment.

The Budget clearly signals a move to return India to a higher growth trajectory after the record contraction caused by the pandemic. The fiscal target has been relaxed very rightly, and the government has chosen gradual consolidation over the medium term. I believe this is the right thing to do at this particular moment in history. In this phase of the business cycle, the government’s approach will help with job creation, supporting income and reducing the economic scarring caused by the pandemic.

On a fundamental level, choosing growth over fiscal consolidation at this stage makes sense, given the nation’s low per capita GDP of around $2,000. The country’s aspirations are higher than they have ever been. We see it in our consumers, our youth and our jobseekers.

The focus on quality of spending is encouraging. The government’s spending will go towards investment driven growth and physical and social infrastructure. Capital spending is budgeted at over Rs 5.5 lakh crore for the year, a nearly 35% increase from the last Budget. It is 2.5% of GDP, the highest level since FY05.

The national infrastructure pipeline is being expanded to cover 7,400 projects. The focus on roads, metro, railways and urban infrastructure will boost the construction sector, which in turn feeds over 250 allied industries. The construction sector is critical for small business and jobs. It directly employs 54 million people, and is one of the nation’s largest non-farm employers.

The production linked incentive scheme across 13 champion sectors could spur large scale domestic manufacturing and jobs, and create thriving electronics and autos industries among others – while stimulating the green economy. The plan for a new asset reconstruction company will help banks grappling with bad loans. A proposed Development Financial Institution will meet long-term debt financing needs for infrastructure. These are important steps in clearing up a logjam.

Second, health and well-being will receive Rs 2.23 lakh crore, a hefty part of which will go towards vaccination for Covid. The Jal Jeevan Mission, which will ensure universal water supply will receive Rs 50,000 crore – a striking 355% increase from last year. India’s budgetary response to Covid shows that it’s looking beyond the pandemic to bolster basic care systems, as well as prepare for the demand for health that will come from other countries when travel restrictions are lifted.

The government’s disinvestment plans are ambitious. Done in a time bound manner, they will help it meet its capital spending commitments, especially while equity markets are buoyant. Execution will be key.

The Budget marks a change in India’s orientation towards the future. The 2020s are a pivotal decade for us, one in which we have the potential to dramatically raise overall living standards. With one million people entering the workforce every month, we have to craft our growth strategy in the midst of a digital age dramatically accelerated by Covid.

While budgets are often dissected for taxes, tariffs and fiscal support, a big story within this one is the indication it provides of what the future of work will look like. Labour protection received prominent mention. By redesigning gig work and informal labour, India is taking major steps towards increasing productivity in the informal sector, which constitutes nearly 80% of the country’s huge workforce.

Crafting policy always involves making mid-course corrections. Such moves are necessary within dynamic environments. As we move forward in this new decade, in particular, India needs to anticipate the trajectory of technological disruption, led by AI. We must invest in AI, reimagine AI applications and provide a robust data governance framework.

At the same time, we must think about skills very differently this decade. The old methods of relying on traditional vocations are not enough for the coming decade. Skills training has to be seen through the prism of advanced manufacturing, and powering the digital age. The Budget supports this idea, as well as the need to reimagine skills development relevant to the 21st century.

Finally, this Budget is an acknowledgement of where we stand today. We are recovering from Covid, and are well-positioned to be the world’s third largest economy by the end of this decade. The world is also at an inflection point. Recent years have been marked, for example, by elevated geopolitical volatility, accelerated digital disruption and greater action to mitigate climate risks, among other important global trends. The pandemic has hastened many of these shifts, while underscoring the pace at which we need to position the country for the next leg of our journey.

This Budget reflects the reality that we need to work on our infrastructure, health and education, and do so while keeping sustainability and the evolving digital age in mind. With this platform, we must now execute with relentless focus over the coming critical years.

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Disclaimer

Views expressed above are the author’s own.



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