Union Budget 2021: Is it growth friendly or anti-poor/anti-middle class people?

Sanjoy Roy

February 9, 2021, 09:22:10   

The Union Budget 2021 was presented in the Parliament on 1st February 2021. Since the budget is tabled, it scored many praises and criticisms from different corners with someone terming it historic while some people ascribed it as election-bound, anti-poor and anti-middle class and as a ploy of handing over the assets of country to a section of industrialists, capitalists of the country and abroad. Arguments raised both in favour and against the budget may appear pertinent from the respective standpoint(s) but the limitations and compulsions of government either for political or economic interests’ etc. matter the most. This budget is also no exception. The present discourse is a modest attempt to highlight some pros and cons of the Union Budget 2021. 
According to the government, industrialists, corporate leaders and some experts, ‘this is a budget for growth and   next generation reforms; the focus on the healthcare, infrastructure, and financial sector are welcome’. Exponents of growth ascribe this budget as the bold move of Finance Minister (FM)  for higher borrowing which will go into capital expenditure. They are enthused with the plans for aggressive investments, asset monetization, focus on FDI, roadmap for cleanup of stressed assets and focus on stable tax regime etc. Experts opine that the FDI reforms refer to the self-confident India, signaling to the world that India is ready for free and fair competition between global and domestic players. They also add that the emphasis on public spending on rural segment, public distribution, transport, and health are likely to boost growth potential in the medium term. Spending push is likely to provide support to key growth drivers. 

However, the poor, middle class people including the salaried class are hardly satisfied finding no relief in tax burden as expected changes in taxable income slabs and rates remained unfulfilled except some reliefs like additional deduction of interest on house loan etc. rendering the salaried middle class people left with trifle disposable income for day to day necessities.  Rather the interest earned from provident funds in excess of Rs 2.50 lakh on employee’s own contribution in a year would be taxable. The expectations of migrant labourers barring ‘one nation one ration card’ scheme, daily labours etc. remained unmet finding little benefits for them in the budget. Unemployed youths have found no noteworthy announcement regarding fresh job opportunities except some benefits for startups. Real estate, Travel and Tourism sectors are not happy with budget because their concerns remain unaddressed in the budget while the key loser is iron and steel due to lower protection on account of reduction in customs duty.   Thus they find the budget as un-palatable and lacklustre. Besides, some experts not in full agreement with the government find the budget as confusing and directionless   and said that it has failed to stimulate demand in the economy. The budget is also called as a move towards privatization entailing two public sector banks (PSBs), one general insurance company and sale of significant stakes of LIC.  Keeping in view the previous performances of government regarding disinvestment of public sector undertakings, some experts are skeptical that   the amount (Rs 175000 crore) expected by government from the sale of its equity holdings in state owned enterprises is unlikely resulting in the fall of budgeted gross revenue causing the deficit to widen further. It may be mentioned that last year the government had hoped to procure Rs 210000 crore from the outright sale of Bharat Petroleum Corporation Limited, Air India, Concor and Bharat Heavy Electricals Limited but it remained unsuccessful due to pandemic. Thus, experts are hesitant about seriousness of reforms process particularly the privatization policy as the government may be buckled under the peer pressures and protests from different associations and opposition. However, according to an economist (Prof. ILA Patnaik) ‘if government puts its weight behind privatization and does not allow unions, bureaucracy or opposition to derail its plan, this will be a game-changing Budget’.   Some experts also lambasted the government for protecting and safeguarding some private sector companies of the country by hiking custom duty in some key areas resulting in crony capitalism. The budget also announced Asset Monetization Plan under which toll roads, railway freight corridors, airports, gas pipelines, warehouses, sports stadium, surplus lands lying with government would be farmed out to the private sector as per Atmanirbhar Package of reforms declared by FM in last year, when it was said that public sector undertakings not falling under four core areas of strategic importance would have bare government presence. This is also criticized as sale of government assets to the private players by some experts.    

Opposition parties as usual are not satisfied with the budget and they call the budget as anti-poor, anti-farmer, anti-MSMEs. According to P. Chidambaram this budget is 'a 'cruel blow' to federalism, vengeful towards protesting farmers. He observed, "The proposed tax reliefs completely bypass the tax-paying working class and tax-paying middle class. As expected, the FM has paid special attention to election bound states and allocated large capital outlays for Kerala, Tamil Nadu, West Bengal and Assam," He also added  that 'the proposals are only outlays and the actual expenditure will happen only after the schemes are approved and over a period of several years depending upon the pace of implementation'. The ruling Shiv Sena said 'Maharashtra was ignored in the Union Budget while its allies NCP and Congress termed the annual financial plan as disappointing amidst the corona virus pandemic and a move towards privatization’. "Just Platitudes and slogans. Nothing substantial to alleviate people's misery, the growing unemployment, rural wage crush, farmers’ distress suicides and galloping prices" tweeted by CPM general secretary.  According to Arvind Kejriwal the 'budget will increase the problems manifold'. Besides, the allocations on defense and education are not commensurate as expected. 

However it needs to be mentioned that Union budget 2021 is a good budget given the backdrop of pandemic , lockdown of the country ,poor economic trends of the country  and global slow down of economies across the world over the last few quarters . Besides  , it is definitely historic because it was a paperless exercise and  digital budget and it emphasizes on (i) health and well being, (ii) Physical and financial capital and infrastructure, (iii) inclusive development for Aspirational India, (iv) Re-invigorating human capital , (v) minimum government and maximum governance and (vi)  innovation and research coined as six main pillars. States have been granted additional borrowing room of upto 4% of Gross State Domestic Product (GSDP) for 2021-22, with an additional 0.5% limit for those undertaking critical power sector reforms. The budget avoids any extra tax burden and makes the tax compliance easier. Budget tries to woo the cause of farmers' in the form of enhanced procurement prices with a relief to plantation cultivators and strengthening of APMC mandies. 

Apart from the above, the budget provides for Rs 35000 crores for Covid 19 vaccine with the massive increase in health expenditure, gleefully digested by public. To boost the textile industry  attain global competitiveness  , create  employment generation and  increase exports, the budget proposes for the establishment of  7 Textile Parks over  a period of 3 years in different parts of the country. With a view to meeting the needs of infrastructure financing ( debt financing ), the budget proposes for the creation of Development Financial Institution (DFI) with an outlay of Rs 20000 to capitalize the institution. The budget allocates a sharp increase in the capital expenditure  making a provision for  Rs 5.54 lakh crores, which is 34.5% more than the BE of 2020-21. Roads and Highways Infrastructure sees  higher allocation with the states like Tamilnadu  3500 KM , Kerala( 1100) , West Bengal( 675 KM)  and Assam ( 1300 Km) are key beneficiaries with  some flagship corridors and other projects. Railway infrastructure received equal attention comprising electrification of 100 Broad gauge lines followed by convenience cum safety of passengers and modernization of rail. Metro rail services would be enhanced and extended in many new cities within the allocation of Rs 110055 crores earmarked under the budget provisions. Power infrastructure is given a special reference particularly the distribution sector ensuring consumers to choose from more than one alternative distribution company. Petroleum and Natural Gas are also given adequate emphasis.  Ujjwala Scheme benefitting eight crores households would be extended to cover 1 crore additional beneficiaries besides a gas pipeline taken up in Union Territory of Jammu & Kashmir. To boost financial capital, SEBI Act would be rationalized into single Securities Markets Code. To further consolidate the financial capacity of PSBs, further recapitalization of Rs. 20,000 crore is proposed in 2021-22. The definition of small company is revised raising their paid up capital to Rs 2 crore from 50 lakh as per the companies Act 2013, likely to benefit more than 2 lakh companies in compliance requirements. 

Inclusive Development for Aspirational India includes agriculture, allied sectors, farmers' welfare and rural India, migrant workers, labour, education and financial inclusion. For the welfare of farmers , the MSP  would be 1.5 times the cost of production across all commodities. To provide adequate credit to farmers, the agricultural credit target is fixed at Rs. `16.5 lakh crores. Rural Infrastructure Development Fund is raised to 40,000 crore in 2021-22 from `30,000 crores in previous year while Rs. 10,000 crores have been created under NABARD under the Micro Irrigation Fund and irrigation. Budget calls for development of modern fishing harbours and fish landing centres and accordingly five major fishing harbours –- Kochi, Chennai, Visakhapatnam, Paradip, and Petuaghat –would be developed as hubs of economic activity. Financial inclusion is further streamlined to extend the benefit to more number of STs and SCs. The rollout of National Educational Policy (NEP) has brought the essence of reinvigorating the human capital in India. To achieve the objective, the Budget proposes for strengthening 15,000 schools to include all components of the NEP and creation of 100 sainik schools, 750 Ekalavya residential schools in Tribal areas, revamping of post metric scholarship of SC students, One central university in Leh , setting up Higher Education Commission of India, Rs.3000 crore for realignment of existing National Apprenticeship Training Scheme (NATS) towards post-education apprenticeship, training . The budget also allocates Rs.3,768 crore for first digital census in the history of India. The above account is illustrative, not exhaustive. 

In a nut shell it may be told that Budget 2021 is different from those of the last 15 years and this is in favour of growth and for all sections of people. Economic weakness makes it imperative that the Budget should be pro-growth. Naturally, the focus of the Budget is shifted from collecting more taxes to reviving growth of the economy, with two options available to push the demand. One way of stimulating the demand is by giving direct cash transfer to the much-needed people while another is by increasing spending of government and cutting taxes to produce budget deficits and put more money into the economy than it is taken out. Accordingly the FM has chosen the alternative method. Spending of the government is increased keeping fiscal deficit minimum. The emphasis on infrastructure investment, preventive healthcare — including public goods such as clean water, clean air, and waste management are important part of the government's spending programmes having a big multiplier effect. Compared to previous Budgets, it lacks the announcements of a large number of welfare programmes or government schemes with a different political outlook or ideological resilience. 

The budget advocates reforms involving some bold decisions. The issues of increasing the FDI limit in insurance from 49 to 74 per cent and privatization decisions validate the government's reformist credential portraying a clear message to the world that India is not lagging behind to attract the foreign investors.  As the Budget is presented in the midst of a global pandemic, in a year when the economy has slowed down, witnessed job losses with rising economic distress, this year budget could easily go for short term remedies or large welfare schemes, including direct cash transfers to the poor, migrant workers and other marginalized sections of population but riving the economy was the essence. Thus the finance minister may have emphasized on infrastructure spending etc. aimed at ushering both growth and jobs keeping down the fiscal deficit to 6.8% of GDP for 2021-22 from 9.5% in 2020-21. Apparently, it may look as hard budget to the poor, middle class and etc, but its impact is expected to be far-reaching and sustainable for the country and its people visualizing long term recovery.

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