ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Budget 2021Subscribe to Budget 2021

COVID-19: Examining the Impact of Lockdown in India after One Year

One year after its announcement in March 2020, the consequences of India’s strict COVID-19 lockdown measures and ineffective policy responses continue to be felt, be it in terms of livelihood loss and economic downturn or increased marginalisation of vulnerable sections of society.

Union Budget 2021–22: Is Capital Expenditure Enough for an Economic Recovery?

The Union Budget 2021–22 seems to be relying on capital investment-led growth for an economic recovery. But such an approach neglects those sections of the public that were the worst-hit by the COVID-19 pandemic.

Labour, Livelihoods, and Employment in the 2021–22 Union Budget

Coming in the midst of the immense damage inflicted on the Indian economy by the COVID-19 pandemic, the 2021–22 Union Budget needed to perform the unenviable task of compensating households for massive livelihood losses as well as stimulating economic growth while maintaining some fiscal discipline. As it turned out, the government chose to focus on the second and third goals and largely ignored the first.

Budget 2021–22 on Health

The budget speech on 1 February 2021 announced an allocation of over `2.2 lakh crore to health and well-being, at 137% higher compared to BE 2020–21. The Fifteenth Finance Commission emphasised the need for strengthening the COVID-19-ravaged health sector by recommending sector-specific grants. The government did not accept the recommendation and, if we discount the health component in the local government grants, the budget allocation for the sector has increased by hardly 10% compared to the 2019–20 actuals.

Budget 2021–22 and the Manufacturing Sector

The growth rate of manufacturing value added has been declining continuously since 2016–17 and it had become negative in 2019–20, even before the intensification of the Covid-19 crisis, suggesting that the budget needs to address the structural weaknesses of the economy. The 2021–22 budget has largely adopted the supply side corrective measures in the form of increased capital expenditure on infrastructure. The potential of infrastructure investment in reviving the sector and the implications of the proposed resource mobilisation for financing the increased capital expenditure are discussed. In the context of increased global fragmentation of production, the feasibility of promoting domestic production through tariff protection is also discussed.

Green, but Not So Green

The pandemic, the climate crisis, and crisis in agriculture call for sustainable solutions, which are acknowledged by NITI Aayog, but did not find a thrust in the budget. A positive growth in agriculture during the pandemic shows its resilience, but it is intriguing that food inflation remained high and its possible link with the three farm produce laws should not be overlooked. It is worrying that crop loans for input-intensive production are non-serviceable.

A Budget amidst a Deepening Crisis

Budget 2021–22 has been presented in the context of a sharp slowdown in an economy battered by a severe contraction due to the lockdown. The pandemic has only contributed to the worsening of the humanitarian crisis, as is evident from data on hunger, malnutrition and employment. This budget provided a historic opportunity to use fiscal resources to provide a vision for economic recovery, and also to create enabling infrastructure and provide resources for improving the lives of people suffering from the twin shocks of slowdown and the pandemic. Despite the urgent need to invest in the social sector, the failure of the budget to allocate resources will be detrimental to the progress made in the last two decades.

Union Budget 2021–22

High deficit has no fiscal costs if it can be substantiated with increased public investment or “output gap” reduction. When the monetary policy stance has limitations in triggering growth through liquidity infusion and the status quo policy rates, “fiscal dominance” is crucial for sustained growth recovery.

A Budget for Pandemic Times

The budget for 2021–22 is important for three reasons. First, it provides a reality check on the government’s attempt to keep up public spending in the wake of severe contraction in revenues and expansion in expenditures needed to save lives and livelihoods. Second, it shows the large increases in deficits and debt in the already prevailing stressed fiscal environment. Third, as the economy was already slowing down even before the pandemic due to structural factors, it attempts to provide reform signals to reclaim the earlier growth trajectory. While it has tried to prioritise growth, there is considerable risk from burgeoning deficits and the possible impact in price stability from large liquidity infusion to facilitate government borrowing at low cost that is likely to occur. The reform proposals are important, but the test lies in how effectively they are implemented.

Fiscal Policy and Growth in a Post-COVID-19 World

Why was India’s growth slowing in the run-up to COVID-19 and how much fiscal space was used to stem the slowdown? What is the nature of India’s economic recovery from COVID-19? How does the budget seek to balance fiscal support while reducing the deficit? What was the underlying fiscal impulse in the COVID-19 year and what is it budgeted to be next year? What are the implications for debt sustainability and fiscal–monetary coordination? Finally, what are some paradigm changes the budget seeks to embark on and why is execution so crucial this time? This essay seeks to answer these questions to make sense of growth and fiscal dynamics in a post-COVID-19 world.

A Bonanza for Corporates

And a trickle-down approach to reinstating livelihoods will mean a K -shaped recovery.
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