Budget That Will Boost Recovery: Deepak Talwar

Corporate Analyst Talwar says that the Finance Ministry under FM Sitharaman has charted out a brilliant Budget road-map for India post the Covid crisis.


With India still in the early stages of recovery from the coronavirus pandemic, the effort to push growth in the economy is clearly visible in this year’s Union Budget. Corporate Analyst Deepak Talwar shares his thoughts on the budget delivered by Finance Minister Nirmala Sitharaman, in an exclusive interview.


Do you feel the Budget 2021 is holistic in its approach to recovery and reform?

Nirmala Sitharaman’s speech is now being touted on social media as the most important in a generation because the Finance Ministry under her, has charted out a brilliant Budget road-map for India post the Covid crisis. She has taken a brave decision to keep government accounts open and transparent. I feel this simple clarity will go a long way towards holistic recovery and reform. Some numbers that particularly stand out to me are the allocation of a whopping INR 25,000 crore for roads and highway projects in Bengal, to connect the seven states of the North-East to the ports of the East in Odisha, Andhra Pradesh and Bengal; and the investment of INR 1,000 crore to boost Indian tea in world markets.

What do you feel is the long-term vision of the government, through this year’s Budget plan?

I feel it is an absolutely brilliant Budget. Its brutal honesty leaves no room for the fiscal deficit numbers to look dodgy. The Finance Minister has set a good example by bringing back the extra-budgetary borrowings of the past into the math - the primary reason why the fiscal deficit number stands at a high 9.5% for 2020-21 instead of the expected 7-7.7%. Economists are confident that it will remain stable at 6.8% without any spending cuts, which in turn will allow the GDP to shrink the share of the deficit. Thus, sustainable growth will keep debt sustainable.

Other initiatives are also sound, such as reforms for the farm sector and the move to privatise government companies like Bharat Petroleum, Air India, Shipping Corporation, Concor, along with two banks and one general insurance company. For the first time, the government’s privatisation process has assumed real meaning.

Further, having made it clear that there will not be any revival of the investment cycle, capital spending will rise 34% next year to INR 5.54 lakh crore, with another INR 2 lakh crore going to states and autonomous bodies. There will also be solid monetisation of ports, airports, pipelines, power transmission lines and completion of pending road and railway projects. In short, India’s infrastructure pipelines will no longer run dry for lack of cash. The principle being that government spending on infrastructure will be partly funded by its own asset monetisation plans, and eventually through private investment. According to me, that is a brilliant Budgeting move.

What are the implications of the Budget on regular taxpayers?

The Finance Ministry has not levied any tax such as corona cess or surcharge on higher income groups, but it has not given any tax relief to small taxpayers either. This was largely expected. Further, the move to give tax sops to home buyers to boost the real estate sector or help in deduction of Covid-related expenses, was also an expected one.

While no changes have been proposed to personal tax rates, the Budget includes relief measures and proposals to facilitate ease of compliance for taxpayers. The Budget has widened the scope of taxation by taxing income which has never been taxed before. This includes interest accruing in relation to Provident Fund contributions exceeding a specified limit.

There were expectations that the Budget would provide relief in terms of reduction in tax rates or increase in deductions, which to the dismay of the common man have been left untouched by the Hon’ble Finance Minister. However, relief has been provided to senior citizens of 75 years and above as they have been exempted from filing tax returns if they have only pension income and interest income in specified bank accounts, subject to conditions.

How has the coronavirus affected the decisions taken in the Budget this year?

This was Nirmala Sitharaman’s third Budget, an exercise to revive the post-Covid economy. Though not many noticed, the Finance Minister has broken the Narendra Modi government’s tendency towards fiscal conservatism. It is a truly growth-oriented budget, with many shibboleths of the past being laid to rest. Interestingly, the Chief Economic Adviser had also called for solid counter-cyclical fiscal spending, instead of going overboard in pleasing biased global rating agencies. No wonder the bull run pushed the Sensex up over 2,300 points or 5 per cent in one trading day.

A great challenge was the two-fold increase in government spending on health, from around INR 94,000 crore in the Budget estimate of 2020-21 to nearly INR 224,000 crore next year. Fortunately, the bulk of this proposed spending is for the mass vaccination plan. The government feels investment in public health infrastructure helps individuals save on out-of-pocket expenses, which in turn, will help the government increase discretionary spending on other kinds of consumption.

Please summarise your thoughts on the Budget - its advantages and disadvantages.

I have explained the advantages above. To provide some constructive critique, I feel the Budget has not addressed the nation’s burgeoning job crisis in a direct and meaningful manner. The government assumes that revival of growth will eventually help restore the growth of jobs to pre-pandemic levels. This might work in the short term but not in the long term. The government will have to eventually focus on more direct incentives to grow employment, by reducing regulatory burdens on small firms and by incentivising job-creation sectors. The production-linked incentive scheme of INR 1.95 lakh crore for manufacturing will bring in some new jobs, but mostly in cities. Massive investments worth INR 18,000 crore, proposed to expand bus fleets in metros and other urban projects means growth and jobs will be mostly urban-centric.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house

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