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View: FM Nirmala Sitharaman opens govt spending tap for growth revival

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In her boldest budget so far, finance minister Nirmala Sitharaman delivered on the most important front – a big-bang government spending programme for an economy crippled by the pandemic.

Total expenditure, at Rs 34,83,236 crore, is 15.6 per cent of GDP. In the recent past, no union budget has exceeded 13.5 per cent. Capital expenditure gets a big boost as well, and is slated to go up 34 per cent to Rs 5.54 lakh crore. And health gets the big spending it needed, including an open-ended allocation for vaccination.



Two other big positives are a smart effort to attract global capital and a clear intent to go for big privatisation.

Trillions of dollars of global savings rove across borders trying to spot investment opportunities that would yield predictable, assured returns significantly higher than the low-to negative rates on offer in the US, Europe and Japan. Therefore, the government’s job is not to try and build all the needed infrastructure on its own, but to draw these global funds into India. The budget takes welcome steps to do precisely that, with a new Development Financial Institution, multiple Infrastructure Investment Trusts and a National Monetisation Pipeline that would allow foreign investors to put their money in built-up, risk-free assets, making fresh funds available to take up new projects in the National Infrastructure Pipeline, and removal of tax hindrances. Higher FDI limit in insurance should also increase supply of longterm capital. The combined positive effect is potentially big.

“For a change, the Economic Survey’s sage advice does actually find reflection in budget action, we should note. The task of fiscal consolidation has been pushed back, sensibly.”

— Following Eco Survey

On privatisation, Sitharaman’s commitment to put two banks and one insurer on the block, and try and sell everything that’s not in four strategic sectors is a huge step – for efficiency and raising resources. To finance this big push to expenditure, the government has to borrow Rs 15.07 lakh crore (Rs 9.68 lakh crore from the market, Rs 4 lakh crore from small savings, and a few other sources). It also hopes to raise Rs 1.75 lakh crore from disinvestment/strategic sale.
Naturally, the fiscal deficit is substantial, amounting to 6.8 per cent of GDP, although lower than the fiscal deficit of 9.5 per cent of GDP necessitated by the pandemic in the current fiscal.

But the government deserves kudos for not worrying about what the rating agencies would say, and staying focused on the task of reviving the economy. For a change, the Economic Survey’s sage advice does actually find reflection in budget action, we should note. The task of fiscal consolidation has been pushed back, sensibly.

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