Union Budget 2021 – An Opportunity Lost

The budget has acknowledged the challenge of reviving growth but largely failed to address the challenge of increasing inequality and declining welfare during the pandemic.

Image courtesy: Indiabudget.gov.in

Coming in the aftermath of the immense suffering inflicted by the Corona virus pandemic on Indian workers, this year’s Union Budget was eagerly watched by many. Some expectations from the budget were, continued support at an increased level for MGNREGA, continuation of increased food subsidies at least for another year, another round of cash transfers, and possibly the introduction of a new urban employment guarantee programme. Any or all of these would have had two important effects – directly, they would have helped in compensating those who have lost several months of work and earnings, and indirectly, they would have increased demand in an inclusive way.

However, these expectations were not fulfilled. The budget has acknowledged the challenge of reviving growth but largely failed to address the challenge of increasing inequality and declining welfare during the pandemic. Many surveys have shown by now, that the majority of informal sector workers as well as salaried workers without much job security lost employment during the lock down and a sizable fraction had not recovered even as late as November 2020. Studies based on nationally representative data from the CMIE also show large livelihoods losses and dramatic increase in inequality. These workers and their families found hardly any relief in the budget.

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For MGNREGA has been a crucial safety net during the crisis, but its allocation has been brought down from 1.1 lakh crores to 73,000 crores. Similarly the National Social Assistance Programme (old-age, disability, and widow pensions) which disbursed 42,000 crores during the pandemic, has been brought back to its original budget of 9000 crores. The allocation for PDS (ration) has increased substantially from 75,000 crores in 2019-20 to over 2 lakh crores for the coming year (it went up to 3.4 lakh crores in 2020-21). But this is not a result on expanding the rations. Rather it is because the government has finally brought payments it makes to the Food Corporation of India (FCI) on to its books instead of keeping it off to show lower fiscal deficit numbers. This is a good thing, but it does not mean additional food relief.

At an overall level, the budget documents also reveal that the actual extent of fiscal support delivered by the Union government last year was much lower than advertised and also much lower than what other comparable countries have undertaken. The headline jump in fiscal deficit-to-GDP ratio to 9.5% should not be interpreted purely as a stimulus for two reasons. A big part of additional spending is actually a clean-up exercise of bringing previously off-book spending on-book (for example, FCI payments referred to above).

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Second, the increase in fiscal deficit is as much due to a fall in revenue as a rise in spending. Fiscal deficit has gone up from 10.2 lakh crores in 2019-20 to 18.9 lakh crores in 2020-21. Ofthis 4.6 lakh crores are due to fall in revenues (due to slowdow of economic activity) and 4.1 lakh crores due to rise in expenditure over budgeted estimates.

Thus the actual fiscal stimulus, i.e. additional spending over that originally budgeted for 2020-21 was only around 2% of GDP, much smaller than the 10% headline number advertised by the government. The rest was largely already committed expenditures (such as PM Kisan payments) and monetary measures (such as the Emergency Credit scheme for MSMEs).

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Further, the additional spending proposed for 2021-22 over revised estimates of 2020-21 is only 33,000 cr. i.e. total expenditure proposed for next year almost same as actual expenditure this year. If we take this together with the fact that there has been a large increase in proposed capital expenditure (infrastructure), we see that this increase will come at expense of non-capital expenditure, keeping aggregate spending the same. This shift is desirable in normal times because it means that the government in investing in the economy instead of only paying salaries or other recurring expenditures. But in these extraordinary times, when a lot more needed to be done to compensate families for lost incomes and reduce their debt, the budget leaves a massive livelihoods crisis unaddressed.


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