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Budget 2021: An All Inclusive Budget


The Budget has been all inclusive and has tried to strike a fine balance between inclusive growth and fiscal pressure.


A robust infrastructure is prerequisite for a country's growth. Supporting it, the capex for FY22 is expected to increase by 26% to Rs. 5.54 trillion from Rs. 4.39 trillion in FY21 which will be spent mainly on building road networks, rail corridor network ports and energy. Another landmark decision is to have a dedicated Development-Finance Institution to enhance capex at central, state levels.

The budget has given equal emphasis to the health sector by allocating more funds towards Covid-19 vaccines and providing Rs. 640 billion over 6 years to launch various health schemes. This will lead to citizens being healthy by strengthening the preventive care, curative and well-being of the population.

To achieve the dream of education for all, the government will be providing all support for implementing National Education Policy (NEP). More focus would be on enhancing skill development initiatives across the country. Further, to give basic literacy to all, funds has been allocated towards schools in remote, hilly and tribal regions.

Budget 2021: An All Inclusive Budget

These initiatives will boost the infrastructure & industry on one hand and skills & health of people on another, thus moving towards achieving the AtmaNirbhar Bharat initiative by growth and job creation. However, the fiscal pressures are imminent as the budget is clearly debt funded. The tax revenue has fallen to Rs. 13.4 trillion (only 85% of estimates) and borrowing has increased to 18.5 trillion, 2.32 times of original estimation in FY21.

This resulted in a fiscal deficit rising to 9.5% of GDP. Next year, the fiscal deficit is expected to go south to 6.8% owing to slightly better tax revenue (Rs. 15.5 trillion) which will require greater compliance and disinvestment revenue of Rs. 1.75 trillion which we think is a conservative target. Also, the government needs to make sure that the borrowing does not go beyond its target of Rs. 15.1 trillion. However, the forward-looking budget will help the government to bring down the fiscal deficit to 4.5% till FY26, bringing us again on the path of FRBM Act. Till that time, let's celebrate the current Budget and enjoy the Market Rally!

By Prof. Krupesh Thakkar, CFA, HoD - Financial Markets, ITM B-School

Read more about: budget 2021
Story first published: Tuesday, February 2, 2021, 8:19 [IST]
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