Reckoning with the constraints in Union Budget 2021-22.
In balancing the numerous contending demands for financial and other state support with the finite revenues at hand, the Union government has an unenviable task ahead. The tightrope walk is all the more difficult in a vibrant parliamentary democracy like ours, where sectarian interests and political ambitions often compete against genuine economic and national considerations. Even for an accomplished trapeze artist like Finance Minister Nirmala Sitharaman, finalising the next fiscal Union Budget is somewhat of a nightmarish exercise given the current environment we find ourselves in.
The Covid-19 pandemic, which continues to beleaguer the Indian economy and society, will, in all probability, be around for the better part of the next fiscal year despite the emergence of vaccines and the now fairly well observed social distancing and masking mores. Most of the recently initiated steps for saving lives, in contrast to supporting livelihoods, will need to be adequately funded for almost the entire year ahead. Sustenance measures such as free cereals, pulses, cooking gas and cash transfers to BPL families, widows, infirms and the elderly must remain on the table. Fortunately, the high stock of food grains with Food Corporation of India warrants such a continuance since their opportunity cost remains low.
The recently reinvigorated MGNREGS, which has provided work (albeit unskilled and at low wage-levels) to over 10 crore people in the current fiscal, would have to continue as the mainstay of rural employment and distress-alleviation initiatives. There is valid demand to expand it to urban areas, since unemployment, formal and particularly informal, is on the rise in towns and cities. The current year’s enhanced provision of Rs 1.01 lakh crores would have to be further augmented, as in recent months the demand for work has usually exceeded its “supply”. The Employees’ Provident Fund Organisation (EPFO) linked incentives for employment of additional workers also call for an extension into the entirety of next year as the initiative was launched a few weeks ago, and the real benefits have yet to kick in.
Perhaps the most important requirement is the adequate provisioning for the mammoth programme of vaccinations against the dreaded coronavirus and its rapidly mutating variants. In the next 18 months, to achieve “herd immunity”, the inoculation of 70% of our population (approximately 960 mn people) must be undertaken. At Rs 850 per head—Rs 450 for the two doses of the locally produced vaccines, plus Rs 400 per person for the associated expenses such as transportation, storage, lab technicians and vaccinators etc—a sizeable portion of the financial burden will fall on the Centre. Assuming 225 mn people can pay for the vaccine out of their pockets, we’re left with 735 million, representing a public expenditure of Rs 63,000 crores or 0.32% of the reduced estimated GDP in 2020-21 of Rs 195 trillion. While this additional expense, almost equivalent to the Central government’s entire annual health expenditure, may be entirely unforeseen, it is unavoidable and leaves us little leeway for deferment. In all fairness, it should be shared with the states though this might impose financial challenges, particularly for the populous states.
After stagnating at 1.15% of GDP (with an insignificant increase of 0.02% between 2015-16 and 2020-21), public expenditure on health care, both by the Centre and the states undoubtedly, warrants appreciable stepping up. Given the National Health Policy, 2015’s prescription to hike the expenditure on public health to 2.5% of GDP and the Fifteenth Finance Commission, in its yet confidential report, unreservedly endorsing, it must become a high annual budgetary priority. On several metrics, especially hospital beds (currently 5 per 10,000 people, with only Nepal and Guatemala having lower bed availability), number of doctors (8.6 per 10,000 people nationally but just 1 per 10,926 in rural areas), and other medical personnel of trained nurses and paramedics (22 per 10,000 people in India against the WHO recommendation of 44.5), India remains woefully behind and with more extreme inter-state and intra-state variances.
If the budget doesn’t materially ramp up health care investment, India’s commitment to deliver universal health coverage and attain the Sustainable Development Goals by 2030 will not materialise. Driven in part by the quality of healthcare, India has already seen in the 2020 UNDP Human Development Index slip to 139 among 189 countries, with Bhutan and Namibia overtaking it. We must move with urgency and match the critical healthcare parameters with at least the global averages for developing countries. No doubt, there is a significant role possible for the private sector, however, meaningful “carrots” for preventive healthcare and infrastructure creation in rural areas must be devised and funded to provide financial viability and sustainability to private players.
In light of the revelations in NHFS 5 (National Health Findings Survey), much work remains by the Central government on the preventive side to tackle the deterioration in child health (specifically anaemia, diarrhoea and acute respiratory illness) and related nutrition parameters (child-stunting, growing obesity with related morbidities like high blood sugar). Better provisioning is required for its nutrition linked schemes, especially for infants, school children and expectant mothers under PM’s Overreaching Scheme for Holistic Nutrition (Poshan Abhiyaan) whose three-year time-frame ended in December 2020, with many goals remaining unachieved.
To improve nourishment, the Integrated Child Development Scheme (ICDS) requires revisiting, the 7.5 lakh anganwadis shut down with the onset of Covid-19 restarted immediately as observed by the apex court and incentives offered to farmers to grow an array of nutritious crops, instead of only calorie-dense grains. Central support must be extended to revamp the countrywide mid-day school meals scheme under both ICDS and take-home rations and eggs (and a fruit option for the vegetarians) included. With falling GDP in 2020-21, and reduction in purchasing power of households, private expenditure on healthcare can be expected to decline. This should make the argument for greater government spend more persuasive.
Beyond meeting the health crisis-costs and incurring expenditures to get the pre and primary schools reoriented as per the New Education Policy, a major development has been the clash with China in the Galwan Valley of Ladakh, and the continuing eight-month-long stand-off along the Himalayan border. Besides requiring higher financial allocations on men and materials, the conflict has necessitated the shoring up of the country’s defences. Rather than benefiting from considerable financial savings in the defence budget (due to frequent delays in procurement of military equipment), we are now faced with the necessity for significantly higher outlays and their actual spendings to improve the teeth-to-tail ratio of the Armed Forces in terms of being better equipped with technologically advanced weaponry and reducing response times.
The globally prevalent anti-China phobia stemming from the origin of coronavirus in Wuhan and the subsequent suppression of information by Chinese authorities, combined with the hostility from our border conflict, has brought along both direct and indirect costs that have to be reckoned with in the Budget. While imports from China into India may be somewhat contained by the tariffs imposed by us, it may also cause a slowdown in Indian economic activity (at least till such time as alternate sources for these goods emerge). In return, we may see the Chinese imports from India drop appreciably unless they are vital for the dragon-country.
A lowering of GDP no doubt has a direct impact on tax buoyancy and the government’s overall revenues. Alongside, there is another adverse impact. If high duties on Chinese products reduce the purchasing power of Indian buyers of their raw materials and end products (as already being experienced in pharmaceutical, automobile and solar energy industries), the India-assembled products that use such Chinese inputs will become more expensive, potentially causing inflation. The well intentioned Aatmanirbharata initiative clearly requires time to yield benefits and would become effective only after the comparable alternative foreign or domestic replacements are found. In the meantime, the Union Budget will need to provision for mitigating their near-term adverse impact.
Whatever might be the market expectations or media aspirations (the hype has gone as far as to call this Budget the most important one in hundred years), there is a need to temper down the expectations. It is the fourth time since Independence that a Union Budget is being readied immediately post an economic slowdown and the consequent GDP decline. On all the earlier three occasions, the new Budgets had disappointed the markets and failed to include any big ticket measure. This time too, in addition to providing for the committed sizable expenditures on ongoing schemes, debt servicing, the mandated state transfers and the priorities discussed above, the Union Government is likely to find its hands tied behind the back.
For obvious reasons, much of the next fiscal year will have a Covid-19 focus, leaving little room for undertaking substantive growth measures. Perhaps, the more warranted ones—especially those which hold the promise of job creation—might get funded, but by a much larger fiscal deficit than before and certainly higher than permitted by FRBM Act. However, despite their established long-term utility, the new infrastructural projects with long gestation lags might be limited, both in numbers and the outlays for them.
Part II of the article focusing on the revenue side of the Union Budget 2021-22 will appear next week.
Dr Ajay Dua, a developmental economist by training, is a former Union Secretary.