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The India of tomorrow – what does it look like? How does the Union Budget 2021 help? - A Scripbox analysis

A budget is an important event – It signals the direction in which the government is moving. It gives us an insight into their thinking. We take a look at this budget through the lens of “Does this budget help realize the India I want”.

An India that is Healthy, and India that is Happy and an India that is Prosperous and Equitable. That is an India that we want our children to grow up in. That is an India that we want to grow old in.

A budget is an important event – It signals the direction in which the government is moving. It gives us an insight into their thinking. We take a look at this budget through the lens of “Does this budget help realize the India I want”.

What does a Healthy India look like and how has this budget stacked up here

Higher life expectancy, lower child mortality, lower incidences of preventable deaths, a better quality of life, effective healthcare delivery mechanisms, better access to healthcare – These are a few of our favourite things…

With Covid-19, we have realized that an ounce of prevention is better than a ton of cure. Never in history has mankind masked itself this much or sanitized hands this often. 

Health care and well being coming under a single head is an efficient way to deal with the matter in a country as populous and geographically large as ours. 

This budget has increased the allocation to Health and Wellbeing to 2.24 Lakh Crs which is an increase of 137% over the past year. A few of the standout areas that will make an impact are :

The immediate need of returning to normalcy and the longer-term need to building lasting healthcare infrastructure was addressed in this budget. Could more have been done – probably yes but we would do reasonably well if the proposed measures are actually brought to fruition. 

What does a Happy India mean and how has this budget stacked up here

When a larger and larger population can confidently say that “I have a job, I can provide for my family, I have security and I have faith that the future is brighter than today – I am Happy”.

1. 58% of the Indian population depends on agriculture as their primary source of income. In the context of the prevailing farmer agitation, the government has allocated Rs 16.5 Lakh Crs towards agricultural credit and also enhanced the allocation to Rural Infrastructure Development Fund from 30,000 Crs to 40,000 Crs.

2. A special focus has been given to large employment generators – Sectors like Textiles and Auto.

  • Develop 6 Textile parks over the next 3 years
  • Scrappage policy to be introduced: lead to a revival of the Automobile industry.

What does a Prosperous and Equitable India look like and how has the budget stacked up here

Where the mind is without fear and the head is held high, where knowledge is free… where the mind is led forward by thee… let my country awake - Rabindranath Tagore

We believe that a prosperous and equitable India is one where entrepreneurial spirits are allowed to roam free, where information and infrastructure are enablers, where change is welcomed and legacy morphs to accommodate the need of the day.

A few of the announcements in this budget give us a reason for hope. 

  1. The Entrepreneur needs all the encouragement that he can get -especially the Small and Medium Business Owner. The expansion of the Small Business definition will now benefit a larger section by allowing them to take advantage of lower compliance requirements.
  2. LLP Act 2008 to be decriminalized on similar lines to the Companies Act 2013 for procedural and technical compoundable offences.
  3. Making markets more efficient: The much-needed development of the Debt market has been addressed. The government is planning to have set up a Financial Institution that will participate in debt markets – this will bring needed depth to a shallow debt market.
  4. The ambitious target of Rs 1,75,000 Crs from disinvestment is a stretch target and being able to deliver on this will be game-changing.
  5. A proposed increase in Capital Expenditure is a welcome announcement. A country that is still reeling from the effects of the pandemic can surely use the booster shot. An increase in capital expenditure ensures that money reaches the consumer while not doling away spending power.
  6. Development of the Dedicated Freight Corridors will lead to a lower logistic cost. Logistic cost alone is estimated to be between 13 to 14% of GDP. We believe that even a small improvement on this front will go a long way for the country.
  7. Enhanced spending on Roads: The government has committed to awarding contracts for 8500 km of highways by Mar 2022.
  8. Divestment in two banks, one insurer and increase of FDI from 49% to 74% in insurance sector with checks and balances signals increased participation of private players and push on reforms agenda.

While all of this is Good – where is the government going to get the resources for this?

This budget has left the personal income tax and the corporate tax rate untouched. The government is working with the following figures.

  1. Fiscal Deficit of 20-21 is estimated at 9.5% of GDP and the government will need an additional borrowing of 80,000 Crs to fund the gap.
  2. Fiscal Deficit of 21-22 estimated at 6.8% of GDP with a Capital Expenditure target of 5.54 Lakh Crs (a 26% increase over the previous year revised estimates)
  3. Tax buoyancy is expected to be higher in the coming years.
  4. In addition, there were many measures announced that would make India an attractive destination to foreign funds and also bring innovative funding mechanisms.

Can the government actually spend this much – what are the repercussions?

With probably Keynesian economics as the basis, the government has decided to step up spending by enhancing capital expenditure to increase the size of the economy – Expand the pie and everyone gets a larger share.

With fiscal prudence at the back of the mind; the government has committed to reaching the target fiscal deficit (4.5% of GDP) by 2025-2026. This allows the government time to spend and kickstart the economic trajectory while maintaining long term fiscal prudence. 

The concern raised by global rating agencies will be addressed with the government setting a date by when they will revert to what is considered prudent levels of fiscal deficit.

Has this been done before

There are ample examples of such efforts bearing fruit. The best example would be the expansion of the American economy during the early 40s. Backed by higher government spending and coupled by low-interest rates, the American economy had what could be considered the best phase in its economic history.

What it means for you

With precedence in other countries, young demographics, entrepreneurial energy and investment in the future, we believe the budget sets the right intent to create jobs and catalyze the economy reeling under last year’s pandemic crisis. The focus on stimulating demand and increased borrowing can lead to higher inflation and interest rates in the short term but increased capital expenditure and infrastructure investment will put the country on a higher growth trajectory with inflation under control.

The Market has given a thumbs up with the highest absolute gain in the indices and third highest gain in % terms after 1992 and 1997 budgets because of the future potential that can be realized if executed by the Govt as per the plan.

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