EXPLAINED: Care Rating highlights expectations from the Union Budget for 2021-22

The 2021-22 Union Budget is being eagerly awaited as it is expected to set into motion plans for lifting the economy from the pandemic induced slump. The theme of the budget would necessarily have to be ‘sustainable revival of the economy and employment creation, through targeted tax incentives and higher spending on infrastructure while maintaining an eye on fiscal consolidation.

Budget expectations for the broad macro-economy:

The budget would be expansionary with the higher than trend expenditure allocations for infrastructure and welfare measures. There would also be an additional head of expenditure in this budget, the vaccination programme. The total expenditure of the government for 2021-22 is expected to increase to Rs 32-33 lk cr from Rs 30.4 lk cr in 2020-21 (budget estimate). Both revenue and capital expenditure is slated to see an increase, with the growth in expenditure in the latter being higher.

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Revenue expenditure which accounts for around 85% of the total expenditure is expected to increase to Rs 27-28 lk cr which would be a 6% increase from the budgeted increase of the preceding year. Although various expenditure rationalization measures would be adopted, the government would nevertheless be required to augment the prevailing welfare allocations given the underlying weakness in the domestic economy. Further, given that vaccination and domestic economic revival are linked, the government would have to be at the forefront of the vaccination programme. Care Ratings expect the government to incur expenditure to the tune of Rs 12000 cr towards the vaccination programme.

Capital expenditure for 2021-22 is expected to be around Rs 5 lk cr, compared with Rs 4.1 lk cr targeted last year with an addition of Rs 25,000 cr being announced during the year under the Atmanirbhar schemes. Capital expen

The 2021-22 Union Budget is being eagerly awaited as it is expected to set into motion plans for lifting the economy from the pandemic induced slump. The theme of the budget would necessarily have to be ‘sustainable revival of the economy and employment creation, through targeted tax incentives and higher spending on infrastructure while maintaining an eye on fiscal consolidation.

diture would be targeted on the creation/ development of key infrastructure viz. road, power, ports, railways and agriculture and allied activities, all of which are expected to see higher allocations in the budget. The multiplier effect of infrastructure spending is being banked upon to facilitate sustainable economic recovery and growth. Outlay towards defence, which accounts for nearly 30% of capital expenditure, too is expected to see an increase.

Disinvestments of 2020-21 are likely to be pushed forward to 2021-22 and we expect the receipts on this account to be retained at Rs.2.1 lk cr.

Flexible fiscal deficit:

The higher expenditure needed to stimulate economic revival would require the government to be flexible on the fiscal deficit target of 3.3% of GDP in 2021-22. Care Ratings expect the fiscal deficit to be budgeted at 5 to 5.5% for the year which would be an improvement from the estimated fiscal deficit of 7.8% to 8.4% in 2020-21. There can be a downward bias for the latter depending on the expenditure cuts that could be reckoned in the last two months of the year.