Budget 2021 a chance to open up, promote avenues to enhance domestic operations

It is not unusual for people to have a heap of expectations from the budget and it is more so after a year of extreme economic distress, job losses, and demand destruction. The government and the Reserve Bank of India initiated several measures to combat the adverse economic conditions. This resulted in an infusion of more funds into rural employment programmes, targeted sectoral measures and ample liquidity in the interbank market, lower interest rates and an easy money policy.

The economy is showing early signs of recovery and what is important is that we need to sustain this rebound in economic activity. The measures that may be announced in the budget would have an accent on supporting and sustaining this recovery.

It was also a year of record government borrowings, both by the Centre and state governments. In the normal course, we should expect normalisation after a difficult year. The budget will have to continue with quite a lot of measures that were introduced in the wake of the pandemic.

The budget is expected to spell out the glide path to fiscal consolidation, after a year of avoiding the deficit norms. Governments across the globe resorted to spending to give a boost to their economies and our government did the same. Nobody is going to penalise us for this but how we establish normalcy will be watched keenly not only by domestic players but probably, more eagerly, by overseas investors. If government borrowing is somewhere close to the last five year’s average, plus or minus 5 to 10 percent on the gross borrowing, it may not matter much to the government in terms of the future cost of borrowing. However, if it exceeds, then it may have some impact on the long- end yields.

The government borrowing programme was managed by the RBI extremely well, without any ripples seen in the marketplace. Compared to the year gone by, the government borrowings are most likely to be on the lower side for the next year, as the last year was an exception with large borrowing due to peculiar conditions.

The consumption side stimulus measures were never addressed in a comprehensive manner in the last few years and this may receive some attention this time with some amount of concessions for those working from home. There could also be some limited liberalisation in the tax slabs like taking the exemption limit to Rs 5,00,000 from Rs 2,50,000. These may be the only tax measures that can be done as the space for major modifications has shrunk after the introduction of the goods and services tax.

Incentives for exports is one of the things that should get good attention. This assumes great importance from the point of view of self-reliance and indigenisation that we have set up as one of the guiding principles. This is one of the ways in which the Chinese economic invasion can be contained over a longer time period. This will involve product substitution domestically and also offering products to those countries who buy goods from China at competitive rates. Invoicing in the local currency and incentives which help firms to make gains despite selling their products at cost are extensively used in China. Manufacturing and employment will get a boost from this. An aggressive approach to export promotion, or at least the broad indications of the stance, is worth expecting from the budget.

It will be interesting to watch how the disinvestment plan is going to be pursued, given the fact that it has not generated desired results so far. The current fiscal year has been difficult as priorities have been different and there may be one or two deals that have been in the works and which could change the whole scenario.

The other significant thing that one may look out for is the thrust on infrastructure, especially enhancing storage, warehousing, cold chains, etc. is key to developing vegetable and fruit preservation, food processing and also incidental exports.

The budget has to open up and promote many avenues to enhance the scale of domestic operations to a much higher level. This may call for higher FDIs as well in select sectors and activities. Continuity and consolidation, with essential innovation, is the desired outcome of the budget this year.

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