View: A Budget for Aatmanirbhar Bharat with steady policy direction and intrepid reform instinct

The Union Budget was dubbed by many on social media as Aatmanirbhar Bharat Ka Budget. True to the title, the government chose to put skin in the game, with concrete ambitions and steady policy direction and intrepid reform instinct.

The biggest takeaway was that the government chose to lead on the path of Aatmanirbharta from the front. The government chose to undertake difficult things itself – managing perceptions, promising tough reforms, working on procedural paradigm shifts and mindset change inside the administration. The government not just outlined its own role in economic growth but also catalysed the revival of animal spirits.

The foremost statement of Aatmanirbharta was the government ignoring the noise on fiscal deficit. The budget – coming in the wake of a once-in-a-lifetime pandemic – had to provide for growth and decide how it would be financed. With the fiscal deficit pegged at 6.8% for 2021-22 and a glide path to 4.5% in 2025-26, the government took upon itself to fund growth in the short run and create space for future interventions.

This fiscal glide path sets the expectations for half the decade, giving much needed certainty and predictability to the investors. This sits well with the notion that this budget was a decadal springboard. This half-decade runway allows manoeuvring room to the government to boost specific sectors and recognises the fact that the government will need to keep powder dry long after the pandemic has receded. In the process of this perception management, the government also did an exemplary job of transparency, cleaning up its books and pegging the current year fiscal deficit at 9.6%.

The Aatmanirbharta also showed up in how the government chose to put economic growth as its singular objective. The budget demonstrated a realisation that deficits should be the outcome of policymaking, not the object of policymaking in itself. The same concept was applied to taxes, which should be an outcome of the economic activity rather than standalone activity in itself. This thinking is a fundamental shift with sole emphasis on output and outcome metrics.

The promise made on divestment and asset monetisation was another big example of Aatmanirbharta. Hitherto, divestment and asset monetisation have been seen from the lens of yearly non-tax revenue receipts. This budget made a structural shift in laying out a well-defined roadmap on how the government looks at central public sector enterprises (CPSE).

The government looks to exit all non-strategic CPSEs. This will be achieved via privatisation or simply shutting down loss-making units. Even within the four identified strategic business areas, a commitment has been made to retain only a few public sector firms. The budget also talked about privatising two public sector banks and one general insurance firm.

Similar ambition was also demonstrated on asset monetization. CPSEs like the National Highways Authority of India and Power Grid Corporation are coming up with their InvITs, designed to unlock value of their operational and profitable assets. Such value unlocking is possible and the government now seeks to bridge that gap, also hinting at monetisation of assets like CPSEs’ idle land.

Another facet of Aatmanirbharta was the long-term planning around addressing the financial sector woes. While the foreign institutional investments in the sector will be encouraged, the government closed loop on two important local institutional frameworks. A dedicated financial institution (DFI) and an asset reconstruction company (ARC) – were announced to be set up. The DFI, to be set up under an act of the Parliament, will have a wide remit on funding the National Infrastructure Pipeline. The ARC will absorb the stressed assets from bank balance sheets, especially public sector banks. The timing for the ARC is apt given that banks may see increase in stressed assets due to Covid-19-induced losses.

The reform momentum to reduce administrative discretion and increase ease of doing business continued in this budget through significant changes in government processes. The Income Tax Appellate Tribunal interface will become faceless and video conferencing will be used where personal appearances are required. Old income tax demands can now be opened up to three years instead of earlier six years. The threshold for tax audits has been raised significantly, making it easier for small businesses and professionals to manage their tax filing. All these are welcome steps and point solutions towards addressing specific pain points.

Prime Minister Narendra Modi had remarked before the budget session of Parliament that the government had already delivered several mini-budgets through 2020. This budget indeed provided policy continuity, visibility and stability. The Aatmanirbhar Bharat announcements – production linked incentives for manufacturing, defence manufacturing reforms and corporatisation, FDI policies, agriculture and labour law reforms – together with this budget provide for the biggest changes to India’s economic direction since 1991. Governments should never waste a crisis as the adage goes – India has indeed taken the dragon by its horns.

Aashish Chandorkar: Director, Smahi Institute
Vivek Singh: Officer on Special Duty to FM
(Views expressed are personal)