Union Budget 2021 will put India on faster recovery path, says GlobalData

Following today’s presentation of India’s Union Budget 2021 (01 February) in the backdrop of crucial COVID-19 economic crisis;

Gargi Rao, Economic Research Analyst at GlobalData, a leading data and analytics company, offers her view:

“The huge increase in health expenditure by 137%, support for domestic agri-manufacturers through increase in custom duties and a big push for infrastructure will help revive the economy, which is forecasted to witness a V-shaped recovery with 9.72% growth in 2021. The growth recovery path will facilitate robust revenue collection in medium-term and lead the economy to a sustainable path in the long-term.

“For capital creation, a special purpose vehicle will be launched by the government for asset monetization, which will bring in more revenues. For senior citizens, a compliance burden relief is proposed to raise the purchasing power and drive demand.

“The budget proposed to amend the insurance act to introduce additional FDI to insurance companies from the existing 49% to 74%. The government’s decision of strategic disinvestment in LIC IPO in FY22 along with BPCL, CONCOR and SCI in 2021-22 will lead to the reduction in debt and spur the development of capital market in India. Setting up of bad banks will reduce the burden of NPA for banks and NBFC’s.

“With regards to agriculture and manufacturing sectors, the 1.5 times increase in minimum support price for all commodities comes as a relief to farmers. In addition, increase in import duties for agricultural products will protect domestic industries and give a boost to ‘Make in India’ initiatives.

“The growth-oriented budget overshoots the fiscal discipline for 2021-22 to revive the core sectors of the economy from the global pandemic. Furthermore, no changes in tax rates is a positive take way from the budget. However, given the global disruption in supply chains, the budget fails to recognize the spending on technological innovation in private sector as well as food processing industries.

“The huge government borrowing worth INR800bn in the next two months will widen the fiscal deficit for 2021-22 and will put India on a faster recovery path and attain its status as the fastest growing economy in the world in 2021.”

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