Budget 2021 to set course for economic pickup after COVID-19: Report
Indian economy is now expected to see a faster turnaround given the impending rollout of vaccine, increased mobility and fewer disruptions to business operations as the economy opens up but a lot will also depend on the upcoming Budget for 2021-22 to steer its course.
India, which had in 2019 overtaken the UK to become the fifth-largest economy in the world, was knocked off course somewhat due to the carnage that the pandemic and the ensuing strict lockdown unleashed — businesses were shut, consumption slumped, investments took a hit and jobs were lost.
The combined effect is that the economy got relegated to the sixth spot in 2020.
The Budget for the next fiscal starting April 2021 that Finance Minister Nirmala Sitharaman will present a month from now will be the starting point for picking up the pieces after the economic destruction.
The government's spending plans, particularly on infrastructure and social sectors as well as relief to sections hit by the pandemic and lockdown, will dictate the pace of recovery, analysts said.
While agriculture with bountiful harvest has been a driver of India's economic recovery, the government's stimulus spending in response to the COVID-19 crisis has been significantly more restrained than most other large economies.
FM Nirmala Sitharaman announced a total stimulus package of Rs 29.87 lakh crore, or 15 percent of GDP. That equals the total spending envisaged in the government's budget for the year to March. But the actual fiscal cost has been estimated at around 1.3 per cent of GDP, including 0.7 per cent for the incentive programme whose expense is spread over five years.
Rating agencies and analysts have raised their expectations of GDP growth in fiscal to March 2021 with RBI predicting a small positive growth in the January-March quarter.
Union Finance Minister Nirmala Sitharaman
According to Dun & Bradstreet, only 30 percent of active businesses in India were still disrupted at the end of November 2020 compared to 95 percent in April 2020 when the nationwide lockdown was imposed.
"Continued government support will be crucial to sustain and propel growth momentum — which has picked up," said Arun Singh, Global Chief Economist, Dun and Bradstreet. "During the first six months of the fiscal year (April to October 2020), government expenditure was 48.6 percent of its budgeted estimate. We expect the remaining budgeted expenditure to spend with other off-budget spending."
This along with the execution of various policy initiatives will propel growth momentum in H2 FY21.
Earlier, FM Nirmala Sitharaman had promised a "never before" like Union Budget as the government looks to steer the pandemic-battered economy and push growth.
While addressing the CII Partnership Summit 2020, she said,
"Send me your inputs so that we can see a Budget which is a Budget like never before, in a way. 100 years of India wouldn't have seen a Budget being made post-pandemic like this. And that is not going to be possible unless I get your inputs and wish list, clear observation of what has put you through the challenge... Without that, it is impossible for me to draft something which is going to be that Budget like never before, a Budget which is being made after a pandemic."
She also said that the need of the time is more investments towards medical R&D, biotechnology R&D and pharma R&D. India has to look at both public and private partnership and also engagement and investment in the areas of research for medicine.
(Disclaimer: Additional background information has been added to this PTI copy for context)