The Budget provides for significant increase in the outlay for capital expenditure, infrastructure, healthcare that is all funded by debt. This is basically like quantitative easing. The 11% growth in gross domestic product looks pretty achievable with these kinds of budgetary provisions.
Also, the finance minister has refrained from the temptation to levy taxes like Covid tax, increase in long-term capital gains tax, wealth tax or tax on personal income as was feared by the market and investors. Any such tinkering with taxes would have spooked the markets. Considering the government has to raise a lot of money through disinvestment and privatisation, there is a need to keep markets as well foreign investors’ sentiments positive. The predictability and certainty will help. Also, higher taxes could have hurt consumer spending at a time when demand is gradually normalizing.
I think efforts to boost growth is the best thing to do at this point of the time, because growth only can drive employment and jobs considering the massive job losses we have seen since Covid. This is a great time for India to not only get on the faster growth trajectory, but also to sustain it for several years to come. Many times as a finance minister or as a government, you don’t get the leeway to go lax on the Budget deficit primarily for the fear of inflation. But, when there are job losses or the economy is down, the inflationary fears are less and that is the right time to go overboard and spend a lot more, borrow and still sustain.
One would say there is a huge debt increase in the Budget, but we should keep two things in mind. One is that the disinvestment and privatisation targets can easily exceed the budget estimate and two, globally there are about $18 trillion to $20 trillion worth of bonds offering negative yields. So, it is a great time for the Indian government to go out and have a sovereign bond issue at a very effective yield. That will be an excellent way to finance the growth at this juncture.
I think the planning in the Budget is very good. It will provide extraordinary momentum for growth and funding by debt. In theory as well as practice, this has worked with many counties. Even the larger economies like the US have gone and given a $3 trillion package and are still not through with it. So every country and every central government is putting in money or rather printing money to make sure that the Covid damage is mitigated and the economy is back on a faster growth trajectory soon. India has a great advantage from the demographic point of view and also from the point of view that the Covid impact is much lesser compared to the size of the population and in terms of the impact. Even the second wave, touch wood, is largely contained. Also, agriculture has been good, monsoon has been good and the Rabi crop is good. Therefore, I believe with this kind of decisive Budget, we are poised for a faster V-shaped recovery.
(Nirmal Jain is Founder and Chairman, IIFL Group. Views are his own.)