Union Budget 2021–22

In the context of the pandemic, we evaluate budget 2021–22 and its six-pillar framework. We found lack of clarity as regards allocations under each of the pillars, and hence we undertook to group ministry-wise allocations under each of the pillars. This categorisation was even more liberal than the one that the finance minister herself spelt out. Despite that, we find that the budget fell short of what was required for problems facing the Indian economy.

Coming in the midst of the immense damage inflicted on the Indian economy by the COVID-19 pandemic, the 2021–22 Union Budget needed to perform the unenviable task of compensating households for massive livelihood losses as well as stimulating economic growth while maintaining some fiscal discipline. As it turned out, the government chose to focus on the second and third goals and largely ignored the first.

The growth rate of manufacturing value added has been declining continuously since 2016–17 and it had become negative in 2019–20, even before the intensification of the Covid-19 crisis, suggesting that the budget needs to address the structural weaknesses of the economy. The 2021–22 budget has largely adopted the supply side corrective measures in the form of increased capital expenditure on infrastructure. The potential of infrastructure investment in reviving the sector and the implications of the proposed resource mobilisation for financing the increased capital expenditure are discussed. In the context of increased global fragmentation of production, the feasibility of promoting domestic production through tariff protection is also discussed.

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