Budget 2021 Expectations: Where will Modi govt raise money from, where will it spend?

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December 30, 2020 10:59 AM

Union Budget 2021 Expectations for Expenditure: The spending is likely to be enhanced for infrastructure projects that generate employment and have higher multiplier effects.

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Union Budget 2021-22 Expectations: The Union Budget 2021 will be a deciding event, which will determine India’s economic growth trajectory for the upcoming quarters and years. However, the already depleted government coffers need to be funded to expedite growth. Consequently, the question is from where will the government raise money and where will it spend it. Buoyancy in tax collections, disinvestment, and borrowings are expected to be the major sources from where the government may raise funds. “The buoyancy in tax revenues is expected with a progressive formalisation of the economy,” Ranen Banerjee, Partner and Leader – Government Reforms, Infrastructure and Development, PwC, told Financial Express Online.

Disinvestments

The preparatory actions on the divestments of several PSUs will be completed as we go into the next financial year 2021-22 as the government has already announced withdrawal from non-strategic sectors and keep a limited number of PSUs in strategic sectors, Ranen Banerjee added. Thus, a lot of leaning is likely to be there on disinvestment proceeds. The government will also try to move fast to ride the crest of the stock market strengths towards realising better valuations from the divestments, he further said.

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Borrowing, raising import duties

However, in order to finance a moderate increase in the centre’s total expenditure in the next fiscal, the government may have to consider some innovative methods for raising revenues, for example: “Monetization of government-owned assets and raising of import duties in order to encourage domestic production,” D K Srivastava, Chief Policy Advisor, EY India, told Financial Express Online. In addition, the central government may have to rely heavily on substantive borrowing which may lead to a fiscal deficit that is higher than 3-4 percentage points above the FRBM norms, D K Srivastava added.

Also Read | Budget 2021 Expectations: Will Modi govt open more windows to attract FDI for ‘Make in India’?

Where will the government spend?

Finance Minister Nirmala Sitharaman has already called the upcoming budget a growth budget. It will be crucial to know where the government spends amid tight purse strings. The spending is likely to be enhanced for infrastructure projects that generate employment and have higher multiplier effects, Ranen Banerjee said. While farm infrastructure spending, including enhancement of cold chain infra, is expected to take centre stage, the health sector allocations are also likely to be higher, given the vaccination drive related expenses and general strengthening of the health sector infrastructure.

The allocations towards MGNREGA are also likely to be higher to take some pressure off from the unemployment woes. Further, the National Infrastructure Pipeline (NIP) may be reassessed to analyse the shortfall in the investment targets for the first two years so that its investment path can be realigned for the balance of the four-year period, D K Srivastava concluded.

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