From UPSC perspective, the following things are important :
Prelims level : Types of fiscal deficits
Mains level : Paper 3- Key feature of the Budget
The article highlights the three key feature of the Budget which makes it historic.
- Budget 2021-22 will begin the process of the withdrawal of the state from business.
- Bank nationalisation in 1969 signalled a new era — just more than 50 years later, India has changed course for the better.
- The budget signals that the process towards the goal of greater economic freedom, and faster and more equitable economic development, and maturity, has well and truly begun.
2) Changed role of fiscal deficit in economic policy
- Many of us forgot the original meaning of fiscal deficits and their importance.
- When there is an unemployment, a considerable portion of deficit financing can go towards growth, rather than inflation.
- The relegation of the fiscal deficit to a secondary role in economic policy was the second big departure from a conventional budget.
- The conventional argument was that fiscal deficit was something to really worry about, hence taxes must be raised to keep the deficit within limits.
- There was serious talk of a COVID cess, a wealth tax, and increase in the tax rate for the rich.
- There is no increase in tax rates to increases tax revenue.
- Rather, the finance minister took the extra-bold step of reducing corporate taxes in September 2019.
- India awaits a comprehensive reform of the Direct Tax Code. It did not happen. But the stage is set for such a reform.
3) Transparency in fiscal math
- If the government borrows from the Food Corporation of India (to finance MSP purchases, what else), it will now appear as part of expenditures and as part of the deficit.
- Also, the GDP growth estimates for 2021-22, forecasted at 14.5 per cent (nominal).
- Normally, finance ministers in India tend to over-estimate, and most often, fall short.
- Budget 2021-22 might be the first to significantly exceed the forecasts.
Criticism of the budget
- One of the issues with the budget cited by the critics is that its forecasts would be in error because of problems of “execution and implementation”.
With many firsts, it is a budget that lays the foundation for sustainable recovery in GDP growth and welfare improvement.