It is good because it is somewhat boring. This is good because it is not attempting large ambitions. It is good because it has retained a stable tax structure. It has placed faith in India growing.

But one interesting aspect of this budget is that it attempts monetisation and “financialisation” of vast segments of the economy that can have critical implications for the financial economy of the country.

First, the government finances which would have pervading influence on the entire economy. This to a large extent sets the pace of the economy. In the context of the pandemic when the overall activity was hit and GDP contracted, and, the government’s take by way of taxes also hit the bottom, the finance minister has chosen to spend. The finance minister chose to retain this level of fiscal deficit and not trying to squeeze the expenditure low would have been counter-productive.

India’s fiscal deficit is set to jump to 9.5 per cent of GDP in 2020-21 as revised estimate. This is sharply higher than the 3.5 per cent of GDP that was projected in the budget estimates.

The government plans to borrow another Rs 80,000 crore to fund the deficit this year. Gross market borrowings for next year has been pegged at Rs 12 lakh crore. A new roadmap for fiscal consolidation has been announced in the budget. The budget is saying a lot of the additional funds would be spent on capital expenditure.

The finance minster is talking to monetising the government’s assets like handing over national highways, airports, ports and what not into the hands of private players on PPP basis and raising fresh funds. That is, what is happening is coverting idlly held assets in the hands of the government.

It is good that the finance minister is not overly bothered about how the international rating agencies would react with rising fiscal deficit. Questions have been raised why despite such large government expenses and augmented expenditure as pump priming for the economy, why did India’s GDP contracted comparatively large than other peer countries.

One explanation could be that a large part of the extra expenditure could have been for support of the lowest and economically weaker sections. This would have gone for income support, for distribution of food or other necessities. The growth multiplier effect of purely social security payments could have little expansionary effect on the economy.

Secondly, the budget has several initiatives over straightening the Indian financial sector. One of the major sticking point for the financial sector has been bad debts. The budget is proposing to set up a new entity for taking over the bad debts and non-performing assets and then manage or sell off these junk assets.

Taking away the bad debts of the public sector banks would carry away lot of stress on them. Once these are offloaded to the new proposed bank for bad assets, their capital structure would to that extent get strengthened. On top of that the government has proposed to make fresh investment in the capital bases of these banks. So then, these two steps would go a length to put the public sector banks on a far stronger base than currently.

Additionally, the budget has also proposed banks to tap the market to raise free capital. For this purpose, the budget is also proposing to bring amendments in the banking laws for allow possibly more private sector holding in the public sector banks.

Thirdly, the proposal for setting up a new development finance institution would be a good step for meeting the long term debt for corporate India. There is some history behind this move though. India had three development finance institutions, namely, the Industrial Development Bank of India, Industrial Credit and Investment Corporation of India and the Industrial finance Corporation of India.

These three institutional finance organisations had aided the growth of industrial sector in the country. These provided cheap long debt funds to industrial corporates to make investment in new plant and machinery. In course of an earlier spree of financial sector reorganisation and reforms, two of these institutions were converted into universal banks, namely, IDBI and ICICI. Both these are now none too strong banks either.

Once again, setting up a dedicated development finance institution with a corpus of Rs20,000 crore, which is expected to mobilise fresh investment to the tune of Rs 5 lakh crore, could be a significant contribution to green field investment in the country.

Lastly, the budget has proposed to liberate the life insurance sector as well. The finance minister has proposed raising foreign investment threshold of investment in life insurance from present 49 per cent to 74 per cent. This is an area which has huge global players which have good deal of funds mobilization potential from such opening up. They have advanced financial technologies based solutions for long term insurance.

But many of the big numbers could be hit only if the economy gets speed and grows at a fast clip. Will the Indian economy fulfil the financial minster’s plans. There has to be an element of hope. FM is depending on many imponderables, but one has to keep hope for a turnaround. (IPA Service)