An Aspirational Budget To Revive India’s Economy

The Union Budget 2020 is well-articulated under three major themes—aspirational India, economic development for all and caring for society. Hailed as a progressive budget, it impacted all segments of the economy. The government acknowledged the role of entrepreneurs, start-ups and MSMEs as the aspirational backbone and vital wheels of the Indian economy. It has emphasised on the importance of wealth creators in the economy, with industry, trade, investment and infrastructure serving as the pillars of economic development. After factoring in their importance, the Union Budget 2020-21 has proposed reforms to boost entrepreneurial confidence and encourage start-ups. 

The nominal GDP growth rate has been pegged at 10 per cent in the next fiscal period and capital expenditure has been scaled up by 21 per cent to support the economy. Under the Fiscal Responsibility and Budget Management (FRBM) Act, the government has used the 'escape clause', which provides room for easing the fiscal deficit roadmap. The fiscal deficit has been revised to 3.8 per cent for FY20 and 3.5 per cent for FY21. 

Rural development a key growth driver, in particular, agriculture, irrigation and related activities received a boost with an allocation of INR 2.83 lakh crore. The budget outlined 16 action points for farmers' welfare with a view to committing to doubling farmers' income by 2022. Through the cultivation of pulses, expansion of micro-irrigation facilities and an increase in farm credit, the government has focused on self-reliance within the agriculture and rural sector. The push for agriculture and its allied sectors underlines its importance and its continuing role in job creation, income generation and national food security. These measures will go a long way in boosting the currently sluggish economy.

To encourage urban development, the government proposed to build five new smart cities under the PPP mode. It is also focusing on plans and outlays that would bolster rural infrastructure, increase farmers’ produce realisation and drive rural consumption, which has significant growth potential.

The Budget has outlined the government’s attempt to ease investments and boost infrastructure growth, focusing on enhancing its road and rail network, increasing the number of airports and improving port connectivity. This is a critical step in bringing a much-needed boost to the Indian market, as it would increase investments, lead to job creation and have a multiplier effect across sectors. The INR1.7 lakh crore allocation for transport infrastructure, 100 new airports under the Udan scheme and INR103 lakh crore national infrastructure pipeline investment should help generate demand in core economic sectors and enhance ease of living.

The Budget also set forth a holistic approach for healthcare, with the government increasing allocation for healthcare, and announcing plans to set-up hospitals in districts that do not have hospitals empanelled under the Ayushman Bharat scheme. The viability gap funding for setting up these hospitals under the PPP model is likely to boost the medical equipment, pharmaceutical and diagnostic segments. 

To facilitate exports, a new scheme called Niryat Rin Vikas Yojana (Nirvik) has been announced, which aims to achieve higher export credit disbursement. The government also plans to develop each district as an export hub. 

With technology playing an integral part in economic development, the government's proposal to create new datacentre parks, enhance rural Internet connectivity and promote the study of quantum technology would leverage new technologies to facilitate direct benefit transfer and financial inclusion.

In the budget, the government also emphasised on the importance of having a safe, stable and robust financial sector. The plan to include private investment by selling off balance stake in assets to private retail and institutional investors could serve as a catalyst to revive the banking sector. The move to abolish the dividend distribution tax is also likely to make Indian equities more attractive for foreign investors.

In conclusion, the government has tried to tick all boxes and offer stimulus to each segment of the society with this budget. With a focus on increasing rural/farmers’ income, boosting entrepreneurial confidence, creating job opportunities by emphasising on Make in India, and investing in infrastructure development, the government aims to shake the economy out of its slumber and push it back on track to become a $5 trillion economy by 2025.


( A version of this article appeared in The Business World on February 04, 2020)