Union Budget 2021: Government needs credible sources for additional revenue to boost economy
Story highlights
The government has raised just over 138 billion rupees out of the 2.1 trillion rupees ($28.72 billion) divestment target for the current year
Having fired up hopes for populist measures with talk of delivering a "budget like never before", Finance Minister Nirmala Sitharaman will need to find credible sources for additional revenue for boosting the economy.
The government has raised just over 138 billion rupees out of the 2.1 trillion rupees ($28.72 billion) divestment target for the current year. It expects to end FY21 with not more than 300 billion rupees, according to government officials.
"It will be hard for the finance minister to find resources. But she will get some help from the economic revival that will likely increase some tax revenue," said N.R. Bhanumurthy, economist and vice-chancellor at Bengaluru-based B.R Ambedkar School of Economics.
Last month, Sitharaman held the 11th pre-budget consultations with experts in the field of infrastructure, energy and climate change, in view of the forthcoming Union Budget 2021-22.
It could raise over 1 trillion rupees from privatisation of Air India, Bharat Petroleum Corp Ltd, Container Corp. of India and Shipping Corp. of India in the first six months of the fiscal year beginning in April.
Though, finding investors for the national carrier, Air India could be challenging in these restricted travel, COVID-19 times.
"There might be overtures to compensate for this year's revenue shortfall by an increase in taxation for high net worth individuals as well as sin taxes," said Radhika Rao, an economist at DBS, referencing taxes on items such as tobacco and alcohol.
Long-term budget
Sitharaman in an interview said she plans to lift spending, otherwise, it would completely undermine a government relief programme brought in last year to sustain poor families and small businesses.
Addressing a Confederation of Indian Industry conference last month, Sitharaman also excited expectations for a big-bang budget filled with sops by saying India was set to see a "budget like never before".
The government would like to use the budget as the path to launch three to four years of high growth, said the third official, stressing that the increase in spending would not be taken to unsustainable levels.
"So, all the funds announced would not be for this year. For this year we could have growth in expenditure for sure, but the funds announced in the budget would be for years ahead."
The government's fiscal deficit for the year ending March is expected to be over 7 per cent, and more than double the budgeted estimate.
India needs annual economic growth of over 8 per cent to create enough jobs for the millions of young people joining the labour force each month.
According to the Central Statistics Office, India's economy is expected to contract 7.7 per cent in the current financial year ending in March.
"Hope hinges on the government to increase its spending to revive the private sector sentiment, overall demand and largely private investment," said Arun Singh, global chief economist at Dun and Bradstreet.