This Article is From Feb 01, 2021

Key Challenges For Finance Minister Ahead Of Budget 2021

Budget 2021: Reserve Bank of India's monetary policy, including moratorium, restructuring of loans etc, has helped to ease financial constraints to some extent, but not the demand

Key Challenges For Finance Minister Ahead Of Budget 2021

Budget 2021: Finance Minister Nirmala Sitharaman tabled Economic Survey 2021 on January 29

Budget 2021: Finance Minister Nirmala Sitharaman has promised that Budget 2021, due to be presented on Monday, February 1, will be a 'never before like' budget in the backdrop of the COVID-19 pandemic. The ailing economy requires handholding by the government which has raised the stakes higher for the upcoming budget. Due to social distancing measures and COVID-induced lockdowns, several sectors of the economy were under stress and the country's gross domestic product (GDP) contracted by 23.9 per cent in the first quarter of the financial year. Moreover, the COVID-19 pandemic hit the country at a time when the economy was already afflicted with the growth slowdown. The GDP growth had touched an 11-year low of 4.2 per cent in 2019-20. (Also Read: Budget Documents Explained: What To Find In Key Budget Components )

Considering all these factors, along with the financial stress on various economic sectors caused due to the pandemic, the government has some major issues to address in Budget 2021. According to economists, the 11 per cent growth rate predicted by the economic survey 2021 paints an optimistic picture for the economy in the next fiscal year. Here are some key of the challenges to be dealt by the Ministry of Finance ahead of Budget 2021:

Strengthening Health Infrastructure:

COVID-19 has exposed the underbelly of the poor health infrastructure in the country. The allocation to the National Health Mission should be increased, and the scheme should be refocussed towards strengthening public health infrastructure. Economic Survey 2021 noted that healthcare spending should be increased to 2.5-3 per cent of gross domestic product.

Reviving Demand:

Due to COVID-induced lockdown, economic sectors that function on crowds or gathering, have been adversely pushed into financial stress. The adversely hit construction activity, tourism and hospitality, and muted bank credit particularly to industries require immediate actions for revival in demand, according to rating agency Brickwork.

Reforms in the Banking Sector:

The financial sector, particularly public sector banking, is in urgent need of reforms. The real stress on the banking system will be known only after the long periods of the moratorium on loan repayments end and the effect of restructuring of loans done based on the recommendations of the Kamath committee is known.

Balancing the Budget:

The government has already increased its borrowings by around Rs 5 lakh crore from the budgeted target in the financial year. It has also allowed the states to borrow an additional Rs 4 lakh crore to cover the loss of revenue from their own tax and non-tax sources and transfers from the centre. The aggregate tax revenues will continue to be subdued for the substantial part of next year.

However, it is also noteworthy that the monthly revenue collections from GST in excess of Rs. 1 lakh crore since October and a record collection of Rs 1.15 lakh crore in December. 

Disinvestment Target

Brickworks in its special report on Pre-Budget expectation FY22 noted that in last year's budget, the government had set an ambitious disinvestment target of Rs 2,10,000 crore for 2020-21, including Rs 90,000 crore from an IPO in LIC and IDBI Bank stake sale.

However, this year, considering the fact that tax revenues are likely to remain subdued, garnering funds through disinvestment proceeds, as well as monetising assets could be the only option left for the government, according to Brickworks.