Budget 2021-22: Everything You Need to Know
Finance Minister Nirmala Sitharaman unveiled the Union Budget for the Fiscal Year 2021-2022 earlier today
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Everything You Need to Know About the Budget
Earlier today, Finance Minister Nirmala Sitharaman unveiling India’s Union Budget for the fiscal year 2021-22. There were high expectations from the Budget this year, with all eyes on how the government’s announcements would impact its recovery after the economic slowdown caused by the COVID-19 pandemic. In particular, there was a lot of buzz about how the government would balance the need to boost spending while maintaining fiscal discipline, making sure it did not borrow too much while managing several competing priorities, such as boosting growth, managing a nation-wide vaccination campaign, and a ongoing border crisis with China that will soon cross the eight-month mark.
Before I dive deeper into the Budget and what was announced today, some quick guide-posts as you read this section:
In the first subsection, I will provide links to all the important Budget-related documents, so those are all in one place for anyone who wants to follow along with the primary sources while reading this edition of the newsletter.
Next, I’ll highlight the top-line figures - how much additional spending has the government announced this year, and the impact on the fiscal deficit. In this section, I’ll also talk about the government’s disinvestment plans
Then, I’ll delve into a sector-by-sector breakdown, focusing on the most important announcements in the health, defense, insurance, infrastructure, and banking sectors.
Finally, I’ll close out with a brief analysis on the implications of the budget, and why so much of the budget’s ability to return India to a high-growth path will depend on the implementation of key proposals.
Where You Can Find All the Budget Documents
The Finance Minister Nirmala Sitharaman’s Budget Speech for FY 2021-22 (in English)
The Finance Minister Nirmala Sitharaman’s Budget Speech for FY 2021-22 (in Hindi)
The Annual Financial Statement of the Central Government, 2021-22
The Top-Line Numbers
The first top-line number that undergirds the budget overall is the government’s expected growth in the nominal Gross Domestic Product (GDP) is 14.4% for FY 2021-2022. It is based on this number that the rest of the numbers - revenues, expenditures, and deficits are budgeted.
The government’s overall expenditure for the current fiscal year, FY 2020-21, will be revised to total Rs. 34.5 lakh crore ($471.96 billion), compared to a budgeted expenditure of Rs. 30.4 lakh crore ($415.84 billion). This massive increase in expenditure is largely from India’s spending in the second half of the fiscal year, after India was in lockdown from March, with India’s lifting of restrictions beginning in June and July.
For the upcoming fiscal year, FY 2021-22, the government will increase spending by only around 1%, rising to Rs. 34.83 lakh crore ($476.44 billion). However, when this expenditure is seen as a percentage of GDP, it demonstrates that spending will be at 15.6% of GDP, and therefore lower in FY 2021-22 compared to the FY 2020-21 (which was at 17.7% of GDP).
However, the biggest negative surprise in the budget is regarding India’s fiscal deficit. Given the additional expenditures in FY 2020-21, the government has revised the fiscal deficit for the current fiscal year to be pegged at 9.5% of GDP, which is much higher to the expectations of between 6.5% and 7.5%. The government has stated that its borrowings from the market will be have already come out to Rs. 13.1 lakh crore ($179.19 billion), and that it will borrow an additional Rs. 80,000 crore ($10.94 billion) in last two months of this fiscal year, which will end on March 31.
For the upcoming FY 2021-22, the government has said that it will bring the fiscal deficit down to 6.8% of GDP. It’s budgeted borrowings for FY 2021-22 will be Rs. 12 lakh crore ($164.15 billion). The recommendations from the report from the 15th Finance Commission is to bring the fiscal deficit down to 4% by FY 2025-26. However, the Finance Minister, in her Budget speech, said that the government would aim to bring the fiscal deficit down to 4.5% of GDP by by FY 2025-26, underscoring the long rope the government has given itself to get fiscal deficit back on track. These numbers are a far cry from the original, pre-pandemic goal of a fiscal deficit of 3.5% of GDP for FY 2020-21 and an overall goal of bringing the deficit down to 3%. (I am only offering these numbers as a reference point - I am not suggesting that the government should have attempted to achieve a fiscal deficit at these numbers in the midst of the COVID-19 pandemic).
Specific Announcements by Sector
The Finance Minister announced that this year’s Budget would rest of six pillars:
Health and Wellbeing
Physical & Financial Capital, and Infrastructure
Inclusive Development for Aspirational India
Reinvigorating Human Capital
Innovation and R&D, and
Minimum Government and Maximum Governance
Some of the biggest announcements in the budget came under Theme 1 - Health and Wellbeing. This theme was not a surprise given the pandemic, and many experts predicted that there would be a big push to increase spending in the health sector. The Finance Minister announced the creation of a new centrally-sponsored scheme, the “PM AtmaNirbhar Swasth Bharat Yojana,” aimed at developing the capacities of primary, secondary, and tertiary healthcare systems in the country. This new scheme, as well as others aimed at ensuring clean water supply and urban cleanliness, will see overall health budget increase by 137% compared to last year.
Other significant announcements came in the infrastructure and power sectors. One announcement, which was already leaked and making the rounds ahead of the Budget speech, was the government’s decision to a Development Finance Institution, which will aim to lend Rs. 5 lakh crore ($68.38 billion) over the next three years to India’s infrastructure sector. The government also announced ambitious plans to monetize government-owned infrastructure assets, such as leasing or selling government-owned land, tolled highways, oil and gas pipelines, and airports, among others. Finally, the government also announced new infrastructure projects - mainly highway projects - in key poll-bound states over the next two years (West Bengal, Assam, Tamil Nadu and Kerala). Overall, India’s capital expenditure for FY 2020-21 will be revised upward from Rs. 4.21 lakh crore ($57.58 billion) crore to Rs. 4.39 lakh crore ($60.04 billion), and will increase by 34.5% for FY 2021-22 to Rs. 5.54 lakh crore ($75.77 billion), underscoring the big investment push.
The other major concern for defense analysts was to look for how the government would increase defense-related spending, given India’s ongoing border tensions with China. The budget states that the total allocation for defense for FY 2021-22, including pension-related expenditures, is Rs. 4.78 lakh crore ($65.37 billion), which is an increase of 1.48% compared to the allocation of Rs. 4.71 lakh crore ($64.41 billion) for FY 2020-21. However, a closer look at the breakdown between pension-related expenditure and capital expenditure in the defense allocation shows some more meaningful shifts. Per Dinakar Peri of The Hindu, the budgeted defense capital expenditure actually increased by 18.75% year-on-year while defense expenditure pensions will decrease year-on-year.
Other major announcements from the budget include:
The creation of a “bad bank” or an Asset Reconstruction and Management Company for Stressed Assets that will take on the non-performing assets in India’s banking sector, and will be funded with a Rs. 20,000 crore ($2.74 billion) equity infusion from India’s public sector banks;
The disinvesment of government shares in key public sector units (PSUs), specifically two public sector banks (in addition to the previously known disinvestment of IDBI Bank), Bharat Petroleum Corporation Limited, Air India, as well as an Initial Public Offering of the Life Insurance Corporation of India;
These disinvesments will be made in order to reach the divestment target of Rs 1.75 lakh crore ($23.93 billion) for FY 2021-22 (which is technically lower than the target of Rs. 2.1 lakh crore ($28.72 billion) for FY 2020-21
However, despite this last fiscal year’s ambitious target, India “barely achieved some 20-30,000 crore in asset sales”
The government has also called on NITI Aayog to send it a list of additional PSUs from which the government can disinvest its shares. However, NITI Aayog has taken this exercise many times before (at least five times by 2018)
An increase in the limit on foreign direct investment in the Insurance sector from 49% to 74%, with the caveat that a majority of directors and key management personnel must be Indians; and
An allocation of Rs. 1.97 lakh crore ($26.84 billion) over five years for the Production-Linked Incentive scheme to attract global players to India’s manufacturing sector and create Indian manufacturing global champions.
A Short Note on the Impact of This Budget
While it is too soon tell what impact this budget will have, the budget has already garnered some positive support. Experts and policy analysts have argued that this is “a budget with no bad news, ease of doing business and a focus on growth.” The stock market also rallied behind the budget, with Sensex rising by 5% in what is being dubbed as the best “Budget Day” for Indian Markets since 1977.
However, the true impact of the Budget will lay in the implementation of the various schemes announced. Some of the announced initiatives are not new, and have a long history of being announced and not fully implemented. Others - like the creation of the Development Finance Institution or the monetization of government assets - can be important for India’s recovery if the government can do them right. From the major infrastructure push to the creation of a bad bank to new health schemes, the government has announced many of the right things. Now, it will need to put its money where its mouth is.
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COVID-19 Vaccination Update (January 25-31)
On January 16, India launched it campaign to vaccinate its population against the virus that causes COVID-19. Since this, I’ve provided a weekly snapshot of India’s vaccination numbers each week in this newsletter.
You can see updates for January 16 and January 17 here, and you can see last week’s update here.
This week, beginning on Monday, January 25 and ending on Sunday, January 31, the total number of vaccinated people grew from 1,613,667 people to 3,706,157 people. The breakdown of how many people were vaccinated each is included below. The data below also links directly to the original data released by the government, which includes a further state-by-state breakdown.
Monday, January 25: 334,679 beneficiaries
Tuesday, January 26: 5,615 beneficiaries
Wednesday, January 27: 299,299 beneficiaries
Thursday, January 28: 491,615 beneficiaries
Friday, January 29: 440,681 beneficiaries
Saturday, January 30: 206,130 beneficiaries
No data about how many beneficiaries were vaccinated on Sunday, January 31, was available as of writing this newsletter.
Last week, I wrote about how there is a gap in the data because the numbers released every day on the Press Information Bureau of the Government of India’s website only represent the data available at time of upload (usually between 5pm and 7:30pm), and is therefore provisional.
This week, if you add up the number of vaccinated people daily and add it to last week’s data of the total number of people vaccinated, that still leaves out around 314,471 beneficiaries.
As with last week, I have, so far, been unable to find the final data of the number of people vaccinated per day. However, if you happen to know where that final data is, please do feel free to share and I can start to include that in future weeks!
External Affairs Minister On India-China Relations
On January 28, India’s Minister for External Affairs, Dr. S. Jaishankar, gave the keynote address at the 13th All India Conference of China Studies, hosted by the Institute of Chinese Studies and IIT Madras China Studies Centre. The speech, which includes aa broad history of India-China relations, also delves into the impact of the current tensions in the bilateral relationship on the future trajectory of the relationship.
I would highly encourage everyone to read/listen to the speech in full. However, three important portions of the speech stand out in particular as they relate to the formulation of India’s future strategy vis-à- vis China.
Minister Jaishankar begins by reiterating how India will not compartmentalize China’s misbehavior along the LAC from the broader relationship, as China has been advocating. He notes:
For all the differences and disagreements that we may have had on the boundary, the central fact was that border areas still remained fundamentally peaceful. The last loss of life before 2020 was, in fact, as far back as 1975. That is why the events in Eastern Ladakh last year have so profoundly disturbed the relationship. Because they not only signalled a disregard for commitments about minimizing troop levels, but also showed a willingness to breach peace and tranquillity.
Minister Jaishankar then goes on to outline, in fairly clear terms, where the areas of cooperation and divergence are in the bilateral relationship. What’s crucial to note here is that the areas of difference, in particular, date back to well before this most recent crisis in 2020. He says:
Even before 2020, the India-China relationship witnessed decisions and events that reflected the duality of cooperation and competition. We saw trade grow dramatically, though it’s one-sided nature made it increasingly controversial. In sectors like power and telecom, Chinese companies obtained access to the Indian market. The number of Indian students in China grew, as indeed did Indian tourists who visited there. In the global arena, we made common cause on some developmental and economic issues. Our common membership of plurilateral groups was also a meeting point. Yet, when it came to interests and aspirations, some of the divergences were also apparent. You may recall the practice of stapled-visas; or the reluctance to deal with some of our military commands. Then there was China’s opposition to India’s membership of the Nuclear Suppliers Group and to a permanent seat in the UN Security Council. When it came to trade, promises of market access did not match delivery. The blocking of UN listing of Pakistani terrorists involved in attacks on India had its own resonance. And of course, the violation of Indian sovereignty by the China-Pakistan Economic Corridor. Even the border areas saw frictions on some occasions. As the cumulative impact of these developments began to be felt, the two nations agreed at Astana in 2017 not to allow differences to become disputes. At the same time, they also endeavoured to enhance the factors of stability in the relationship. Subsequent Summits were largely in that direction and in fact affirmed that very consensus. But far from mitigating differences, the events of 2020 have actually put our relationship under exceptional stress.
Finally, Minister Jaishankar, placing the ball in China’s court, outlines the expectations India has of China as the two countries continue to engage with each other. He predicates these expectations on what he calls the “three mutuals” and the “eight broad propositions.” In his own words:
Whether it is our immediate concerns or more distant prospects, the fact is that the development of our ties can only be based on mutuality. Indeed, the three mutuals – mutual respect, mutual sensitivity and mutual interests – are its determining factors…
Experience of the past taught us the importance of stabilizing our relationship even while adjusting to changes. From that, we can seek proper guidance that will be to the benefit of both nations. These can be summed up by eight broad propositions. First and foremost, agreements already reached must be adhered to in their entirety, both in letter and spirit. Second, where the handling of the border areas are concerned, the LAC must be strictly observed and respected; any attempt to unilaterally change the status quo is completely unacceptable. Third, peace and tranquillity in the border areas is the basis for development of relations in other domains. If they are disturbed, so inevitably will the rest of the relationship. This is quite apart from the issue of progress in the boundary negotiations. Fourth, while both nations are committed to a multi-polar world, there should be a recognition that a multi-polar Asia is one of its essential constituents. Fifth, obviously each state will have its own interests, concerns and priorities; but sensitivity to them cannot be one-sided. At the end of the day, relationships between major states are reciprocal in nature. Sixth, as rising powers, each will have their own set of aspirations and their pursuit too cannot be ignored. Seventh, there will always be divergences and differences but their management is essential to our ties. And eighth, civilizational states like India and China must always take the long view.
I think there are a few key takeaways to focus on here.
Firstly, what’s fairly clear from Minister Jaishankar’s speech is that India-China relations likely cannot, and will not, go back to what they were before May 2020, when the crisis in Eastern Ladakh began. Reading between the lines of the “three mutuals” and “eight propositions,” it is clear that what Minister Jaishankar is clearly expressing on behalf of India is a deep-seated lack of trust, which will continue to present significant implications for the bilateral relationship.
Secondly, it provides some insight into why India has taken the steps it has in its response to Chinese aggression at the border. India has not shied away from taking steps at the border itself, moving personnel and machinery to match Chinese deployments, and taking steps to occupy heights in the ridges south of Pangong Tso after China’s inroads along the “Fingers” north of Pangong Tso. However, the fact that India has also taken action on the economic side - banning Chinese apps and limiting government procurements from China (albeit without directly naming it) - underscores how India will not compartmentalize, or keep to one side, the border issue in the context of the full spectrum of the wider India-China relationship as China has asked for.
In short, the speech does two things: outline all the problems in the India-China relationship from India’s perspective, and what India expects from China if relations are to improve. What remains unsaid in this speech is India’s strategy to deal with China should Beijing take no action on the “three mutuals” and “eight propositions.” India strategy so far - which was to use economic levers such as app bans and raise barriers to the inflow of Chinese goods - has done little to alter China’s behavior, and talks seem to be headed nowhere. While Minister Jaishankar leaves the ball in China’s court to suggest what it can do to bring India-China relations back on track, those of us looking from the outside in at the government’s China strategy will continue grappling with this crucial question: what happens if China continues to remain unyielding to India’s demands?
Further Reading on China from This Week
Ananth Krishnan and Dinakar Peri of The Hindu - India, Chinese troops came face-to-face at Naku La in Sikkim last week
Lt. Gen. D.S. Hooda (retd.), Former Northern Army Commander in the Indian Army - China may trigger fresh crisis along LAC
Cmde. (retd.) C Uday Bhaskar, director of Society for Policy Studies - As LAC becomes the new LoC, India’s challenge deepens
Dr. Bérénice Guyot-Réchard, Associate Professor in Contemporary International History at King’s College London, and Dr. Kyle Gardner, non-resident scholar at the Sigur Center for Asian Studies, George Washington University - Is the China-India Border Dispute Shifting East?
Sushant Singh, Senior Fellow at the Center for Policy Research - India Can’t Say It Wants U.S. Help Against China
Prof. Jabin Jacob, Associate Professor, Department of International Relations and Governance Studies, Shiv Nadar University - India must no longer wait for China to change its behaviour
Seema Guha, Outlook India - 8 Points From Jaishankar To Diffuse India-China Crisis
News Roundup
This week saw three significant calls today between newly confirmed/appointed Biden officials and Indian officials.
India’s “Vaccine Maitri” or “Vaccine Diplomacy” initiative expanded to additional countries this week. India shipped:
500,000 vaccines to Sri Lanka on January 27
100,000 vaccines to Bahrain on January 28
100,000 vaccines to Oman on January 30, and
50,000 vaccines to Egypt on January 31
While Egypt received the vaccines as commercial supplies, the rest of the countries received the vaccines through grant assistance from India.
India also committed to shipping 150 million vaccines under the World Health Organization’s COVAX initiative to provide vaccines to developing countries.
Prime Minister Modi spoke with His Highness Sheikh Mohammed Bin Zayed Al Nahyan, Crown Prince of Abu Dhabi on January 28. The two leaders spoke about the COVID-19 pandemic and the need to continue further diversifying trade and investment links between the two countries.
The Government of India announced it had signed a Framework for Strategic Partnership with members of the International Energy Agency (IEA). The agreement would not only expand existing areas of work between the IEA and India, but also open new areas of cooperation and serve as “a stepping stone towards India becoming a full member of the IEA.”
The Indian Armed Forces - specifically the Andaman and Nicobar Command, the Eastern Naval Command, and the Army Southern Command - conducted large-scale joint military training exercise “KAVACH” and “AMPHEX-21.” The exercises saw the participation of assets of Army, Navy, Air Force, and Coast Guard, and was aimed at enhancing tri-services joint war fighting capabilities and Standard Operating Procedures.
India’s Foreign Secretary Harsh Vardhan Shringla co-chaired the 5th Joint Meeting of the India-Japan Act East Forum with Ambassador of Japan to India, Suzuki Satoshi. The forum “reviewed progress of ongoing projects in the North Eastern Region of India in various areas including connectivity, hydropower, sustainable development, harnessing of water resources, and skill development. They discussed several new projects being undertaken under India-Japan bilateral cooperation and also exchanged views on cooperation in new areas such as healthcare, agro-industries and SMEs, bamboo value chain development, smart city, tourism and people-to-people exchanges.”
The Department of Higher Education in the Ministry of Education issued a Memorandum requiring all ministries, departments, publicly funded universities and other entities owned and controlled by either the central or a state government of India to:
Ensure online events not be related to “issues which are clearly/purely related to India’s internal matter
Not use applications that have servers that are controlled, hosted, or owned by “countries/agencies hostile to India,” and
Seek clearance from the Ministry of External Affairs for any event related to India’s internal affairs or having foreign funding or sponsorship.
The full memo is available here (beginning on page 2).
The Ministry of External Affairs hosted a virtual Capacity Building Workshop for member states of the Indian Ocean Rim Association on the 1982 UNCLOS (United Nations Convention on Law of the Seas) on January 29.
The Ministry of Electronics and Information Technology directed Twitter to block nearly 250 URLs and Twitter accounts that had allegedly used the hashtag “#ModiPlanningFarmerGenocide,” invoking its powers under Section 69A of the Information Technology Act. Among the accounts blocked for Indian users are those belonging to the CEO of India’s national broadcaster, Prasar Bharati, as well as the magazine Caravan India. Users outside India can still see these accounts.
Dinakar Peri of The Hindu reported that “the U.S. government has given licence to aircraft manufacturer Boeing to market its F-15 EX fighter jet to the Indian Air Force’s tender for 114 jets.”
Five to Read
From cogent analysis to potentially big news that you should keep an eye on, here are a few commentaries and other pieces of writing that I found particularly enlightening:
Dr. Tanvi Madan, senior fellow and director of The India Project at the Brookings Institution, writes: “While their shared democratic nature has not been the only driver, it has certainly contributed directly and indirectly to the development of the U.S.-India partnership over the last two decades. Democracy, in various ways, has also been a realm of cooperation between the two countries in the past. It could be in the future as well, with the two democracies working together to ensure (1) democratic resilience in the Indo-Pacific region and (2) the resilience of the rules-based international order. To what extent they will be able to do so will depend on whether they can take advantage of certain opportunities and how they deal with certain challenges at home and abroad. And, as the role of democracy in the Biden administration’s foreign policy agenda is debated, both the opportunities and obstacles of this aspect of the relationship are worth considering.”
Richard Rossow, the Wadhwani Chair for U.S.-India Policy Studies at the Center for Strategic and International Studies, argues: “As we start a new era in U.S.-India ties, our economic relationship remains a weak link. There is a palpable sense of resignation and a common refrain that “there have always been trade problems.” However, the nature of our trade problems has evolved. In earlier times, the focus was on India’s not started or incomplete reforms. Today, an overwhelming majority of U.S. commercial concerns focus on India’s backtracking on trade liberalization and resultant trade actions against India taken by the Trump administration. Even as our respective leaders bemoan this truth, they have continued digging the hole deeper.”
Amy Kazmin, the South Asia bureau chief for the Financial Times, writes: “Nationally, India’s new confirmed coronavirus infections have fallen precipitously, from a peak of nearly 100,000 new infections a day in mid-September to an average of 13,000 to 14,000 a day last week. At the same time, health surveys indicate that there could have been much higher public exposure to the virus than was previously realised. At a time when many other countries are battling second and third waves and alarming new variants of coronavirus, the drop in infections raises a tantalising prospect — has the pandemic started to burn itself out in India?”
Dr. Urjit Patel, former governor of Reserve Bank of India, argues: “India’s economy is experiencing the worst contraction in decades as a result of coronavirus. But even if the threat of the virus fades, India’s medium-term growth prospects will be hindered by two policy reversals that predate the pandemic. Both have systemic consequences. The first is a return to high tariffs — an external-facing move that will hit productivity. The second is the undermining of the 2016 bankruptcy code — an internal policy that will lead to inefficient allocation of credit.”
Rana Ayyub, a columnist with The Washington Post, writes: “On Tuesday, as India celebrated its 72nd Republic Day — a day meant to honor the Constitution that came into effect in 1950 — the country was once again reminded of how far we have strayed from the commitment to protect the fundamental rights of all citizens under the Hindu nationalist administration of Prime Minister Narendra Modi. Clashes broke out in New Delhi between the police and farmers who have been protesting for almost two months against three new agricultural laws that they consider a threat to their livelihoods and very existence. The farmers — mainly from Punjab and Haryana — have been camping out in the bitter cold just outside the capital, but on Tuesday, they decided to drive their tractors into the city as part of a large rally to make their voices heard.”
Thank you for reading this latest edition of Indialogue. Please let me know if you have any thoughts or feedback by emailing me at aman@amanthakker.com.