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Here’s What to look for in Union Budget 2021

Here's What to look for in Union Budget 2021

Union Budget 2021: The Union Budget 2021 is just days away. Amid concerns over the severe impact of coronavirus (COVID-19) on India’s GDP growth during the past year, Finance Minister Nirmala Sitharaman will present her third Union Budget on February 1, 2021.

GDP fell sharply when lockdowns restricted activities, and has bounced back once lockdowns were lifted, particularly as the infection-fatality rate of the coronavirus in India has turned out to be much lower than feared earlier. Further, some of the drivers of the economic slowdown preceding the pandemic appear to be reversing: for example, the credit crunch triggered by the failure of IL&FS in September 2018 had driven de-stocking across supply chains, hurting GDP. (As GDP measures activity, inventory build-up adds to it and conversely, inventory depletion lowers it.) In sectors like cars and two-wheelers, the transition from BS-IV to BS-VI standards had exacerbated this trend. The end of this de-stocking is helping demand for manufacturing. Separately, the urban residential real-estate sector, after struggling for more than five years, is also seeing a revival.

Ahead of the budget, the customary ‘halwa ceremony’ was held on Saturday at the Union Finance Ministry headquarters at North Block in New Delhi. On the occasion, Sitharaman also launched the “Union Budget Mobile App” for hassle-free access of Budget documents by Members of Parliament (MPs) and the general public.

“Global and national supply chain is of paramount criticality in 2021”

“For India, this budget will probably be the most important one in decades. The world has changed and from our perspective, the pandemic has put all focus on the importance of Logistics and Technology. Global and national supply chain is of paramount criticality in 2021 and beyond. This sector is the backbone of modern civilization and the Indian government should look at ways to simplify global trade.

Four key issues must be kept in mind as we assess the impact of the Union Budget on growth. First, the recovery is still fragile and uneven, and fiscal interventions are still necessary; second, there are constraints in the government’s execution capacity; third, state government budgets may matter more, as they together spend 70% to 90% more than the Centre; and fourth, the “Budget” has two distinct parts: the fiscal accounting, and the Budget speech. The latter, by laying out the medium-term roadmap, can significantly impact “animal spirits”, and thence growth.