Budget ‘21: Dry Numbers, Old Ideas, Exciting Intent — Go Execute!

Important to note that “without actions, the best intentions in the world are nothing more than that: intentions”.

“Without actions, the best intentions in the world are nothing more than that: intentions”
- The Wolf of Wall Street (2013)

I called her ‘Superwoman’ yesterday, when she ignited the markets with her ‘no-tax budget’. A day later, I concede, à la Anthony/Bachchan in Amar Akbar Anthony, I was “intoxicated by the exuberance of my own verbosity”.

Frankly, it was euphoric relief at Finance Minister Nirmala Sitharaman’s no-nonsense-no-tinkering document, because the overwhelming fear was that she would trot out the big, micromanaging State. Mercifully, that did not happen.

Having slept over the Budget’s math and promises, I can now, with some distance and objectivity, give a more reasoned assessment. I’d like to do that in three silos.

Prosaic, Post-Pandemic Arithmetic

If you look at just the Budget numbers, they are unremarkable. That’s quite understandable. After all, despite all exertions, the economy next year (FY 21-22) will simply be equal in size to what it was in the previous year (FY 19-20), with the current year’s plunge creating a turbulent V-shaped link between the two:

• Keynesians are commending the sharp uptick in the fiscal deficit to 9.5 percent for the current year. But nearly 2 percentage points of this increase has come from the government recognising prior period expenses, namely, the food subsidy parked with FCI and unpaid bills of fertiliser companies. While such transparency is most welcome, it should temper the “we have spent, we have spent, we have spent” assertion. Yes, government expenditure has gone up from the budgeted Rs 30 lakh cr to Rs 34 lakh cr this year, but quite a bit of that is a payout for earlier expenses
• There is much chatter about the ‘short shrift given to defence’. But bear in mind that capital expenditure on defence items was pulled up by nearly a fifth in the current year, from about Rs 1.15 lakh cr to Rs 1.37 lakh cr. I reckon the mobilisation against China’s offensive stance may have a lot to do with it. So now, the government has kept the defence capital expenditure at virtually the same enhanced level of Rs 1.37 lakh cr for next year too. Yes, it’s flat against the revised figure, but significantly enhanced from what had been estimated for the current year

• Health expenditure is a bit of a bogey, as the outlay for health and family welfare has actually shrunk. But there is a one-time provision of Rs 35,000 cr for the COVID-19 vaccination effort. Plus, outlays on water and sanitation have been included under health expenditure this year. Despite all the new math, one can detect a concerted increase from about Rs 1 lakh cr to Rs 2.2 lakh cr. Of course, the compensatory axe has fallen on education and MNREGS, but well, how can you win ‘em all?
• There is inexplicable timidity around disinvestment proceeds, despite the brave talk about large-scale privatisation. Just the LIC IPO and BPCL sale should fetch the government Rs 1.75 lakh cr, the budgeted number. But then, what about Air India, Concor, Shipping Corporation, Pawan Hans, and BEML? Why is the government not confident about pushing them through?

Budget ‘Boo-Boos’

I can rattle off more examples, but the above should be sufficient to prove that the excitement in the Budget was clearly not triggered by its constrained and prosaic math. Worse, there were some boo-boos:

• The creation of a new Development Finance Institution is a clear leap back to the bad ol’ days of directed, State-vitiated lending. I understand that public memory is short, but how can we forget the awful IDBI train-wreck or IFCI scandals? Have we considered how long it will take, and how wasteful it shall be, to create one more giant public sector institution? New buildings will be rented, infrastructure duplicated, officers will lobby to get a lien on its rolls – for what? Why not strengthen the National Investment and Infrastructure Fund (NIIF)? Why not use State guarantees and instruments to create a market-maker for a deep, liquid market for ultra-long-term bonds? So that the government remains an honest regulator, an enabler of genuinely professional private institutions, rather than jump into the fire itself? Why not concede that the State is uniquely leaden-footed and corrupt in such endeavours?
• Similarly, why spend precious time and resources in creating one more ‘bad bank’, when there is a rapidly maturing ecosystem of professional/private ARC/AMC (Asset Reconstruction Companies controlled by Asset Management Companies) structures which could easily handle the volume of new work? Once again, instead of renting buildings and duplicating infrastructure, the government needs to merely strengthen the regulatory architecture of an emerging industry, instead of jumping into the fire itself

But Budget 2021 Is Still Darn Exciting. Period.

Alright, that’s enough! I should not get “intoxicated by the negativity of my own verbosity”.

Lest we forget, Budget 2021 is EXCITING, period.

Its intentions are bold, it celebrates the dynamism of private enterprise, and it gives a thumbs up to the power of free markets to create wealth by:

• Privatising at least two public sector banks and one general insurance company
• Listing LIC and selling IDBI Bank, BPCL, Air India, BEML, Concor, Pawan Hans etc etc
• Monetising existing roads, railways, and oil/gas pipelines via investment trusts; allowing them to issue zero coupon bonds and pick up FPI cash; giving them relief on withholding taxes and treaty rates
• Selling old airports and surplus land via SPVs
• Investing Rs 1.18 lakh cr in building new highways; putting Rs 1.1 lakh cr in new railway assets
• Investing, investing, investing… growing, growing, growing!

I shall end by asking the one question that savvy investors ask all prospects:

“So, if everything is so fine and dandy, tell us, what still keeps you up at night? What’s the single biggest risk you dread?”

My answer comes easily:

“One and only one thing, sir. The ability of our State to execute this ambitious agenda. Will our bureaucracy have the gumption to pull it off? Or should the government induct exceptional talent from everywhere — markets, corporations, universities — to ensure we get the job done. Else, it could be one more exciting moment that could get lost in the dreary sand of dead habit.” (Everybody is quoting Rabindranath Tagore, what with the upcoming polls in West Bengal. I shall take a similar liberty)