Modi’s Best Budget in 6 Years

2021 is unarguably Modi’s best budget. He needs to be complimented for it. Presentation of the budget has lost significance in the last 2-3 years because of the numerous policy flip-flops and meaningless statements made. Do we remember that once upon a time, “Make in India” was a big slogan, then we had “Assemble in India” and now we have “Atmanirbhar Bharat”?

This is a crisis budget which is being projected as a reformist budget. The causes of the economic crisis are mismanagement far more than the pandemic. When in an economy of about Rs 200 lac crore, the deficit is about Rs 20 lac crore in the ongoing financial year and the planned deficit for the coming year is about Rs 12-13 lac crore, we are in a crisis.

I would like the students of No Frills Academy and our followers to understand the budget in a holistic manner. To do so we should understand the contributors to the GDP, the salient features of the previous budget, the fiscal and monetary decisions taken during the current year and then analyze the present budget.


Major Contributors to India’s GDP

  • Domestic consumption: Approximately 55 to 60% contribution.
  • Private investment: Approximately 30 to 35% contribution.
  • Public expenditure: Approximately 12 to 15% contribution.
  • Exports: Since India has a Current Account Deficit, that is imports are more than exports the impact is approximately – (1.5 to 2.5) %.

Major Dubious Decision of Past

In Sep 2019 corporate tax was reduced from 30 percent to 22 percent which was supposed to cause a loss of Rs 1.45 lac crore to the exchequer. This was done at a time when demand was slipping and practically all sensible economists were advising actions to focus on job creation and putting money in the hands of the poor. The false propaganda regarding this decision was that it will attract private investment and thus increase jobs. Since the capacity utilization of industry was below 70 percent the big corporates used the savings to reduce debt, improve profits and maybe buy electoral bonds of BJP. Private investment did not increase or jobs got created.

Salient Features of Previous Budget

Budget 2019-20 Estimates versus Reality

Budget Estimates

  • Expenditure: The government had proposed to spend Rs 27,86,349 crore in 2019-20, which was 13.4% above the revised estimate of 2018-19.
  • Receipts: The receipts (other than net borrowings) were expected to increase by 14.2% to Rs 20,82,589 crore, owing to higher estimated revenue from corporation tax and dividends.
  • GDP growth: The government had assumed a nominal GDP growth rate of 12% (i.e., real growth plus inflation) in 2019-20.  The nominal growth estimate for 2018-19 was 11.5%.
  • Deficits: Revenue deficit was targeted at 2.3% of GDP, which was higher than the revised estimate of 2.2% in 2018-19.  Fiscal deficit was targeted at 3.3% of GDP, lower than the revised estimate of 3.4% in 2018-19.

Other Major Economic Decisions in 2020-21

  • Aviation: Creation of 100 new airports were planned.
  • Railways: Planned redevelopment of 4 railway stations and operation of 150 passenger trains through PPP model.
  • Roads:
  • Monetisation of at least 12 lots of highway bundles of over 6000 km before 2024.
  • Development of 2500 km access control highways, 9000 km of economic corridors, 2000 km of coastal and land port roads and 2000 km of strategic highways.
  • Disinvestment target of Rs 2.10 lac crore.
  • Privatisation of LIC.
  • We Do Not Know: We do not know as to what happened to these plans of infrastructure creation.

Essence of Good/Bad Decisions Taken Prior to Covid Lockdown

  • GDP had reached a low of 4.2 percent.
  • Unemployment had reached the highest in 45 years.

Major Economic Actions Taken to Counter Covid-19 & Atmanirbhar

MSMEs Support

  • Rs 3 lac crore guarantee was announced for MSMEs by the government.
  • The government amended the General Financial Rules 2017 to disallow global tenders in government procurement up to `200 crore, as announced in the Aatmanirbhar Bharat package’.
  • The policy has not been much effective.


An additional amount of Rs 40,000 crore was released during Covid-19 crisis. The earlier allocation was Rs 60,000 crore. This was of help.

Oil Price Hike

To compensate for the loss of revenue the government raised prices of oil and LPG. It increased the economic hardships of the poor and middle classes and increased inflation.


The call for, “Boycott China” post the Ladakh skirmish was popular. In line with “jumlas”, like “doubling farmers’ income”, “5 trillion economy”, “Make in India”, “Assemble in India” came “Atmanirbhar”.  The details of the plan were never explained by the government and nor is any analysis available. It is safe to conjecture that increase in import duties would have hurt India more than China. It is an economic reality that protectionist policies do not raise the economic state of a country as was shown by the 1991 reforms.

Farm and Labour Laws

The farm and labour laws were made to favour capital over labour. These will naturally have the support of World Bank, IMF and foreign countries because it will help them profit. Whether these laws will safeguard the interests of the poor farmers or labourers is a debateable issue.

Krishi Samman and Garib Kalyan Yojna

The Krishi Saman Yojna was started in 2019 to pay Rs 6000/- to 12 crore poor farmers. The Garib Kalyan Yojna was a free food distribution scheme which was to benefit 80 crore poor till Nov 20 at an expense to the government of Rs 1.7 lac crore.

Essence of Government Actions till Date

  • GDP for the year is expected to be around minus 8 percent. Implying a loss of around Rs15-16 lac crore.
  • Unemployment had reached a level of 9.1 percent in Dec 2020.
  • Increase in people pushed below the poverty line: approximately 10 crore.
  • Bank NPAs are expected to reach an all time high.
  • Inflation seems to be in control as of now.

Highlights of Budget 2021-22

History of 5 Years of Mismanagement

The past record of 5 years of economic mismanagement have lowered expectations of good economic policies from the Modi government and hence there were reasons to cheer this budget.

Why so Much Cheer?

  • No Increase in Taxes. A large number were fearing things like wealth cess and Covid-cess and were hence happy.
  • Greater Honesty. The government was consistently lying about fiscal deficit and so when it came closer to the truth we were happy.
  • Increase in Government Expenditure. The announcement of increase in government expenditure is expected to promote growth and employment. This is substantiated by increase in capital expenditure by 34.5% over the previous year.
  • Proposal to Curb Bank NPAs. The proposal to curb bank NPAs was welcomed and hence bank shares soared immediately.
  • Privatisation. The proposal to privatise two PSU banks and LIC was welcomed as it will generate revenue, control deficit and enhance efficiency of capital utilization.
  • FDI in Insurance. The proposal to increase FDI in insurance was welcomed in India and foreign countries have been demanding this since the 1990s.
  • Railways. The outlay of Rs 2.15 lakh crore for Railways is a 33% rise from its revised capex for FY21.
  • Affordable Housing. The extension of one year on income tax benefit for affordable housing is expected to benefit the housing sector.

Okay Parts of Budget


The defence budget has been increased marginally from 4.7 lac crore to 4.8 lac crore with 19 percent increase in capital expenditure.


No increase in taxes is an appropriate step.

Health and Wellbeing

There is substantial increase in investment in health infrastructure and the budget outlay for Health and Wellbeing is Rs 2,23,846 crore in BE 2021-22 as against this year’s BE of Rs 94,452 crore, an increase of 137 percentage. This was needed.

Bad Parts of Budget


Unemployment is the biggest economic challenge for India. There was no word spoken on the subject in the budget speech. This problem has been consistently ignored by Modi government. Increased infrastructure spending, promotion of affordable housing will generate some employment but may not be enough. The persons laid off in the services industry, MSMEs and self-employed have received no support. I recommend that you listen to the interview of Mahesh Vyas by Karan Thapar for The Wire. 64.7 million dropped out of the labour force. This included 22.6 per cent women.

Private Investment

The government spending on infrastructure and promotion of affordable housing may attract private investment but till such time as demand does not pick up private investment is unlikely to pick up.


MSMEs contribute approximately 30% of India’s GDP, 45% of manufacturing and employed 12 crore people. They were badly hit by the lockdown and needed support. We do not have data about their current status but since the top corporates have benefited and stock-market is soaring while GDP is down it is safe to assume that MSMEs have suffered. An estimated 35 per cent of MSMEs that have closed down permanently.

Help to People Below Poverty Line

The Garib Kalyan Yojna should have been continued for another six months.


MNREGA is supposed to be an open ended scheme. The budget allocation for it has been reduced. The demand for it was highest in the ongoing year. More funds should have been allocated.

Services, Aviation & Tourism Industry

The services, aviation and tourism industries received no support and will continue to languish.

Cess on Oil

Petrol, diesel and LPG are very costly. The additional cess announced will have a greater impact. During the course of the year the oil prices are expected to rise. Then the impact of the high prices will accentuate and even impact inflation.


Budget Proposals: I am Unsure About

NPA Crisis

RBI’s recent Financial Stability Report shows that NPAs could increase to 13.5% by September 2021 compared to 7.5% a year earlier – and for public sector banks they could increase to 16.2% compared to 9.7% a year earlier. The creation of ‘bad bank’ in my view is a poor idea. It will create a moral hazard. I request you to read the views of Raghuram Rajan on the subject.


Proposals for education have been announced. Some 100 Sainik Schools are planned to be created. I request you to please read in detail about the policy measures to determine their efficacy.

Summary of Budget Analysis

  • It is PM Modi’s best budget.
  • It is expected to promote growth.
  • The massive unemployment problem will persist for fairly long.
  • The formal sector will benefit.
  • MSMEs, services, aviation and tourism industries will continue to languish.
  • There is reason to cheer because we could have got something worse.

Submit your queries in the comments section and watch the live discussion on my YouTube channel.



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