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Initiatives taken in Budget will step-up growth momentum: RBI article


The initiatives taken by the government in the 2021-22 Union Budget will step-up growth momentum in the medium term, according to an RBI article. “The Union Budget 2021-22 strikes the right chord by prioritising counter-cyclical investment-led fiscal support to post-COVID recovery in growth,” said the article on the assessment of the Union Budget.

The inbuilt reforms package which includes privatisation, asset monetisation, new initiatives on long-term financing of infrastructure and clean-up of the non-performing assets in the banking system, and incentive-linked targeted promotion of activity in the manufacturing sector will further step-up the growth momentum in the medium-run, it added.

The Union Budget 2021-22, banking on the resilience exhibited by the Indian economy to the once in a century crisis, has shifted its focus to stimulating medium-term growth potential through higher capital expenditure and various reforms as against the focus of the government on keeping the economy afloat and recovering from the pandemic during fiscal 2020-21.

“While doing so, the Budget does a tight rope walk, exploring ways to ease funding constraint while providing counter-cyclical support for growth revival, “it said.

The article further said the Budget strives towards funding budgeted expenditure by increasing the buoyancy of tax revenue through improved compliance, and by increasing receipts from monetisation of assets, including public sector enterprises and land as well as strategic disinvestment.

The proposed measures for the financial sector such as privatisation of public sector banks, allocation for recapitalisation and increase in FDI limit in insurance are noteworthy and progressive, it added.

The RBI said that the views expressed in the article are those of the authors and do not necessarily reflect the views of the Reserve Bank of India. Another positive aspect, the article said has been the greater transparency with regard to off-budget expenditure in the Budget which has been well received by the markets as well, article said.

While the fiscal math provided by the government appears to be reasonably realistic, the dominance of nondiscretionary items like interest cost in central government spending is a “matter of concern”, it said.

Though the fiscal consolidation path has been stretched, the measures proposed in the Budget, if implemented well, could help in realising its intent and objectives, and be a game-changer in achieving higher growth in the medium term, the article said. Finance Minister Nirmala Sitharaman had presented the Budget in Parliament on February 1.

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