Designed to fight the ongoing ‘once in a century pandemic’, the Union Budget 2021-22 (UB22) has been built upon six key pillars –
(i) health and well-being,
(ii) physical, financial capital and infrastructure,
(iii) inclusive development for aspirational India,
(iv) reinvigorating human capital,
(v) innovation and R&D and
(vi) minimum government and maximum governance.
Providing clear precedence to growth over fiscal prudence, the fiscal deficit is allowed to reach a high of 9.5 percent of gross domestic product (GDP) in 2020-21 and intends to spend INR 11.7 trillion during the current fiscal taking the total expenditure to INR 34.5 trillion that goes to INR 34.83 trillion in next fiscal creating enough space for building infrastructure and increasing allocations to different sectors of the economy.

Accordingly, more spending under capital expenditure is envisaged during the ongoing recovery phase to pull the economy from the lingering impact of the pandemic shock. An outbox approach is adopted to carve out methods to pump prime economic growth to catch up speed going beyond the pre-Covid levels. Such innovative measures create huge opportunities for various sectors of the economy and equally so to the financial sector.

It is expected that the fiscal deficit will be slowly reduced to 6.8 percent of GDP by the next financial year 2021-22 and eventually stretching fiscal consolidation to 4.5 percent by only 2025-26. With inflation back within the comfort level of the RBI to clock 4.59 percent in December 2020, the downside risks to the economy are abating. Since many economies have to push the growth trajectory with expanded expenditure to revive activity and employment, India has taken the lead to forge ahead in creating a better development-oriented ecosystem.

Amid the buoyant budgetary measures, the right set of opportunities can be identified in UB22 for the banking sector. Out of the six pillars, the financial sector is focused on the second pillar –‘Physical, financial capital and infrastructure’.  As part of the first pillar, the priority of health care and medical infrastructure needs has been identified. A 137 percent rise in allocation is envisaged with a budgetary provision of INR 2,23,846 crores for the health sector. These funds will be channelised, among others, to the flagship scheme - Pradhan Mantri ‘AatmaNirbhar Swasth Bharat Yojana’. It is set to strengthen health infrastructure for preventive, curative care and to enhance the sustainable well-being of the society. In addition, INR 35000 crores are allocated for massive vaccine campaign that can infuse confidence and protect people. The second pillar relates to evolving a growth-centric stable and robust financial system to play a more significant role in financial intermediation to support ambitious development plans to help overcome the shocks of the pandemic. Hence, looking at the evolving policy priorities, many long-term challenges of the banking and financial sector are addressed in UB22 with appropriate measures in transforming banks into growth engines of the economy.
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