Budget 2021 Realises Its Limits. And That’s Good, Says Neelkanth Mishra
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Budget 2021 Realises Its Limits. And That’s Good, Says Neelkanth Mishra

The Union Budget 2021 has reflected the government’s inability to scale-up growth quickly and the need for private sector to step in and fill that gap. That, according to Credit Suisse’s Neelkanth Mishra, is a clear turn in the government’s messaging.

“The realisation that the government itself cannot spend the economy into growth and therefore we need private consumption and investment to support is a very important message from the budget,” Mishra told BloombergQuint’s Niraj Shah in a post-budget interview. “It exposes the government’s own limitations.”

Mishra said the government simply didn’t have enough room to bump up growth. “If in a normal budget, 90% of your budget is non-discretionary. Only 9-10% is discretionary, then how do you grow spending a lot?”

The finance minister could’ve taken the more populist route of cash transfers and letting higher consumption drive up growth. However, Mishra said that there are currently not enough robust mechanisms by which this can be implemented.

“The urban poor is in very bad shape. And I think the desire is to do something for them,” he said. “The challenge is there are no existing tools that cleanly deliver a large sum of money without creating distortions.”

The leap of faith the government has made is that if you boost aggregate demand, everything else gets lifted.
Neelkanth Mishra, India Equity Strategist, Credit Suisse.

Mishra said the government has been very restricted in its spending. While there’s an increase in expenditure in the budget, bulk of it is towards subsidies, defence and roads. A lot of it has already been spent in FY21, he said. In the next fiscal, when subsidies are falling, the spending increase is only certain areas roads, water and healthcare, he said.

That’s a prudent strategy, Mishra said, due to India’s lack of capacity. “You cannot really spend Rs 1 lakh crore on a whim or a fancy. You need to build capacity. As this capacity is expanded, the support to growth can be much more structural.”

Mishra said even in projecting a higher fiscal deficit, the government is anchoring the market’s expectation and buying itself time to build up that capacity and then deliver on it.

Watch | Neelkanth Mishra dissects the Union Budget 2021 for Bloomberg Quint.

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