Building Forward Better: India’s Budget for 2021-22 and Implications for Growth and Inclusion

Updated: Feb 22

By Ruth Kattumuri and Shantanu Singh

India’s Finance Minister Nirmala Sitharaman unveiled the country’s Budget for the year 2021-22 earlier this week (1). The announcement was eagerly anticipated as India attempts to move forward from the economic and social consequences of the COVID-19 pandemic. The Budget focused on six themes and priorities of the government’s policies for “Atmanirbhar Bharat” (Self Reliant India) -Health and Wellness, Infrastructure, Inclusive Growth, Human Capital, Governance and Innovation and Research & Development.

In this blog we offer a view of the key changes and announcements from the perspective of growth and inclusion. The Indian Budget of 1st February 2020 is focused on pro-growth, transparent and provides a boost for her capital expenditure to stimulate the country toward a high-growth trajectory. Enhancing growth is currently the top priority for India and pro-growth policies, which would also help promote inclusion.

There are a few salient features of this Budget that merit attention. First, after a few years of somewhat creative accounting, this Budget conveys India’s approaches to resolve her balance sheets, and presents a transparent statement of accounts (2). The official fiscal deficit is estimated at 9.5 per cent this year, which is reportedly the highest since 1991. However, considering the global economy impacted by covid-19, alongside the demands of the current growth trajectory of India, this is not surprising. The global consensus now suggests that countries prioritise recovery and plan for the management of their fiscal deficit in the medium term (3a,3b).

The Indian government plans to raise revenues without increasing taxation, by divesting its ownership in public sector enterprises. National life insurance provider LIC has been proposed to be moved to an IPO, with two other public sector banks and an insurance company, which would be privatised. These efforts can help reduce the fiscal gap. Hence, the Budget hopes to generate resources and focus them on capital expenditure that can accelerate growth.

A. Economic and Environmentally Sustainable Growth

For powering India’s economic growth, the Budget focuses on the low hanging fruit through boosting investment in infrastructure, technology, and innovation. These are essential at this stage of India’s growth trajectory to enhance essential and standards of infrastructure in transport, shipping, power, and logistics.

The announcement of a new Development Financial Institution (DFI) with seed capital of INR 20,000 crore (GBP 200 million) is timely. The DFI would enable access to much needed capital essential for infrastructure projects. DFIs have played a key role over the years toward India’s development. ICICI and IDBI bank were originally set up as DFIs, before transitioning to more traditional consumer banking functions (4). This new DFI could provide additionality working together with the National Investment and Infrastructure Fund Limited (NIIFL) set up by the government in the 2015 Budget as an infrastructure-specific investment fund. The new DFI involving direct government engagement, would provide opportunities to enhance investments from global capital markets. For the purpose of building forward better, it is important for the DFI to prioritise projects for sustainable development. For example, Indian partnership with UK for a Green Growth Equity Fund has provided investment opportunities for joint projects on Renewable Energy, Clean Transportation, Water Treatment, and Waste Management (5).

The budget has also proposed infusion of capital of INR 1,000 crore (GBP 100 million) to the Solar Energy Corporation of India and another INR 1,500 crore (GBP 150 million) to Indian Renewable Energy Development Agency, both of which focus on renewable energy projects. Additional allocations to the NABARD’s Rural Infrastructure Development Fund and the creation of a new Micro-Irrigation Fund, with a corpus of INR 5,000 crores (GBP 500 million), are essential to enable targeted attempts at enhancing rural and agricultural infrastructure in India. These projects would contribute to meeting India’s Nationally Determined contributions (NDCs). Such investments are crucial to enable environmentally sustainable economic growth for building forward a more resilient India.

The creation of a “bad bank” is an important initiative toward tackling India’s finance stresses and help maintain liquidity and credit flows in the banking sector, which had been struggling with non-performing assets (NPAs) even before COVID-19. (6)

Notably, the Budget focuses on innovation by providing an outlay of INR 50,000 crores (GBP 5 trilllion) to a new National Research Foundation over the next 5 years. Announced earlier as part of the New Education Policy (NEP), the Foundation will provide grants for research projects across subjects and enhance India’s research output (7). This is crucial toward enhancing India much needed investments for R&D and build a larger pool of researchers. In 2018, there were 408.8 researchers per million in India, compared to 3,069 for China, 7,799 for Singapore (in 2017) and 6994.9 for the United Kingdom (8).

These are positive measures that will help power India’s growth by increasing investment and the development of infrastructure.

B. Inclusion

The Budget provides measures for continuation of existing government welfare schemes for social protection. While there are some new projects involving expansion of social safety net, these are minor and would benefit from being scaled to have impact inclusive growth.

The announcement of larger investment in the budget for health is essential, more so in the Covid-19 era. India is a leader in generic drugs and companies that are manufacturing vaccines would require financing to enable them for this important service provision. The Economic Survey 2021-22 estimates that increasing public expenditure on health from 1 per cent to 2.5-3 percent can reduce out-of-pocket expenditures from 65 to 30 per cent of the total healthcare spending (11).

There has been an increase of 179 per cent relative to last year, for the Department of Water and Sanitation within the health and wellbeing budget. The levels of malnutrition are higher than in sub-Saharan African, which has been attributed partly to poor sanitation facilities in India. The National Family Health Survey (NFHS) round 5 survey indicates that eleven states have recently seen a rise in the stunting of children under 5, including states such as Kerala and Goa, besides Bihar (12). Therefore, improving water and sanitation facilities in India are essential for better access and provision of healthcare for all her people. Although there is a 27 percent decline in the budgetary allocation for nutrition, it is balanced by the overall increase of 179 percent imbibed into health and sanitation. The funds allocated for health and family welfare have increased by 9.62 per cent, along with the announcement of the PM AtmaNirbhar Swasth Bharat Yojana to augment primary, secondary, and tertiary health centres across India, which can enable co-ordinated approaches.

On human capital development, the Budget offers a much needed focus on quality. The target is to establish 15,000 “exemplar” schools to provide high quality education as envisioned by the National Education Policy, and is a significant advancement from the focus on enrolments and volume to improve access to quality education. However, given that there are approximately 1.5 million schools in India (10), this amounts to just 1% of the total number of schools, hence there is greater need to meet the needs to enable human capital development of young India.

For migrant workers and workers in the gig economy, the Budget proposes expansion of minimum wage laws, as well as a social safety net provided by the Employees State Insurance corporation. This helps address the severe consequence due to COVID-19 lockdown in March 2020, on migrant workers when they struggled to return to their home states (13,14). These measures will need to be monitored to ensure efficient and transparent implementation not only to mitigate short-term effects of income losses but also provide long-term protection for these workers who are the backbone for building India’s infrastructure.

The debate regarding universal basic income or universal cash transfers is ongoing in India (17). The investments in programmes like MGNREGA in past years have helped improve the welfare of people in rural India and the allocation for the Pradhan Mantri Gram Sadak Yojana has been proposed for phasing down (9). There have been discussions on the extending MGNREGA work-for-pay scheme to urban areas (18). These discussions have been parked for now while the urgent priority for the government to invest in growth and employment in the country.


The stresses on national and global economies due to the COVID-19 requires firefighting approaches by governments to tackle the health, economic and social crises. Thus, Indian Budget 2021-22 provides a credible blueprint for prioritising and reviving her economic and environmentally sustainable growth. The challenge now lies in ensuring efficient implementation to deliver robust growth, health, employment opportunities and inclusive development for all her people toward building forward better.


1) Government of India. 2021. Budget 2021-22.

2) Times of India. 2021. TOI interview: ‘Need to indigenise, lower defence equipment.

3a) IMF. 2020. Tax Policy for Inclusive Growth after the Pandemic.

3b) Bhalla,S. 2021. Sitharaman has faced down critics to unshackle India’s economic growth story. The Indian Express.

4) Agrawal,A. 2019. There Was Once An IDBI. BloombergQuintOpinion.

5) UKFCO.2021. UK-INDIA Partnership on National Investment and Infrastructure Fund -Green Growth Equity Fund

6) Business Standard. 2020. Raghuram Rajan warns against 'unprecedented' rise in NPA levels in 6 months.

7) Prime Minister’s Science, Technology and Innovation Advisory Council. 2019. National Research Foundation Detailed Project Report.

8) UNESCO UIS.Stat. 2021.UIS Statistics.

9) Himanshu. 2021.The ailing economy needs much more than what Budget 2021 offers. The Indian Express.

10) MOSPI. 2016. Statistical Year Book India.

11) Government of India. 2021. Economic Survey of India Vol 1 Chapter 5.

12) Government of India Ministry of Health and Family Welfare. 2021. Fact Sheets:Key Indicators - 22 States/UTs from Phase I.

13) Patel,C.2020. Covid-19 Hidden Majority in India's Migration Crisis. Chatham House.

14) Minaketan Behera,S. 2020.Gig Work and Platforms during the COVID-19 Pandemic in India. EPW Engage. Vol.55, Issue No 45,.

15) UK HM Treasury. 2020. Furlough Scheme Extended and Further Economic Support announced.

16) BBC. 2020. Covid: US House votes to boost stimulus package payments.

17) Economic Times. 2020. Must start Rs 1,000 per month transfer now: Abhijit Banerjee and Esther Duflo.

18) Beniwal,V. 2020. India Plans Extending World’s Biggest Jobs Program to Cities. BloombergQuint.

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