Budget 2021 Expectations – What to Expect from FM in Union Budget?

Union Budget 2021 Expectations: The Union budget for the fiscal year 2021-2022 is slated to be announced just in a few day’s time. The budget is the government’s annual financial statement providing details of expenditure, revenue, fiscal deficit, policy changes, etc.

The country is going through an economic recession caused due to the Covid pandemic; hence this year’s budget will have crucial implications for the economic recovery in the coming months. In this article, we are going to discuss the Union Budget 2021 Expectations.

Sectorwise Budget 2021 Expectations

Different sectors in India have different requirements and expectations from this year’s union budget as they are hit differently by the ongoing COVID19 pandemic. Here are the expectations of various sectors from this budget.

— Banking

The banking sector in India is a major source of credit to support economic growth, but since a few years, Indian banks are grappled with a bad loan crisis that has negatively impacted their balance sheets, hit profits and has reduced their ability to lend. A sharp economic slowdown has further exaggerated their problem. The Reserve Bank of India estimates that the Gross NPA ratio may rise to 14.8 % this year.

One of the big announcements that are being expected is the setting up of a national bad bank, which would reduce some burden of the banks by absorbing bad loans and allowing banks to focus on clean their balance sheets and focus on lending. There are also expectations for reforms in the banking sector. The government may also announce merger and privatisation of some PSB’s.

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— Renewable Energy

The performance of this industry has been adversely affected due to COVID – 19. The country’s current renewable capacity is 90GW and installation pipeline for this year is more than 50 GW. Through the budget, the government can accelerate the growth by introducing positive financing, regulatory and tax policies, and other incentives for this sector.

The government can announce a separate category under the priority sector lending for renewable energy to promote direct funding by lenders like PSB and NBFC’s. This will ensure the availability of long term funds at competitive rates. Other measures to increase funding are incentives to raise green bonds and collaborate with other international financing institutions to support renewable energy developments.

The current limit for funding of rooftop projects must either removed or increased to Rs. 100 crore per project. This will allow speedy growth in the C&I and rooftop segment. In order to promote domestic module or cell manufacturing, the government can provide incentives like a capital subsidy, tax concessions, R&D subsidy, and exemption from import duties. To make it attractive for international lenders to lend to the green energy sector, the government should limit the withholding tax on external commercial borrowings (ECB’s) to 5 % only.

— MSME

The micro small and medium enterprises (MSME) are one of the largest employment generators in the country, and this sector suffered the maximum brunt due to the pandemic. The industry demands a cut in the GST on professional services to 5%, to boost the MSME sector. One of the major challenges faced by this sector is the lack of credit from the banking sector. Measures to improve the flow of credit to this sector are – temporary suspension of Basel norms that would ease lending by banks.

The government can increase the limit for collateral-free loans to Rs. 5 crores for micro units, Rs. 15 crore and Rs. 35 crore for small and medium businesses, respectively. Another measure expected is to increase the limit for NPA classification for the MSME’s from 90 days to 120-180 days. To improving efficiency, the government is expected to announce a one-stop mobile application for MSME’s for GST enrollment, registrations, compliance etc.

— Automobiles

The auto industry was severely hit by the pandemic, and many companies struggled to survive. In recent months sales have improved, but future prospects of this sector are dependent on the economic recovery post-Covid. The industry expects relief from the government in multiple areas. To boost demand, GST rates could be reduced to 18% from the current 28%.

Another measure to improve demand could be to remove restrictions for availing input tax credit on GST that is paid on automobiles. This would make automobiles purchase cheaper for businesses. The government may give some special interest deduction on auto loans.

Another industry demand is regarding scrappage policy; incentivizing new vehicles’ purchase will attract more old and new customers in the market. Another expectation is announcements of details for the Production Linked Investment (PLI) scheme, fast disbursal of incentives and pending tax refunds. Electric mobility is a major priority area. Development of infrastructure for EV usage like charging stations is needed to boost demand.

— Healthcare

The pandemic has bought into light the poor public health infrastructure in India. Though the government took some quick actions to meet the immediate needs, the industry needs more support to grow sustainably. Some expectations from the Union budget are:

• Increasing expenditure on public healthcare: Compared to the last budget, the allocation towards healthcare is significantly going to increase by over 40%, to account for vaccination costs. More funds are also required to improve public health infrastructure. It is expected that that spending on healthcare will increase to 2.5% of the GDP.
• Incentivizing private investment: Private sector participation is required to provide modern healthcare facilities and increase investment in rural areas. The government can announce incentives on public-private partnerships for start up India and make in India programs. Incentives are also needed to improve research collaboration between industry and academia.
• Expanding health insurance: The current insurance coverage can be extended to the middle class and aiming a universal health coverage, furthermore to encourage people to take health insurance, rebates under the section 8oD should increase, and GST on can also be rationalized.
• Digital health ecosystem: Increased budget allocation towards the promotion of telemedicine, national digital health mission and home-based healthcare will help in expanding healthcare facilities to rural areas, reduce the burden on limited facilities and promote innovation in healthcare ecosystem.

— Real estate

The real estate sector is experiencing a slowdown even before the pandemic struck, and is currently facing many challenges, including a liquidity crunch. More support is needed to revive this sector that contributes close to 8% of country’s GDP. A focussed tax incentive like increasing the tax rebate to Rs. 5 lakhs can improve demand for affordable residential housing.

The industry expects the government to waive GST on under construction properties that would lower the cost of acquisition of under construction homes and support demand. The government must provide incentives for more private sector investments in the affordable housing space, as developers are finding it difficult to raise funds from banks and NBFC’s.

— Startups

According to Nasscom report, close to 40% of the startups halted their operations in 2020. For recovery post the pandemic, startups are expecting relief measures in the Union budget 2021.

• Increase domestic capital participation: By changing regulations that currently prevent domestic institutions like LIC and pension funds from investing in alternative investment funds (AIF).
• Removing IMB certification: Startups require vetting from a board set up by DPIIT, in order to seek income tax exemption. This process takes a very long time, and the industry demands that government completely remove this obligation and provide an exemption to all registered startups.
• ESOP taxation reduction: This scheme was announced in the previous budget to reduce the tax burden of the employees on ESOP’s. Till now, only 400 startups have benefitted from it. Startups are demanding to broaden these exemptions’ scope and pass the benefit to all 40,000 startups registered with DPIIT.
• Tax free gains on AIF investments: Venture capital investors are demanding tax exemption on capital gains from investments made by AIF’s. This will only cause minimal loss to the exchequer but will increase flow of capital into startups, boosting asset creation and jobs.

— Aviation and tourism

In the Budget, the government is expected to announce many measures to alleviate stress in the aviation sector. The sector may be given tax sops to help reduce its costs and debt burden. There has been a demand to reduce tax rates on aviation turbine fuel (ATF), which accounts for 30 – 40% of airlines’ total costs. The industry also requires relief in terms of reduction in many levies like airport charges, parking and navigation charges and flexibility in setting fares.

The government is expected to focus on improving regional connectivity schemes to make flying affordable to masses. The budget may provide for up-gradation of airports in tier -2 cities through the PPP route. Another important announcement would be regarding Air India’s privatisation, which the government is trying for many years.

The budget may also announce efforts to support the ailing tourism sector like preserving heritage cities, improving the visitor experience, upgrading sanitization, developing iconic tourist destinations, and an expectation for expanding e-visa schemes to additional countries.

Closing thoughts

Operations in many industries have been impacted by the pandemic. Strong fiscal measures are required to boost employment and growth in the post pandemic period, India inc. is eyeing for relief measures like tax reduction, ease in regulations, increased availability of credit and reforms that would induce sustainable growth and improve future prospects.