The Union Budget 2021 Highlights!!

The Union Budget 2021 Highlights

The Finance Minister Nirmala Sitharaman announced the Union budget for 2021-2022 . This budget is of great significance as it comes amid an economic recession caused by the coronavirus pandemic. All eyes were on the budget with hopes that it would provide relief and help in lifting the economy. The budget received a positive response from the markets and many experts have termed it to be pragmatic, given the underlying circumstances. Given below are some of the key highlights from this budget.

The Union Budget 2021 Highlights – Healthcare

Against the backdrop of the ongoing pandemic, healthcare took the center stage in the Budget. A total of Rs. 2,23,846 crores have been allocated for this sector, this is an increase of 137% from the previous year. An amount Rs. 35000 crores will be spent on vaccines in 2021-22, adding more funds if need arises. A new scheme titled the Prime Minister Aatmanirbhar Swastha Bharat Yojana will started with an outlay of Rs. 64,182 crores over the next six years. This will aim to strengthen the healthcare services in India. This scheme includes setting up Health wellness centers, public health labs and improving the National center for disease control (NCDC’s). Swachha Bharat Mission 2.0 will be launched with an allocation of Rs. 1,41,678 crores over the five years. The supplementary Nutritional Programme will be merged with the POSHAN scheme and a new mission named POSHAN 2.0 will be launched to improve nutritional delivery and outcomes. An increase in healthcare spending is the need of the hour and it will help build capacity and better capability to manage future health related crises.

The Union Budget 2021 Highlights – Infrastructure

The National Infrastructure Pipeline (NIP) will be expanded to 7400 projects, this programme aims to invest in social and economic infrastructure spanning across sectors, to boost growth. A whopping Rs. 5.54 lakh crore has been allocated for capital expenditure in 2021-22, an increase of 34.5% from last year. Furthermore more than Rs. 2 lakh crore will be provided to state governments and autonomous bodies for capex. To provide long term funding for the infrastructure sector, a professionally run Development Finance Institution (DFI) will be set up. A sum of Rs. 20,000 crores has been allocated for the DFI and it is expected that the DFI will build a loan portfolio of Rs. 5 lakh crore within the next three years. Monetisation of potential brownfield assets will be undertaken, as part of this five roads worth Rs.5000 crore will be transferred to NHAI InvIT and transmission assets worth Rs.7000 crore will be transferred to PGCIL. Amendments will be made to the law, to enable foreign portfolio investors (FPI’s) to provide debt finance to REIT’s and InvIT’s. 8500 Km of new highways will be built in different states and there is a total allocation of Rs. 1.18 lakh crore to augment the road infrastructure. Indian Railways have a national rail plan for 2030’s and a total of Rs. 1,07,000 crore has been allocated for railway capex. Further, Rs.18000 crore is allocated to increase the public bus transport services in cities.

The Union Budget 2021 Highlights – Financial sector

The Finance minister proposed that there will be a new securities market code that will consolidate provisions of four different regulations. Insurance FDI will be amended to increase the FDI limit for insurance companies from 49% to 74%. This will provide foreign investors with more control and ownership but with necessary safeguards. To reduce the stress of bad loans from the banking sector, the government will set up a ‘bad bank’ which will be in the form of an asset reconstruction company and an asset management company (AMC’s). As part of its recapitalization plan, the government will further infuse Rs. 20,000 crore into the banking sector. These measures will help the banks to clean up their balance sheets and improve their ability to lend thus increasing credit growth. The budget announced the governments intention to increase the privatization drive in the non strategic sectors. A roadmap for divestment of some public sector companies like LIC and Air India has also been laid out. In FY200 , The government aims to generate Rs. 1.75 lakh crore through divestments. To incentivize more startups, one-person companies can be incorporated without any restrictions on turnover or paid up capital. The one person company can be easily converted to other kind and the residency limit has also been reduced. A Rs.1500 crore scheme will be launched that would provide financial incentive to boost digital transactions. Furthermore, to encourage the development of new financial technologies, a fintech hub will be set up at the GIFT city.

The Union Budget 2021 Highlights – Agriculture

The total agricultural credit target for FY2022 has been increased to Rs. 16.5 lakh crores. The allocation towards a rural infrastructure development fund has been increased to Rs. 40,000 crores. The agriculture infrastructure fund of Rs. 1 Lakh crore will now also be available to upgrade infrastructure in the Agriculture Produce Market Committee (APMC) mandi’s. Five more fishing harbors will be established and the government will set up sea weed parks to promote sea weed farming. More than 1000 mandis will also be included into the e-Nam marketplace.

The Union Budget 2021 Highlights – Taxes

There were no changes made to the income tax rates
Senior citizen above the age of 75, who depend on pension or interest income, will be exempted from paying income tax
Faceless tax resolution mechanism will be set up for small taxpayers.
Aircraft companies will get a tax exemption for one year.
To tax holiday for startups has been increased for another one year and there will be a one year exemption on capital gains from investments in startups.
There will be an agricultural development on some items.
Affordable housing projects will get a tax exemption for one year

The Union Budget 2021 Highlights – Government Financials

Gross expenditure for FY 22 is expected to be 34 lakh crores, for FY21 it is 34.5 lakh crore.
The fiscal deficit for FY21 is revised to be 9.5% of GDP and is expected to reduce to 6.8% of GDP in FY22
The Government will be borrowing Rs.80,000 crores in the remaining two months of this fiscal year. The borrowing for FY22 is expected to be Rs.12 lakh crores.

To Conclude…

The Finance Minister has been able to deploy the resources in the best way possible. Its the classic case of making the best of available resources. And considering its a season of comebacks (Example : recently concluded Border Gavaskar trophy). And there is only way up for the Indian economy.

Union Budget 2021 – Detailed Explanation

Union Budget 2021 – Detailed Explanation:

In December the Finance Minister was quoted saying “Hundred years of India wouldn’t have seen a budget being made post a pandemic like this”. She presented the budget for a third time yesterday at the Parliament. Although the budget was well received we take a closer look at it in order to better understand and assess if it can rescue an economy in crisis.

The Finance Minister was faced with a very challenging task where she was expected to help the economy make up for the 8 quarters of slowdown and 4 quarters of Covid-19. In such a situation one would brace for the worst with increased taxes and government spending directed towards quick relief measures. The Finance Minister began her budget speech in Parliament at 11 am highlighting the difficulties of Covid-19 but moved on to provide an optimistic note by providing a quote from  Rabindranath Tagore where she referred to the post-Covid world as the “dawn of a new era”.

She commenced her speech using a very first of its kind paperless approach with a Made in India tablet. Sitharaman stated that the budget proposals rest on 6 pillars: Health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and R&D, and minimum government and maximum governance.

She first started off by addressing the situation the country was stuck in with a 9.5% (fiscal deficit). One of the highest figures ever. A transparent and courageous step surely to be worthy of praise. The FM went onto project 6.8% for FY22 with govt plans to bring it down to under 4.5%. But what followed took many by surprise. The Budget did not include the harsh measures that were expected. Instead, the FM adopted a policy where it focused on pushing for growth by strengthening infrastructure and focussing on the long term prospects. Below we will be understand Union Budget 2021 – Detailed Explanation

1.Push to develop Healthcare

 As expected the FM targeted the problem at hand regarding vaccines. She announced a Rs 35,000 crore outlay for the COVID vaccine in the fiscal beginning April 1st. In addition, the FM also announced Pradhan Mantri Atma Nirbhar Swasth Bharat Yojna and marked Rs 64,180 crore for the new scheme for over six years to combat new and emerging diseases and developing capacities of primary, secondary and tertiary healthcare systems. 

The spending on healthcare this year was hiked by 137%  to over Rs 2.23 lakh crore. This was more than necessary as India being 2nd on the list for the highest coronavirus cases after the United States. Unfortunately, however, India only spends 1.8%(2020-21) of GDP on health, among the lowest for any major economy. This has resulted in India being one of the top 10 nations with the highest Out-of-Pocket-Expenditure (OOPE). The increase in spending this year makes up  3% of GDP and can bring down the OOPE according to the Economic Survey 2021.

The survey also ranked India 145th out of 180 countries based on the quality and access of healthcare. Countries ranked below were  Nepal, Pakistan, sub-Saharan countries, and some pacific islands. It cannot be stressed enough how necessary this announcement was especially in recent times.

2. Scalping 

Normally when in times of crisis or when governments are desperate for growth they often willfully ignore the consequences their actions may have on the environment. But the FM has not overlooked this and addressed concerns of air pollution, sanitation, and clean water. A very important announcement made by the FM for a voluntary vehicle scrapping policy to phase out old vehicles. Here personal vehicles will undergo a fitness test in automated centers after 20 years while the commercial vehicles will undergo the test after 15 years. By doing so the FM has also set an example for leaders around the world.

The scalping of vehicles would prove to be beneficial for the environment as older vehicles licensed with worse off emission policies would be phased out. This would make way for newer vehicles which by using technological advancements reduce emissions. In addition, this also promotes a cyclical trend in the industry for phasing out and purchase of new vehicles. This announcement led to the increase in share prices of companies in the automobile industry.

3. Infrastructure

The government has dedicated a significant portion of its spending towards developing infrastructure. The focus currently will be on roads, railways, and power. In addition, the budget also has given a push to various PLI (Production-linked incentive) schemes. The government aims to spend Rs 1.97 lakh crore for this purpose, starting this fiscal. This is in addition to the Rs 40,951 crore announced for the PLI for electronic manufacturing schemes. This will lead to the attraction of global players in the Indian manufacturing sector as the government is planning to offer plug-and-play infrastructure to the companies willing to come to India.

Infrastructure projects have also been focused on Tamil Nadu, Kerala, Assam, and West Bengal considering the upcoming Assembly elections in the states.  

4. Disinvestment

A very important announcement as this would be the main source of funds for financing the infrastructure projects. Although there have been talks for disinvestment of various government entities the FM has now set a deadline. The companies include BPCL, Air India, Pawan Hans, IDBI Bank, Concor to be completed in 2021-22.  Two PSU banks are to be privatized among others. In addition to this LIC IPO will be held this year.

For successful disinvestment, it is important that the markets hold their current good form. 

The FM also announced a bad bank proposal, where the government will set up an Asset Reconstruction and Management Company for Stressed Assets to take over bad loans.

5. Taxes

One of the best moves by the government has been avoiding any major changes on the direct tax front. The search for revenues could further delay the recovery process. On the direct tax front, the government provided relief for senior citizens over 75 years. They no longer have to file income tax returns.

Instead, the government has added cess but the FM announced that they will be imposed post adjustments done to customs duty. This will be adjusted to ensure that no effects are felt by consumers. The cess has been set as an ‘agriculture infrastructure and development’ cess. These will be charged at 

  • Rs 2.5 per litre Agri infra cess on petrol, Rs 4 on diesel.
  •  2.5% on gold, silver, and dore bars; 
  • 35 pc on apples.
  •  30% on Kabuli chana, 10% on peas, 50 pc on Bengal gram/chickpeas, 20 pc on lentil ; 
  • 5 pc on cotton

The government also has halved the time frame for reopening of income-tax assessment cases from 6 years to 3 years. For reopening of serious tax evasion cases up to 10 years, the government has put in a monetary limit of cases involving over Rs 50 lakh in a year. This is meant to reduce tax harassment of income taxpayers.

The FM also announced changes to customs. Between increasing consumption and protecting local producers the FM has opted for the latter. The FM announced hikes on customs for refrigerators and AC, auto-components, mobile parts, etc. The long-term goal here seems to be encouraging companies to produce in India instead of importing which would only make their products dearer to customers. 

5. Social security for gig workers

Another significant announcement by the FM is the extension of social security benefits will be extended to gig and platform workers, This includes 15 million gig workers in the country who work for companies like Uber, Ola, food delivery in Swiggy and Zomato, and contract workers in IT and software firms.

6. FDI in insurance companies

The Finance Minister announced a hike in the FDI limit in Insurance companies from 49% to 74%. This will lead to an increase in capital inflow into insurance companies aiding the growth of the sector.

Some sections that were not covered in Union Budget 2021 – Detailed Explanation

One sector which had high prediction as the focus of the budget was that of Defence. Especially after considering the turmoil on the Indo-Chinese borders. But the government has allocated Rs 3,47,088 crore to the sector. Almost the same as the Rs 3,43,822 crore last year with only a 2% increase.

The Airline and the Tourism sector were the worst affected during the pandemic. But surprisingly apart from a Tax exemption for aircraft leasing companies nothing in the budget was directed towards these two sectors.

Although the budget does give high hopes over the next 5 years there is little or no attention directed towards the poor and lower sections including daily-wage workers who were the worst affected during the pandemic. The budget also does not direct much attention towards MSME’s which form a majority of businesses in the country and is the biggest employer in the country which too was severely affected by the pandemic.

To conclude the Union Budget 2021 – Detailed Explanation

On the whole, the budget has held itself to higher standards than those released in the previous years by the government. It is evident that FM has decided the avoid focussing on particular sectors to provide quick relief measures but instead aimed at picking the economy up by focussing on growth for the long term. The growth-oriented budget was very well received especially by the equity markets. Indian equities gained the most on a budget day since 1997. Thanks to FM for leaving out any tax hikes. The S&P BSE Sensex ended 5% higher and the Nifty 50 gained 4.7% on budget day. It is evident that the FM has adopted a conservative approach. Although it has already laid good groundwork for the next 5 years. Its final assessment depends on its execution! 

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