Union Budget 2021 quick overview

Union Budget 2021 Overview – A Budget for Everyone?

A Brief Union Budget 2021 Overview: The Budget 2021 can be widely considered as one of the most difficult times in Humankind (owing to COVID 19). While presenting her third budget (by far the most challenging), Honourable Finance minister, Nirmala Sitharaman has delivered a budget, that is expected to lay the groundwork for Indian growth and development for years to come.

The FM budget speech this year was economical in terms of time spent. A shade under an hour and 50 minutes as compared to 2 hr and 40 minutes last year.  In her speech, Honourable FM laid mentioned the budget which is built on the following six pillars:

  • Health and well-being
  • Physical and financial capital and infrastructure
  • Inclusive development for aspirational India,
  • Reinvigorating human capital
  • Innovation and R&D 
  • Minimum government-maximum governance

The primary focus of this budget was to create jobs primarily through big infrastructure announcements. Now, let us give you a brief Union Budget 2021 Overview.

Budget 2021 Overview – Major Budgetary Announcements

Here are some of the key announcements in this budget included:

  • Since the last budget, the nominal GDP has reduced to Rs. 1.94 from 2.24 lakh crore. This is owing to the increase in expenditure to handle the situation of Pandemic, COVID-19
  • For the first time ever, the budget went paperless and it was presented on Made In India tablet. 
  • The total COVID support measures amounted to nearly 13% of the GDP and total COVID-19 support measures by the government and RBI amount to Rs 27.1 lakh crore
  • The PM Atmanirbhar Swasth Bharat Yojana is projected to outlay Rs 64,180 crores over the next six years. The aim of this scheme is to develop the overall healthcare system and develop institutions for the detection and cure of new and emerging diseases
  • The Jal Jeevan Mission Urban to be launched and it has an outlay of Rs. 2.87 lakh crores. The aim of this scheme is to provide Universal water supply, 2.86 crores household tap connections and liquid waste management 500 AMRUT cities
  • A grant of Rs. 35000 crores have been provided for COVID vaccines for the year 2021-22. And if required then the government is committed to spending more. 
  • For Railways, a total amount of Rs. 1,10,055 crores have been committed. And this money will be used for overall railway infrastructure development and for 100% electrification of railway broad gauge by 2023
  • The government to allot Rs 1.03 lakh crore for National Highway Projects in Tamil Nadu. Rs 65,000 core for National Highway Projects in Kerala; Rs 25,000 crore for National Highway Projects in West Bengal. The government will also allot additional Rs 34,000 crore for National Highway Projects in Assam.
  • The FM also proposed to divest two PSU banks and one general insurance company in FY22. Further, divestments of BPCL, CONCOR, Pawan Hans, and Air India will be completed in FY22. FY22 Divestment target is at Rs 1.75 lakh crore.
  • The Government also aims at doubling the ship recycling capacity by 2024. More seven port projects worth more than Rs. 20,000 crores to be undertaken in FY 2022 via PPP
  • Social security benefits to be extended to gig and platform workers. Women to be allowed to work in all categories in night shift also
  • The ‘1 Nation 1 Ration Card’ plan is under implementation by 32 States & UTs. The Centre will launch a portal to collect data on migrant workers.
  • Senior citizens to be benefitted. The ones who are having income sources as Interest and Pension income are exempted. The age limit is for citizens above 75 years. Further, the timeline for re-opening of tax returns has been reduced to three years from six years.
  • To reduce hassle for small taxpayers a dispute resolution committee has been proposed. This will be faceless to ensure efficiency and transparency. Anyone with a taxable income up to Rs 50 Lakhs & disputed income up to Rs 10 Lakhs are eligible to approach the committee.
  • Custom duties are aimed at promoting domestic manufacturing and to promote that following steps have been taken: 1)Cutting duty on Copper scrap to 2.5 %, 2) Plan on bringing nylon at par with polyester with respect to taxation, 3)Duty on Naphtha reduced to 2.5%, 4)The plan is to rationalize custom duties on Gold and Silver
  • The power distribution companies across the country are monopolistic and a need to provide choice to the consumers. A framework will be put in place to give consumers alternatives to choose from among more than one distribution company.

Budget 2021 Overview: Major Reactions on the Budget

According to PM Narendra Modi, Budget Will Give Major Boost To Agriculture, Create Employment

Congress leader Anand Sharma said that the “nation needed a bold budget and more direct transfers to the weaker sections to revive demand, restart job creation.”

Union Defence Minister Rajnath Singh hailed Budget 2021 as the budget for an AtmaNirbhar Bharat that will strengthen the economy.

According to Tapati Ghose, Partner, Deloitte India, The budget speech had an undertone of the Government’s focus on ease of doing business in India. Towards the FM reiterated that tax systems to be transparent, efficient and promote investments in our country. The tax rates, surcharge, cess etc. have been left untouched. Even the much-debated Covid Cess was not brought out. This brings stability and certainty to the tax framework. Definitely a positive move.

According to Adar Poonawala, CEO, Serum Institute of India, “Great Budget 2021 announcements, Nirmala Sitharaman ji, especially on healthcare and vaccines; this is the best investment any country can make. A healthier India is a more productive India

According to Harsh Goenka, Chairman of RPG group, “Cong-anti poor,anti-farmer, unimaginative. BJP-innovative,pro-farmer, help all sections of society CII, FICCI-will kickstart economy, encourage investment

Some TV channels-wasted opportunity, will increase inflation Businessmen-pathbreaking, 10/10”

According to T. V. Mohandas Pai, Padma Shri Awardee and current Chairman of Manipal Global Education, “A growth-oriented,citizen-focused,job-creating budget Truly transformational @narendramodi @nsitharaman @PMOIndia @FinMinIndia @PiyushGoyal Sir starts up have been missed! pl reduce capital gains in startups to 10% from 28%

That’s all for today’s Market Forensics. We hope it was useful for you. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!

Budget 2021 Expectations Nirmala Sitharaman

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.