Dr Manoj S KamatThe Union Budget 2021 was looked with hope and optimism for being the first budget after the Covid crisis hit us badly. The economic survey as a precursor to the budget provided us with a glimpse of the grim condition of the prevailing economic environment and talked of the ‘V-shaped’ recovery of growth momentum. In light of the above, Budget 2021 was expected to provide us with the road map, and I must admit that it did succeed in this attempt.
The Budget proposes a comprehensive ‘Securities Market Code’ that will include the SEBI Act, Securities Act and the existing Depositories Act.
The rebirths of Development Financial Institution, reliance on divestment, and separate framework for MSME for debt management remain its salient features.
The capital expenditure outlay for 2021-22 is pegged at Rs 5.54 lakh crore and likely to boost local demand through the government spending route. The budget targets benefitting customers of affordable housing, making up for more than 35 per cent of the supply across the top 7 cities in the country. This segment has got a big boost with extension in the period for extra deduction of Rs 1.5 lakh available for loans up to 31st March 2022.
DOMESTIC PRODUCTION
Domestic manufacturing is going to be a big growth engine with previous corporate tax reductions, correction of inverted duty structures and a lot more subsidy to come on the prime lending front. The government aims to spend Rs 1.97 lakh crore on various Production Linked Incentive (PLI) schemes to aid manufacturing over the next five years starting this fiscal. This is in addition to the Rs 40,951 crore announced for the PLI for electronic manufacturing schemes.
SOCIAL FRONT
The budget rightly stresses on health and infrastructure development. The extension of benefits of the Ujjawala scheme to an additional one crore people, scrapping policy to remove unfit vehicles, allocation of Rs 35,000 crore for coronavirus vaccines is socially good. What is encouraging is the fact that the emphasis is not only on infrastructure but on treatment to ensure the protection of public health and water bodies.
The mindset of the government is on higher disinvestment through a target of 1.75 lakh crore through strategic sale of airports, ports, PSU’s along with monetisation of government land banks. Though the target seems to be too unrealistic, it is at least hoped that the much-awaited disinvestment of BPCL, Air India, BEML Pawan Hans, IDBI Bank, Container Corporation of India will be finally completed in 2021-22 along with the strategic sale of two public sector banks and one general insurance as planned.
FINANCIAL FRONT
The budget speaks of setting up of a professionally managed Development Financial Institution (DFI) with a statutory backing and Rs 27,000 crore capital to finance both social and economic infrastructure projects identified under the National Infrastructure Pipeline (NIP). The opening up of insurance from 49 to 74 per cent, easing of rules relating to FDI and NRI, and creation of a platform for a cleanup plan for stressed assets were long-standing demands of the industry. Expanding FDI in insurance will help in capital infusion in this high gestation industry will increase the insurance penetration rate in India. It will also provide room for more players in the market, thus increasing competition and choice of products to choose from.
CUSTOMS DUTIES
The reduction in Customs duties on gold and silver will bring some relief to the consumers. The increase in Customs duty on certain iron and steel products may adversely affect the real estate and infrastructure sector. Customs duties have been increased on certain auto parts, parts of mobile phones and solar panels to provide impetus to domestic manufacturing. Customs duty on steel reduced to 7.5 per cent will create some space for real estate developers who may not be in a position to increase prices immediately.
FIRST OF THE CENTURY
The budget provides an impetus to aviation, agriculture finance, real estate assets, including logistics and warehousing.
The first budget of the century was unprecedented for being paperless and marks a significant departure from the time-tested ‘feel good factors’ like change in tax slabs, reduction of duties, provision of deductions, tinkering of GST rates, subsidies, sops and direct transfers. The only change announced in regards to individuals' income tax was that senior citizens aged more than 75 years will now be exempted from filing Income Tax Returns.
The Union Budget 2021 is certainly a budget promising next-gen reforms in the economy. The intentions are good and this is the best what the government could do given the fiscal constraints. Leaving aside the ‘misses’ of the budget (to be published tomorrow), the ‘hits’ are certainly to be applauded for.
(The author is a popular columnist and commentator on polity and economy. He has a PhD in Finance from IIT Bombay and Post Doc Fellow in Economic Policy)
