The popular aphorism "a rising tide lifts all boats" is associated with the idea that an improved economy will benefit all participants. The economic policy, particularly government economic policy, should focus on broad economic efforts. Indeed, the historic Union Budget for the financial year 2021-22, had Prime Minister Narendra Modi's ambitious and visionary stamp all over it. The Modi government loosened the exchequer's purse strings and presented a historic Budget focused on growth and all-round development. The decision to reduce the fiscal deficit from an estimated 9.5% of GDP in 2020-21 (FY21), to 6.8% in FY22, without raising the burden on the tax-paying middle class, reflects the Modi government's people-centric sensitive approach in managing government finances, despite an unproductive year due to the COVID-19 pandemic. Setting aside Rs 35,000 crore for the vaccination programme with the overall Budget outlay for 'Health and Well Being', at a healthy Rs 2.23 lakh crore marked a solid 137% rise in FY22,over FY21.
Focusing on job creation
The Modi government is betting on real GDP growth of 10%-10.5% in 2021-22 (FY22), after an estimated 7.7% decline in 2020-21 (FY21). It hopes to accelerate growth based on the multiplier effect of infrastructure spending, spur demand and job creation. Invoking Rabindranath Tagore's quote, 'Faith is the bird that feels the light and sings when the dawn is still dark', the Union Finance Minister, compared the Budget to team India's successful comeback in the Test series against Australia. She said it provides every opportunity for 'our economy to raise and capture the pace that it needs for sustainable growth'. "I want to confidently state that our government is fully prepared to support and facilitate the economy's reset," Nirmala Sitharaman asserted, before unveiling a few big-ticket reform signals for global investors.
The Foreign Direct Investment limit in the insurance sector has been raised to 74% from 49% and a 'bare minimum' number of public sector enterprises (PSEs) will be retained even in strategic sectors like Defence, under an ambitious, new, strategic disinvestment policy that will kick off with the sale of two public sector banks and a general insurance company in 2021-22, showcasing how pushing ahead with structural reforms, continues unhindered on the Modi government's agenda.
A new Development Finance Institution (DFI) is being set up to fund infrastructure projects under the National Infrastructure Pipeline (NIP), while an asset reconstruction firm or 'bad bank' will be tasked with taking over bad loans of public sector banks, to cope with rising non performing assets (NPAs). Rs 20,000 crore has been earmarked for recapitalisation of banks. Proposing a capital expenditure of Rs 5.54 lakh crore in FY22, which is 34.5% higher than in FY21, the government has targeted a fiscal deficit of 6.8% of GDP, in FY22, with gross market borrowings of Rs 12 lakh crore, in 2021-22. The Budget's fiscal arithmetic is fully transparent, with hardly any unaccounted and off balance sheet items, making it the most credible one in recent years. It is based on a realistic disinvestment target of Rs 1.75 lakh crore and a reasonable rise in non-tax revenue receipts. The government plans to continue with its path of fiscal consolidation and intends to reach a fiscal deficit level below 4.5% of GDP by 2025-2026, with a fairly steady decline over this period, by increasing the buoyancy of tax revenues, through improved compliance and, by increased receipts from monetisation of assets, including public sector enterprises and land. The stock markets responded enthusiastically, with the BSE Sensex rising 5%,by a handsome 2314 points, the biggest single-day rise on Budget day, since 1997.
Neutralising Impact of Cess
An Agriculture Infrastructure Development Cess (AIDC) was announced on several items including petrol and diesel but the government asserted that this will have no impact on end consumers. The government will reduce excise duties and special additional excise duties (SAED), to neutralise the impact of AIDC, on end customers. The funds collected via AIDC will be used for building farm infrastructure.
The Union Budget for 2021-22 revised the expenditure target for FY 2021 to Rs 34.50 lakh crore. Allocation of Rs 2.24 lakh crore for health, Rs 1.18 lakh crore for road infrastructure, Rs 1.10 lakh crore for railways and an outlay of Rs 3.6 lakh crore for the power sector, are among the defining highlights. This Budget assumes great significance as it comes amidst the pandemic, which has led to massive economic disruption in India and around the world. While the country has witnessed strong economic recovery since lockdown restrictions were eased, there's still a long way to go.
All eyes were on this Budget, with hopes that it will help revitalise the economy. And certainly, the Budget more than lived up to expectations. Exemption from income tax filing for those over 75 years of age who have only pension and interest income,is a big relief for senior citizens. Reopening of tax assessment will happen only for three years, against the earlier limit of six years, which is a very forward-looking step, from the tax terrorism that was witnessed during the erstwhile, inept, Congress led dispensation. 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 expected to reduce instances of tax harassment of honest, income taxpayers.
From some quarters, the Budget missed out on the supply chain enterprise that keeps the consumption drive intact is baseless. Cash requirements for the short run, especially for small and mid-sized business houses were given a boost via the emergency credit line guarantee scheme (ECLGS) under the earlier three, Atmanirbhar packages, announced in 2020. Announcement of a gas pipeline project for Jammu and Kashmir is good news. Setting up of a Central university in Leh district of the Union Territory of Ladakh for accessible higher education, is also welcome.
Overall, the Modi government triggered a positive growth impulse with the Union Budget, striking all the right chords to revive consumption and boost investments. The revised estimate for direct tax collection in FY21 is Rs 9.05 lakh crore, Rs 6.63 lakh crore has already been collected. The Budget will deliver growth, create jobs, restore incomes and boost consumption. The government is betting on infrastructure projects' fiscal multiplier effect to achieve its objectives of driving consumption and investment-led growth.
Whenever history is written, Prime Minister, Narendra Modi's unprecedented reforms will be written about, in golden letters, in sparing no efforts in transforming India, into an economic powerhouse. The focus on employment generation is evident given the Budget's thrust on creating seven mega Investment Textiles Parks (MITRA), augmentation of public bus transport services through the PPP model, at a cost of Rs 18,000 crore and of course, the decision to create five fishing harbours. One of the criticisms of the past Budgets under incompetent Congress regimes, was not only that outlays for agriculture had remained conservative but, more importantly, the expenditure had gone to unproductive avenues– interest and subsidies, rather than capital investment. Under Pillar 3 which covered 'Inclusive Development for Aspirational India', a host of measures and enhanced government expenditure announced, include increasing agricultural credit to farmers with a massive outlay of Rs 16.5 lakh crore, enhanced allocation to Rural Infrastructure Development Fund (RIDF), from Rs 30,000 crore to Rs 40,000 crore and doubling the outlay under Micro Irrigation Fund,from Rs 5,000 crore,to Rs 10,000 crore.
Further, the scope of 'Operation Green Scheme', presently applicable to tomatoes, onions, and potatoes (TOP), has been enlarged to include 22 more, perishable products. The customs duty on cotton has been raised from nil to 10% and on raw silk and silk yarn from 10% to 15%. Rationalisation of tariffs was announced on several products—mobile phone parts, gold and silver, etc. A roadmap for review of 400 odd exemptions this year, through extensive consultation has also been announced.
The adverse situation of migrants and the unorganised sector, caused by the pandemic,was addressed by the nationwide implementation of "One Nation One Ration Card", schemes like the Pradhan Mantri Garib Kalyan Yojana (PMGKY) at the cost of Rs 2.76 lakh crore, with the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), which fed 81 crore people every month, for nine months in a row, alone accounting for a solid Rs 1.7 lakh crore. Moreover, a portal is being launched that will collect relevant information on gig building, and construction workers, among others, who will now get social security, gratuity benefits and minimum wages, under the new labour codes.
Measures towards upgrading infrastructure and technology for efficiency and lowering financial losses have come as a relief for power discoms that have been suffering from revenue losses due to theft, poor transmission infrastructure. The need for promoting competition to enable greater choice to consumers to eliminate the monopoly of discoms, is on the horizon. Continuing with the promise of "Aspirational India", the Budget has allocated a generous amount for the National Research Foundation and support for space research and missions. A Deep Ocean mission shall ensure that India rubs shoulders with western counterparts.Four astronauts are already
being trained for "Mission Gaganyaan".
Roadmap for Atmanirbhar Bharat
While the so-called, dream 1991 Budget was growth-oriented, it did not address the basic problems, especially in employment, agriculture, and health sectors. In sharp contrast, Budget 2021 has adequately struck a fine balance between macro-economic reforms and equally important public policy areas of agriculture and healthcare, by moving the pivot from 'survival' to 'revival'. For this, people must have money in their pockets to spur demand, banks must lend money, and our businesses must get globally competitive. Budget 2021 addresses all these areas as it concentrates on creating assets. What takes the cake is the policy certainty without burdening taxpayers and steps to enhance their experience through augmentation of faceless dispute resolution. A few years back, it was difficult to imagine a Digital India, Start-up India or Atmanirbhar Bharat, but Prime Minister Narendra Modi's courage of conviction and excellent execution skills, made these a reality.
Keeping the middle class at the forefront of its agenda, the Modi government decided to give a fillip to the buyers of affordable houses. Budget 2021 extended the time period of taking loans to buy affordable houses by one year – i.e. from March 31, 2021 to March 31, 2022, to avail additional tax benefits of Rs 1.5 lakh u/s 80-EEA of the Income Tax Act, 1961. Section 80-EEA provides tax benefits up to Rs 1.5 lakh on the interest paid on loans taken for residential house property, for affordable housing. The benefit is over and above the tax benefit of Rs 2 lakh available u/s 24(B) of the Income Tax Act, on interest in housing loans on self-occupied and rented properties.
So effectively, by buying an affordable house, a taxpayer may avail tax benefits up to Rs 3.5 lakh,on interest paid on home loan taken to buy such a house. The value of house property should not exceed Rs 45 lakh.
To be qualified as an affordable house, the carpet area of the house property should not exceed 60 square meter (645 sq ft) in metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region).In other cities and towns, the carpet area should not exceed 90 square meters (968 sq ft).
Coming to the other top proposals of Budget 2021, the Modi government aims to spend Rs 1.97 lakh crore on various production linked incentive (PLI) schemes over the next five years, in addition to the Rs 40,951 crore announced for the PLI scheme for electronic manufacturing, last year. This will attract 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. The government has announced a new Central healthcare scheme to strengthen the country's healthcare infrastructure over the next six years. The Pradhan Mantri Atma Nirbhar Swasthya Bharat Yojana, which will operate in addition to the existing National Health Mission, has been allocated a good Rs 64,180 crore.
This scheme is expected to be used to develop capacities of primary, secondary and tertiary healthcare systems as well as existing national institutions, over a period of six years.
The FM also stated that the Jal Jeevan Mission (Urban), will be launched which aims at universal water supply in all 4,378 Urban Local Bodies with 2.86 crore household tap connections, as well as liquid waste management in 500 AMRUT cities. It will be implemented over 5 years, with an outlay of Rs 2.87 lakh crore. Main features of the PM Atma Nirbhar Swasth Yojana are support for 17,000 rural and urban wellness centres; setting up health labs in all districts and opening of 3382 public block units in 11 States; establishing critical care units in 602 districts and 12 government institutions; strengthening National Centre for Disease control, its five centres and its urban units.
Expansion of the integrated health portal to all States & UTs; operationalisation of 17 Public Health units and strengthening of 33 existing units at points of entry, 33 airports, 7 sea ports and 11 land crossings; setting up of 17 health emergency centres and 2 mobile hospitals; setting up a regional WHO centre office, 9 biosafety level- 3, laboratories and,4 regional National Institute of Virology are other features.
Further, the total financial allocation for the Urban Swachh Bharat Mission 2.0 is Rs 1.42 lakh crore and is to be implemented over five years, starting from 2021. In terms of nutrition, it has been decided to merge the "Supplementary Nutrition Program" with "Poshan Abhiyan", to launch Mission Poshan 2.0. An amount of Rs 2,217 crore has also been allocated to 42 urban centres with million-plus populations, to manage air pollution.
Fillip to Discoms
A lesser discussed but extremely important measure is the decision to create a framework to give consumers alternatives to choose from more than one power distribution company. The government has allocated close to Rs 3.60 lakh crore in the Budget towards launching a "revamped", reforms-based, result-linked power distribution sector scheme. This comes amidst "serious" concerns over the viability of power distribution companies (discoms) in the country. The scheme is expected to provide assistance to discoms for infrastructure creation, tied to financial improvements, including prepaid smart metering, feeder separation and upgradation of systems. Discoms across the country are monopolies, whether government or private. There is a need to provide a choice to the consumer. The past six years have seen a "number" of reforms and achievements in the country's power sector, including 139 GW of installed capacity, the connection of an additional 2.8 crore houses, and the addition of 1.41 lakh,circuit kilometres of transmission lines. Freedom to choose their distribution company is aimed at offering competition at operator level and more choice to consumers.It will also lead to better efficiency levels within the power distribution sector.
Strategic disinvestment of companies, including BPCL, Air India, Pawan Hans, IDBI Bank, Container Corporation of India, to be completed in 2021-22, showcases the Modi government's determination to extract value and not only shore up revenues, but also to get out of businesses. Announcing its version of the "Bad Bank" proposal, the Modi government will set up a National Asset Reconstruction and Management Company (NARC) for stressed assets to take over bad loans. Alongside, a Rs 20,000-crore equity infusion has been announced for public sector banks (PSBs), to recapitalise the banking sector. The FM said the government will take up strategic sale of two public sector banks and one general insurance company, along with completing the sale of BPCL, Concor, SCI, IDBI and BEML among others in 2021-22. These measures are expected to strengthen the State-owned banks and hasten the process of clean up of their balance sheet. The divestments will help raise revenues for the government and is expected to improve efficiency and provide momentum to privatisation.
There are many mechanisms to proceed with how to realise value from the NARC. Though India has over a dozen private ARCs, no state-owned banker in the current environment has been courageous enough to sell bad assets to these ARCs at a discount, for various reasons. And since private ARCs will ask for a massive haircut from banks, it is here that a national ARC can inspire confidence amongst banks and hence the decision to set up a NARC, is a highly bold move by the Modi government.
Decision to hike the FDI limit in Insurance from 49% to 74% will help increase capital inflows in insurance companies and enhance their expansion and growth. The majority of directors on board and key management personnel will be Indians. Given that there is a lack of finance for infrastructure and long gestation projects, the announcement of setting up of a professionally managed Development Financial Institution (DFI), with a statutory backing and initial capital of Rs 20,000 crore, is great news, as this DFI will have a loan portfolio of Rs 5 lakh crore. The proposed DFI will be used to finance both social and economic infrastructure projects identified under the National Infrastructure Pipeline (NIP).
The government also introduced the scrapping policy to remove unfit vehicles on a voluntary basis. All private vehicles beyond 20 years and commercial vehicles older than 15 years old, will have to undergo a fitness test. The vehicle scrapping proposal is expected to boost the auto sector, both for commercial and private vehicles.
The government plans to strengthen the NCLT framework further and continue with the e-court system for faster resolution of bad debts. A separate framework for MSMEs will also be made by the government, besides doubling allocation for MSMEs to Rs 15,700 crore. With the government-imposed moratorium on admission of new cases likely to end by March 31, a number of MSMEs, which have not been able to earn enough during the current fiscal are likely to be taken to insolvency by their creditors. The separate framework will therefore help MSME owners avoid losing their company while continuing to pay the debt.
Budget 2021 also announced the extension of benefits of the Ujjawala scheme to an additional 1 crore people in 100 more districts, underlining the government's compassionate approach which cares for those who are still at the lower end of the income pyramid. The scheme, which provides LPG connections with financial assistance from the central government and currently benefits 12 crore households, will be extended further to provide clean and cheap cooking fuel.
Reducing Gender Disparity
Social security net for gig and platform workers, with applicable minimum wages and decision to cover all workers under ESIC, will reduce gender disparity, as it will empower women workers. It is a known fact that women work in large numbers as gig workers but are underpaid, for the same work, as compared to their male counterparts. This empowering move will impact around 15 million gig workers in India, in addition to online platform providers across sectors such as transportation (Uber and Ola), food delivery (Swiggy and Zomato), and the contract workers in IT and software firms. The Economic Survey had noted that India has become one of the largest markets for flexi-staffing in the world due to the wider adoption of e-commerce and online retailing. It had also said that the increasing role of the gig economy was evident through the significant growth of online retail businesses during the lockdown, caused by COVID-19 pandemic. Hence strengthening the gig economy was long overdue.
Speaking of finances, the Modi government plans to borrow Rs 80,000 crore to fund the deficit in FY21. Gross market borrowings for next year have been pegged at Rs 12 lakh crore. A new roadmap for fiscal consolidation has been announced in the Budget, with suitable amendments to the FRBM Act. For every rupee in the government coffers, 53 paise will come from direct and indirect taxes, 36 paise from borrowings and other liabilities,6 paise from non-tax revenue such as disinvestment and 5 paise from non-debt capital receipts. Goods and services tax (GST), will contribute 15 paise in every rupee revenue, while corporate tax will contribute 13 paise to each rupee earned. The Modi government is also looking to earn 8 paise for every rupee, from Union excise duty and 3 paise from customs duty. While, income tax will yield 14 paise to every rupee collection. On the expenditure side, the biggest outlay component is interest payments at 20 paise for every rupee, followed by the States' share of taxes and duties at 16 paise. Allocation for the defence stood at 8 paise. Expenditure on Central sector schemes will be 14 paise, while the allocation for Centrally-sponsored schemes will be 9 paise. The expenditure on the Finance Commission and other transfers is pegged at 10 paise. Subsidies and pension would account for 8 paise and 5 paise, respectively, in each rupee spent. The government will spend 10 paise in every rupee on other expenditures.
A big benefit but relatively less discussed measure in Budget 2021,is the proposal to amend the definition of a "Small Company" under Section 2(85) of the CA, 2013 small companies under the Companies Act, (CA), 2013. As per the new definition, "Small Company" will mean a company that has paid-up share capital of not more than Rs 2 crore. Earlier, this paid-up capital was capped at Rs 50 lakh. The threshold of annual turnover has also been raised from Rs 2 crore to Rs 20 crore.This is a big move that will benefit over 2 lakh companies and will incentivise companies to grow and expand, because small is not necessarily, always, beautiful. A small company is a private company that has a limited area of operation. It has fewer employees and the Companies Act, 2013, has provided for certain benefits for small companies. Some of the benefits are--A small company needs to hold only 2 Board Meetings in a calendar year, whereas other companies are required to hold 4 Board Meetings; The Annual Return can be signed by Company Secretary alone or in case of no Company Secretary, by a single director; No need to maintain a Cash Flow Statement as part of its Financial Statements; No need to report internal Financial controls and the operating efficiency of the company; Lesser Penalties as compared to every other company. Small Companies or any of their officers in default are subject to lesser penalties under Section 446-B of the CA, 2013, for non-compliance of any provisions of the CA, 2013.
The Budget, furthermore, allows NRIs to form a "One Person Company" (OPC). Earlier, NRIs were exempted from forming a "One Person Company". However, they were allowed to become directors of an Indian company. Only resident individual persons could start an OPC in India. This new proposal would therefore, undoubtedly benefit many NRIs. Section 2(62) of the Companies Act defines an OPC as a company that has only one person as its member. Furthermore, members of a company are nothing but subscribers to its memorandum of association, or its shareholders. It is effectively a company that has only one shareholder as its member. Companies Act provides certain benefits to the one person companies like the following-– No need to hold annual meetings, no independent directors required, more remunerations to directors compared to other companies, etc. Further, for the purpose of relaxing the eligibility of persons for forming OPCs, the Modi government also proposes to ease the residential requirements for the person setting up an OPC, from 182 days to 120 days, in India.
Significant changes in the area of corporate laws have been proposed. Changes have been proposed to decriminalise the Limited Liability Act, 2008 (LLP Act), 2008 and an updated version of the MCA has been announced. The motive behind the same is to de-clog the courts or the NCLTs, thereby reducing their burden from non-serious matters. Another serious step is the decision to revamp the MCA portal by launching "MCA-21 Version 3.0", in the financial year 2021-22. The new version will be using data analytics, artificial intelligence and machine learning drive and will have additional modules for e-scrutiny, e-adjudication, e-consultation and compliance management.It has been proposed to strengthen the NCLT framework to ensure faster resolution of cases. In light of the new normal and increased emphasis on "Digital India'', e-courts have been proposed to be implemented.Further, with a similar intent and to further provide an alternate mode of debt resolution, a separate framework is also proposed for the cases involving MSMEs.FDI limit increase in insurance companies from the current 49% to 74%,comes with various riders and rightfully so.Majority of directors on the board and key managerial persons (KMP) to be residents of India,at least 50% of the directors to be independent directors and specified percentage of profits to be retained as general reserve,are some of the safeguards, proposed.The Budget has proposed to consolidate the provisions of following laws relating to securities market into a rationalised single Code to be termed as "Securities Market Code"---these are,the SEBI Act 1992, Depositories Act 1996, Securities Contracts (Regulation) Act 1956, and Government Securities Act, 2007.The Finance Bill has also proposed to insert a new section 8-G to the Indian Stamp Act, 1899, with respect to stamp duty exemption in case of strategic sale, disinvestment , sale of an immovable property, demerger, asset transfers between government entities ,etc.
Budget 2021 for financial year 2021-22 is historic in more ways than one to cut to the chase.This Budget proposes a significantly enhanced capital expenditure,at a massive Rs 5.54 lakh crore, besides creating institutional structures and giving a big thrust to monetising assets, to achieve the goals of the National Infrastructure Pipeline (NIP).
NIP that was launched with 6,835 projects has now been expanded to 7,400 projects and around 217 projects worth Rs 1.10 lakh crore, have been completed. Focus on growth, growth and more growth, by spending, spending and more spending, with inclusivity as its hallmark,is the defining paradigm of this Budget. Launched on June 1, 2020, SVANidhi scheme,which caters to the poor like hawkers and street vendors, received applications, as of January 28, 2020, amounting to over 33.22 lakh, out of which more than 18.21 lakh applications involving Rs 1,817 crore were sanctioned. Out of the sanctioned applications, nearly 13.63 lakh applications involving close to Rs 1,344 crore have been disbursed. This vindicates Prime Minister Narendra Modi's clarion call for last-mile delivery.
The Modi government has also empowered MSMEs which account for over 30% of our GDP and over 40% of our exports, by sanctioning over 71% of its ambitious Rs 3 lakh crore Emergency Credit Line Guarantee Scheme (ECLGS), outlay. Under ECLGS, around 12 public sector banks, 23 private sector banks and 31 non-banking financial companies (NBFCs) sanctioned a loan amount of over Rs 2.14 lakh crore to 90.57 lakh borrowers, out of which Rs 1.66 lakh crore was disbursed to 42.47 lakh borrowers. The tremendous response received for the SVANidhi and the ECLGS schemes, validate the brilliant execution skills of the Modi government.It would be apt to conclude by saying that, "If leadership is about inspiring others to dream more, learn more, do more and become more", then, clearly, Prime Minister Narendra Modi has set an extraordinary example,that will be tough to replicate. A famous aphorism says, "Leaders are made, they are not born". Well, in the case of PM Modi, leadership that is compassionate,bold, progressive and modern, as highlighted in Budget 2021, combines the essence of everything that tall leaders valiantly stand for and live by.
(The writer is an economist, National Spokesperson for BJP and Bestselling Author of "Truth & Dare--The Modi Dynamic".)