Union Budget 2021

The budget, on 01st February 2021 was introduced in the parliament. Finance Minister Nirmala Sitharaman had promised a 2021 Budget like “never before”, with the aim of making India the epicentre of global growth. 100 years of India wouldn’t have seen a Budget being made post-pandemic like this”, she said. She stated that the Government will be focusing large measures on improving health infrastructure, increasing private partnerships and investing more for research and development in the field of medicine, biotechnology and pharmaceutical sector. She said that the budget has incorporated all the inputs provided by the health sector to the government during the pre-Budget consultations. She also encouraged the industries to provide suggestions to help in the revival of the economy. 

The Micro, Small, and Medium Enterprises (MSMEs) are always the most vulnerable to economic distress. It has been reported that the MSME sector was the most impacted by the lockdown, due to the stoppage of economic activity. This sector accounts for 45% in the country’s total outbound shipments and contributes to 25% to the country’s GDP. So the MSME sector’s stakeholders had sky high expectations from the Union Budget 2021 – 2022. They expect  the government to boost consumption in the economy, revise GST rates especially for digital payments, simplify tax regime, introduce initiatives to secure MSME interest, empower enterprises to have access to funds and allow SMEs to grow.

It is critical to increase the spending capacity of individuals. Many tax experts have suggested a revision of employee tax provisions considering the change in working environment – “Work from home” or “Work from anywhere” policy. Relaxation of Foreign Direct Investment (FDI) norms to boost investment, deduction for medical insurance, simplification of digital tax, increase in government spending in health sector, urban and rural infrastructure, measures to enable funding for long term infrastructure projects and measures to collect non – tax revenue for the government are expected by individuals and different stakeholders.

Sector-wise Analysis of the Union Budget 2021

With the presentation of the Union Budget 2021 in the Parliament, Finance Minister Nirmala Sitharaman unraveled the much-awaited budget “like never before”, which the public and the other stakeholders had been anticipating. In the light of the pandemic, and the disruption of the Indian Economy, the budget, primarily covering every aspect of the economy, will tend to boost the economy during these unprecedented times. Nirmala Sitharaman highlighted the fiscal position of the country, stating that the budget had proposed expenditure of Rs.30.42 lakh crores in 2020-21, however, the revised estimates are Rs.34.50 lakh crores. The fiscal deficit in Revised Estimates 2020-21 is projected at 9.5% of GDP, which is 3.5% higher than the Budget Estimates. For the required push, the budget estimates for 2021-22 are Rs.34.83 lakh crores, with the inclusion of Rs.5.54 lakh crores as capital expenditure. Moreover, the fiscal deficit is estimated to be 6.8% of the GDP. 

Nirmala Sitharaman commenced her speech stating, “Only three times has the budget followed a contraction in the economy. This time, unlike before, the situation is due to a global pandemic. Budget 2021 provides every opportunity for the economy to capture the pace and grow sustainably”. She added that the people of India have unambiguously given their “janaadesh” not just for political stability, but also reclined their faith in the economic policy. Hence, this is a budget to boost their income and enhance their purchasing power. The Budget 2021 is majorly built on six pillars, id est, health and wellbeing, physical and financial capital & infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation & research and development, minimum government, and maximum governance. 

Here’s an overview of the Union Budget 2021-22 Analysis:

1. Health and Wellbeing: With a holistic approach to health, the budget focuses on strengthening three areas–Preventive, Curative, and Well Being. FM announced a new centrally sponsored scheme “AtmaNirbhar Swasth Bharat Yojana” with an investment of about Rs.64,180 crores over 6 years. A few of the interventions under this scheme are support for rural and urban health and wellness centers, integrated public health labs, critical care hospital blocks, strengthening the National Centre for Disease Control, expansion of the Integrated Health Information Portal, etc. The country shall further launch the Mission Poshan 2.0, with the collaboration of the Supplementary Nutrition Program and the Poshan Abhiyan. The Jal Jeevan Mission and the Urban Swachh Bharat Mission 2.0 will be launched. In order to tackle the problem of air pollution, a total amount of Rs.2217 crores has been proposed. Additionally, to phase out old and unfit vehicles, a voluntary vehicle scrapping policy has been declared. A Made in India product, the Pneumococcal Vaccine will be rolled out across the country and has provided Rs.35000 crores for Covid-19 vaccine in the year 2021-22. 

2. Physical and Financial Capital and Infrastructure: In order to achieve the goal of USD 5 trillion economy, Product Linked Incentive schemes to create manufacturing global champions for an Atmanirbhar Bharat have been announced for 13 sectors. A total of Rs.1.97 crores has been allotted for the same, over 5 years. In addition, Mega Investment Textiles Parks will be launched and concrete steps will be taken under the National Infrastructure Pipeline. A sum of Rs.20000 crore shall be provided to capitalize the Development Financial Institution. For the year 2021-22, there has been a sharp increase in the capital expenditure budget, i.e., Rs.5.54 lakh crores. Similarly, programs/reforms and a specified budget has been allocated to roads and highways, railway, urban, power, ports, shipping, and waterways, petroleum, and natural gas infrastructure. Within March 2022, another 8500 kms would be awarded and completion of an additional 11000 kms of national highway corridors. 

A proposal to amend the Insurance Act, 1938 was made which will increase the permissible FDI limit from 49% to 74% in Insurance Companies. The Government also approved a rise in the Deposit Insurance Cover from Rs.1 lakh to Rs.5 lakhs for bank customers. FM proposed to decriminalize the Limited Liability Partnership Act, 2008. In the coming fiscal year, data analytics, artificial intelligence, machine learning-driven MCA21 Version 3.0 shall be launched. Further, for the benefit of startups, the incorporation of One Person Companies have been incentivized. 

In light of disinvestment and strategic sale, a few transactions namely BPCL, Air India, IDBI Bank, and others shall be completed in 2021-22. 

3. Inclusive Development for Aspirational India: This pillar will cover Agriculture and Allied Sectors, farmers’ welfare and rural India, migrant workers and labor, and Financial Inclusion.  For the adequate flow of credit to farmers, the agricultural credit target has been set to Rs.16.5 lakh crores in FY22. The allocation to the Rural Infrastructure Development Fund is increasing from Rs.30000 crores to Rs.40000 crores. The scope of the “Operation Green Scheme” which was limited to only 3 vegetables will be extended to include 22 perishable products. Due to the transparency and competitiveness brought in by e-NAM in the agriculture market, around 1000 mandis will be further integrated. 

In connection with the fisheries, 5 major fishing harbors will be developed as hubs of economic activity, and a multipurpose Seaweed Park will be established in Tamil Nadu. Four labor codes are being implemented, ranging from minimum wages to all workers, social security benefits extended to gig and platform workers, women allowed to work in all categories, to the reduction in compliance burden on employers. Further facilitating the credit flow under the Stand Up India, the margin money requirement will be reduced from 25% to 15%. To strengthen the MSME Sector, Rs.15,700 crore will be provided. 

4. Reinvigorating Human Capital: With the implementation of the NEP, around 15000 schools will be strengthened, 100 new Sainik Schools with NGOs, 750 Eklavya Model Residential Schools will be established. In order to set up the Higher Education Commission of India, legislation shall be introduced this year. A central University in Leh will be established for accessible higher education in Ladakh. For the benefit of 4 Crores SC students, revamping of the Post Matric Scholarship Scheme and Rs.35,219 crores will be allotted. The existing scheme of National Apprenticeship Training will be realigned for providing post-education apprenticeship, training of graduates, and diploma holders in engineering. In partnership with UAE, an initiative has already begun to benchmark skill qualifications, assessment, and certification, complemented by the deployment of a certified workforce. 

5. Innovation and Research & Development: The expenditure for the National Research Foundation has been set to Rs.50000 crores for 5 years. For enhancing the digital modes of payment, Rs.1500 crores will be reserved. A new initiative- National Language Translation, the launch of PSLV-CS51, and a Deep Ocean Mission with a budget outlay of more than Rs.4000 crores will be undertaken. Moreover, the first unmanned mission “Gaganyaan” launch is set to be scheduled for December 2021. 

6. Minimum Government, Maximum Governance: The National Commission for Allied Healthcare Professionals Bill in Parliament has been introduced, and the National Nursing and Midwifery Commission Bill will be introduced for passing by the government. For the first digital census, Rs.3,768 crores have been allocated. As a tribute, Rs.300 crores will be directed to the government of Goa for the diamond jubilee year of the state’s liberation. Additionally, Rs.1000 crores will be provided for the welfare of tea workers in Assam and West Bengal. 

Establishing a coherent route for the six pillars, the Finance Minister, in an attempt to make the tax system transparent and efficient, proposed a few measures/reforms. 

Direct Tax Proposals: There has been an announcement of a new tax regime. However, those who wish to be in the old regime with exemptions can continue to pay at the old rates. Besides, she announced the scrapping of income tax for senior citizens under certain criteria, new rules for removing double taxation for NRIs, and also a reduction in the time period of tax assessments. Concerning the startups, they will get an extension in their tax holiday for an additional year. Companies will not be required to pay Dividend Distribution Tax. Furthermore, to reduce litigation for small taxpayers, a Dispute Resolution Committee shall be constituted. To make the taxation processes faceless, the Income Tax Appellate Tribunal will be made faceless. For those who carry out 95% of their transactions electronically, the limit for tax audit has now been increased from Rs.5 crore to Rs.10 crore. Few relaxations will be considered relating to prohibition on private funding, restriction on commercial activities, and direct investment in infrastructure, for attracting funds to invest in India. 

Concerning ‘Housing for All’, the eligibility of the additional deduction of Rs.1.5 lakh will be available for loans taken up till 31st March 2022. Affordable housing projects will be able to avail tax holiday for one more year, and tax exemption for notified Affordable Rental Housing Projects. Other proposals include tax holiday for capital gains for aircraft leasing companies, tax exemption for aircraft lease rentals paid to foreign lessors; tax incentive for relocating foreign funds in the IFSC; and allow tax exemption to the investment division of foreign banks located in IFSC. There is relief provided to small charitable trusts, i.e., an exemption to entities whose annual receipt does not exceed Rs.5 crore. For employees, a late deposit of their contribution will not be allowed as a deduction to the employer, to ensure a timely deposit of the employee’s contribution. 

Indirect Tax Proposals: In order to simplify GST, several measures have been taken, and the capacity of the GSTN system has been announced. 

This year around 400 old exemptions will be reviewed and a revised customs duty structure will be put in place from 1st October. Few exemptions on parts of chargers and sub-parts of mobiles will be withdrawn. In relation to the Iron and Steel Industry, a customs duty will be uniformly reduced to 7.5% on certain items. Custom duty rates on certain items will be reduced to 5% and 2.5% for Textiles and Chemicals respectively. Conversely, to encourage domestic production, custom duty on solar inverters and solar lanterns has been increased. Similarly, custom duties were revised for capital equipment, auto parts, MSME products, and agriculture products. Further, there has been an introduction of Aadhaar-based verification for GST compliance and Aadhaar-based quick issuance of PAN.  

Conclusion

With the COVID-19 pandemic disrupting the economy, the Union Budget 2021-22 tends to emphasize on the economic recovery and growth. In the light of this, as the economy encircles itself around healthcare, migrant labourers, farmers, MSMEs, education, and most importantly Atmanirbhar Bharat, the Union Budget and its ground-level implementation holds high expectations from the common public. For the first time in the history of Independent India, Finance Minister Nirmala Sitharaman presented the Union Budget in a paperless format. 

The Union Budget 2021 has laid a vision for AtmaNirbhar Bharat that focuses on strengthening infrastructure, enhancing farmers income, health sector, education sector, women empowerment, opportunities for youth and inclusive development. It has encouraged a transparent and efficient tax system that promotes investments and employment in the nation. 

As an immediate impact of the Budget, the stock market witnessed some soared consequences. The benchmark equity indices registered their biggest Budget day gains, in absolute terms, settling around 5% higher. The S&P BSE Sensex rallied 2314.84 points to settle at 48,600.61, whereas Nifty 50 ended at 14281.20, increasing by 646.60 points. In light of the New Education Policy, the government has attempted to direct an adequate budget towards schools, colleges, various institutions, scheduled castes, and other groups. Across different areas, several programs were launched ranging from infrastructure, agriculture, health sector, taxation, to human capital. With the themes, the finance ministry, the government, and other policymakers strive towards positively impacting as many sectors, with the budget.