From Survival to Revival

 

 

 

 

The aphorism “a rising tide lifts all boats” is associated with the idea that an improved economy will benefit all participants and that economic policy, particularly the government’s economic policy, should therefore focus on broad economic efforts. Indeed, the historic Union Budget for 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, growth and more growth, driven by spending, spending and more spending. Decision to reduce the fiscal deficit from an estimated 9.5 per cent of GDP in financial year 2020-21 (FY21), to 6.8 per cent in FY22, without ostensibly raising the tax burden on the tax-paying class, reflects the Modi Government’s people-centric and sensitive approach in managing Government finances, despite running a very tight ship. Setting aside Rs 35,000 crore for the Covid vaccination programme, with the overall Budget outlay for ‘health and wellbeing’, at a healthy Rs 2.23 lakh crore, marked a solid 137 per cent rise in FY22, over FY21.

 

The Modi government is betting on a real GDP growth of 10 per cent-10.5 per cent in FY22, after the estimated 7.7 per cent decline in 2020-21 (FY21). It hopes to accelerate growth based on the multiplier effect of infrastructure spending, which would also spur demand and job creation.

 

 

The foreign direct investment limit in the insurance sector has been raised to 74 per cent from 49 per cent 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 per cent higher than in FY21, the Government has targeted a fiscal deficit of 6.8 per cent 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 balancesheet items, making it the most credible one in recent years, 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 per cent of GDP by 2025-26, 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 per cent, by a handsome 2314 points — the biggest single day rise on Budget day since 1997.

 

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.

 

Allegations from some quarters that the Budget missed out on the supply chain enterprise that keeps the consumption drive intact are baseless. Cash requirements for the short run, especially for small as well as 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.

 

Overall, the Modi Government triggered a positive growth impulse with the Union Budget, striking all the right chords in terms of reviving consumption and boosting 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. Clearly, the Budget will deliver growth, create jobs, restore incomes and boost consumption.

 

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 be made to the FRBM Act 

The focus on employment generation is evident given the Budget’s thrust on creating seven Mega Investment Textiles Parks, augmentation of public bus transport services through the PPP model, at a cost of Rs 18,000 crore and ofcourse, the decision to create five fishing harbours.

 

Under Pillar 3, which covered ‘Inclusive Development for Aspirational India’, a host of measures and enhanced government expenditure announced, including 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 per cent and on raw silk and silk yarn from 10 per cent to 15 per cent. Rationalisation of tariffs was announced on several products—mobile phone parts, gold and silver, etc.

 

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, etc. 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 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”.

 

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, the 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. The Budget 2021, addresses all these areas and more,as it concentrates on creating assets. What takes the cake is,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. The Budget extended the time period of taking loans to buy affordable houses by one year–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. The 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 on housing loan on both self-occupied and rented properties. So, effectively by buying an affordable house, a tax-payer 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 metre (645 sqft) in metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon and Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region). In other cities and towns, the carpet area should not exceed 90 square metre (968 sqft).

 

Coming to the other top proposals of the 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 Atmanirbhar 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 that 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 Atmanirbhar Swasth Yojana are as follows—Support for 17,000 rural and urban wellness centres; Setting up health labs in all districts and 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 and 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 bio-safety, level-3, laboratories and, 4 regional National Institute of Virology.

 

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. In other words, just like number portability exists with respect to telecom service providers, on similar lines, customers will now have the freedom to choose which power distribution company they wish to engage with. 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 amid “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 the addition of 139 GW of installed capacity, the connection of an additional 2.8 crore houses and 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.The Budget 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.

 

The 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.