Budget  2021

Introduction

• The Union Budget is the annual budget of the Indian Republic. It is presented every year in the month of February generally by the Union Finance Minister.The Union Budget is also known as the Annual Financial Statement. Article 112 of the Constitution of India lays down that it is a statement of the estimated expenditure and receipts of the Government for a particular year.

1. The Budget keeps the account of the finances of the government for the fiscal year (from 1st April to 31st March).
2. The Budget is presented on 1st February (until 2016, it was presented on the last working day of February) so that it can materialise before the commencement of the new financial year which starts on 1st April.
3. In 2017, a 92-year-old tradition was broken when the railway budget was merged with the Union Budget and presented together.
4. The Budget has to be passed by theLok Sabha before it can come into effect.
5. The Union Budget is divided into Revenue Budget and Capital Budget.
6. In the Union Budget, the disbursements and receipts of the government comprise the varioustypes of government funds in India namely, the Consolidated Fund of India, the Contingency Fund and the Public Account.
7. TheEconomic Survey of India is released ahead of the presentation of the Budget. This document is prepared under the guidance of the Chief Economic Advisor and is presented for discussion in both Houses during the Budget session.

 

 

Budget and Constitutional Provisions

• According toArticle 112 of the Indian Constitution, the Union Budget of a year is referred to as the Annual Financial Statement (AFS).
• It is a statement of the estimated receipts and expenditure of the Government in a Financial Year(which begins on 1st April of the current year and ends on 31st March of the following year).

Overall, the Budget contains:

• Estimates of revenue and capital receipts,
• Ways and means to raise the revenue,
• Estimates of expenditure,
• Details of the actual receipts and expenditure of the closing financial year and the reasons for any deficit or surplus in that year, and
• The economic and financial policy of the coming year, i.e., taxation proposals, prospects of revenue, spending programme and introduction of new schemes/projects.

In Parliament, the Budget goes through six stages:

• Presentation of Budget.
• General discussion.
• Scrutiny by Departmental Committees.
• Voting on Demands for Grants.
• Passing an Appropriation Bill.
• Passing of Finance Bill.
• The Budget Division of the Department of Economic Affairsin the Ministry of Finance is the nodal body responsible for preparing the Budget.
• The first Budgetof Independent India was presented in

 

Balancing Fiscal deficit and the Fiscal Responsibility and Budget Management Act Target:

• India’s GDP is estimated at ₹200 lakh crore. The first priority for spending should be health and infrastructure.
• India has only five beds for 10,000 Indians and ranks 155th on bed availability in the Human Development Report of 2020.
• Experts opine that the government should increase healthcare spending from 1.5% of the GDP to 2.5%.

1. The pandemic has severely affected growth. The government was quick to announce a package of ₹20 lakh crore.
2. Fiscal deficit could overshoot the target set by the Fiscal Responsibility and Budget Management Act.
3. Spending more is going to be difficult. According to the Centre for Monitoring Indian Economy, unemployment, both rural and urban, is surging, and health and infrastructure budgets are getting stretched.
4. Going by past experience, we can make some predictions about the Finance Minister’s Budget Speech this year.
5. It can be expected that it will be full of self-congratulatory declarations of how the country, the economy and the government’s finances have withstood the pandemic and how the economy is set on a path of revival.
6. It will claim that the government’s policies have enabled the country to deal with the spread of COVID-19.
7. It will downplay the completely inadequate health spending even in the face of the pandemic, and use absolute numbers rather than rates of change to suggest that public spending has been directed towards those in need.
8. Finance Minister may take credit for controlling the fiscal deficit as much as possible despite the reduced tax collections, and even claim that she has been munificent to the State governments by increasing their borrowing limits.

Criticism needs to be check in: Expenditure estimates and Actual Revenues Expenditure:

1. Every year, Actual revenues being much less than the Budget projections: each year, this mistake is repeated and even amplified.
2. The expenditure estimates are even more disingenuous, because they understate the actual expenditures that should be counted.
3. This concern has been repeatedly brought up by the Comptroller and Auditor General of India (CAG).
4. A CAG report in 2018 identified at least three methods of reducing the stated expenditure: not paying for the full fertilizer subsidy by using “special banking arrangements”; not paying the central government’s dues to the Food Corporation of India (FCI) for the food subsidy, and forcing the FCI to borrow from the market; using other special purpose vehicles to pay for infrastructure investment, like the Long Term Irrigation Fund.
5. In 2017-18, just those three items amounted to ₹1,29,446 crore, or 1.8% of GDP.
6. To these could be added other strategies the central government uses to “reduce” its own spending, like not paying States their rightful dues under the Goods and Services Tax Compensation Fund, or not paying what State governments have already spent on the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), which is legally mandated.
7. These strategies are problematic not only because they are non-transparent: they also force other agencies (like State governments and public sector enterprises) to go in for expensive commercial borrowing that unnecessarily adds to their future interest costs.
8. But what all this does underline is that the numbers presented in the Budget are not to be taken seriously, either for current year projections, or for the next year’s estimates. This also effectively means that Parliament is reduced to approving a piece of fiction.

Government reduced its real spending over the period of the pandemic: Controller General of Accounts (CGA) data and spending:

1. The data from the Controller General of Accounts provide the most reliable information.
2. Between April and November 2020, revenues of the central government predictably collapsed, by around 18%, or ₹181,372 crore, compared to the same period of the previous year.
3. But despite that, expenditures should have gone up, because the lockdown-induced collapse in economic activity meant that public spending would be the only thing keeping the economy afloat.
4. Indeed, that is what the government promised: in three rounds of stimulus packages, it claimed to inject amounts of ₹1.7-lakh crore in March, ₹20-lakh crore in May and then ₹2.65-lakh crore in November.
5. But it turns out that very little of these apparently large amounts involved actual commitments of more public spending.
6. And the public accounts show that total spending of the central government increased by only ₹86,301 crore. That was only a 4.6% increase — not even enough to keep pace with inflation.
7. In other words, the central government reduced its real spending over the period of the pandemic and economic crisis.
8. This fiscal stance obviously adds to the material suffering of the people and deprives them of basic goods and essential public services at a time of much greater need.
9. But it is also a macroeconomically stupid strategy, because it adds to contractionary tendencies in the economy, and prolongs the severe demand recession facing millions of small and informal enterprises and hundreds of millions of self-employed workers.

RBI must chip in:

• The RBI will also have to play its part and continue with its accommodative stance.
• With the central bank making it clear that it now prioritises growth over inflation control, there are some economists who expect it to cut interest rates further if the price situation shows signs of coming under control.
• This will bring down the cost of money for Indian businesses and help improve consumer sentiment, a key prerequisite for people to once again start spending on discretionary goods.

Way Ahead with the Budget:

• The Finance Minister has left significant imprintsin the Budgets she has presented.
• The lowering of corporate tax rates, the introduction of the option to choose the tax rate both for companies and for individuals up to fixed monetary limits, the introduction of the Vivad se Vishwas scheme without sacrificing revenue, and the structured infusion of fiscal stimulus without accelerating inflation all point to a right approach to Budget-making.
• We can expect a never-before Budget to be presented to meet the crisis created by COVID-19. The super-rich must co-operate without insisting on tax concessions.

PART-A

Key Highlights of Union Budget 2021-22

• Presenting the first ever digital Union Budget, Union Minister of Finance and Corporate Affairs Smt. Nirmala Sitharaman stated that India’s fight against COVID-19 continues into 2021 and that this moment in history, when the political, economic, and strategic relations in the postCOVID world are changing, is the dawn of a new era – one in which India is well-poised to truly be the land of promise and hope.
• The Union Budget for 2021-2 proposals for this financial year rest on six pillars that are:

1. Health and Wellbeing
2. Physical & Financial Capital, and Infrastructure
3. Inclusive Development for Aspirational India
4. Reinvigorating Human Capital
5. Innovation and R&D
6. Minimum Government and Maximum Governance

 

• According to the Minister, Budget proposals will strengthen the Sankalp of Nation First, Doubling Farmers Income, Strong Infrastructure, Healthy India, Good Governance, Opportunities for youth, Education for All, Women Empowerment, and Inclusive Development among others.

1.Health and Wellbeing

• There is substantial increase in investment in Health Infrastructure and the Budget outlay for Health and Wellbeing is Rs 2,23,846crore in BE 2021-22 as against this year’s BE of Rs 94,452 crore, an increase of 137 percentage in investment in Health Infrastructure.
• The Finance Minister announced that a new centrally sponsored scheme, PM AatmaNirbhar Swasth Bharat Yojana, will be launched with an outlay of about Rs 64, 180 crore over 6 years. This will develop capacities of primary, secondary, and tertiary care Health Systems, strengthen existing national institutions, and create new institutions, to cater to detection and cure of new and emerging diseases. This will be in addition to the National Health Mission. The main interventions under the scheme are:
  1. Support for 17,788 rural and 11,024 urban Health and Wellness Centers
  2. Setting up integrated public health labs in all districts and 3382 block public health units in 11 states;
  3. Establishing critical care hospital blocks in 602 districts and 12 central institutions;
  4. Strengthening of the National Centre for Disease Control (NCDC), its 5 regional branches and 20 metropolitan health surveillance units;
  5. Expansion of the Integrated Health Information Portal to all States/UTs to connect all public health labs;
  6. Operationalisation of 17 new Public Health Units and strengthening of 33 existing Public Health Units at Points of Entry, that is at 32 Airports, 11 Seaports and 7 land crossings;
  7. Setting up of 15 Health Emergency Operation Centers and 2 mobile hospitals; and
  8. Setting up of a national institution for One Health, a Regional Research Platform for WHO South East Asia Region, 9 Bio-Safety Level III laboratories and 4 regional National Institutes for Virology.

Vaccines

• Provision of  Rs 35,000 crore made for Covid-19 vaccine in BE 2021-22.
• The Pneumococcal Vaccine, a Made in India product, presently limited to only 5 states, will be rolled out across the country aimed at averting 50,000 child deaths annually.

Nutrition

• To strengthen nutritional content, delivery, outreach, and outcome, Government will merge the Supplementary Nutrition Programme and the Poshan Abhiyan and launch the Mission Poshan 2.0. Government will adopt an intensified strategy to improve nutritional outcomes across 112 Aspirational Districts.

Universal Coverage of Water Supply and Swachch Bharat Mission

• The Finance Minister announced that the  Jal Jeevan Mission (Urban), will be launched for 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. 2,87,000 crore. Moreover, the  Urban Swachh Bharat Mission will be implemented with a total financial allocation of  Rs 1,41,678 crore over a period of 5 years from 2021-2026.
• Also to tackle the burgeoning problem of air pollution, government proposed to provide an amount of Rs. 2,217 crore for 42 urban centres with a million-plus population in this budget.
• A voluntary vehicle scrapping policy to phase out old and unfit vehicles was also announced. Fitness tests have been proposed in automated fitness centres after 20 years in case of personal vehicles, and after 15 years in case of commercial vehicles.

2. Physical and Financial Capital and Infrastructure

• Finance Minister said that for a USD 5 trillion economy, our manufacturing sector has to grow in double digits on a sustained basis. Our manufacturing companies need to become an integral part of global supply chains, possess core competence and cutting-edge technology.
• Aatma Nirbhar Bharat-Production Linked Incentive (PLI) Scheme to create manufacturing global champions for an Aatma Nirbhar Bharat have been announced for 13 sectors. For this, the government has committed nearly Rs.1.97 lakh crore in the next 5 years starting FY 2021-22.

Textiles

• Similarly, to enable the textile industry to become globally competitive, attract large investments and boost employment generation, a scheme of Mega Investment Textiles Parks (MITRA)will be launched in addition to the PLI scheme. This will create world class infrastructure with plug and play facilities to enable create global champions in exports. 7 Textile Parks will be established over 3 years.

Infrastructure

• The National Infrastructure Pipeline (NIP) which the Finance Minister announced in December 2019 is the first-of-its-kind, whole-of-government exercise ever undertaken. The NIP was launched with 6835 projects; the project pipeline has now expanded to 7,400 projects. Around 217 projects worth Rs 1.10 lakh crore under some key infrastructure Ministries have been completed.

Infrastructure financing – Development Financial Institution (DFI)

• Dwelling on the infrastructure sector, Smt Sitharaman said that infrastructure needs long term debt financing. A professionally managed Development Financial Institution is necessary to act as a provider, enabler and catalyst for infrastructure financing. Accordingly, a Bill to set up a DFI will be introduced. Government has provided a sum of Rs 20,000 crore to capitalise this institution and the ambition is to have a lending portfolio of at least Rs 5 lakh crore for this DFI in three years time.

Asset Monetisation

• Monetizing operating public infrastructure assets is a very important financing option for new infrastructure construction. A “National Monetization Pipeline” of potential Brownfield infrastructure assets will be launched.  An Asset Monetization dashboard will also be created for tracking the progress and to provide visibility to investors. Some important measures in the direction of monetisation are:
• National Highways Authority of India and PGCIL each have sponsored one InvIT that will attract international and domestic institutional investors. Five operational roads with an estimated enterprise value of Rs 5,000 crore are being transferred to the NHAIInvIT.  Similarily, transmission assets of a value of Rs 7,000 crore will be transferred to the PGCIL InvIT.
• Railways will monetize Dedicated Freight Corridor assets for operations and maintenance, after commissioning.
• The next lot of Airports will be monetised for operations and management concession.
• Other core infrastructure assets that will be rolled out under the Asset Monetization Programme are: (i) NHAI Operational Toll Roads (ii) Transmission Assets of PGCIL (iii) Oil and Gas Pipelines of GAIL, IOCL and HPCL (iv) AAI Airports in Tier II and III cities, (v) Other Railway Infrastructure Assets (vi) Warehousing Assets of CPSEs such as Central Warehousing Corporation and NAFED among others and (vii) Sports Stadiums.

Roads and Highways Infrastructure

• Finance Minister announced that more than 13,000 km length of roads, at a cost of Rs 3.3 lakh crore, has already been awarded under the Rs. 5.35 lakh crore Bharatmala Pariyojana project of which 3,800 kms have been constructed. By March 2022, Government would be awarding another 8,500 kms and complete an additional 11,000 kms of national highway corridors. To further augment road infrastructure, more economic corridors are also being planned.  She also provided an enhanced outlay of Rs. 1,18,101 lakh crore for Ministry of Road Transport and Highways, of which Rs.1,08,230 crore is for capital, the highest ever.

Railway Infrastructure

• Indian Railways have prepared a National Rail Plan for India – 2030. The Plan is to create a ‘future ready’ Railway system by 2030. Bringing down the logistic costs for our industry is at the core of our strategy to enable ‘Make in India’. It is expected that Western Dedicated Freight Corridor (DFC) and Eastern DFC will be commissioned by June 2022.

For Passenger convenience and safety the following measures are proposed:

1. Introduction of aesthetically designed Vista Dome LHB coach on tourist routes to give a better travel experience to passengers.
2. The safety measures undertaken in the past few years have borne results. To further strengthen this effort, high density network and highly utilized network routes of Indian railways will be provided with an indigenously developed automatic train protection system that eliminates train collision due to human error.
3. Budget also provided a record sum of Rs. 1,10,055 crore, for Railways of which Rs. 1,07,100 crore is for capital expenditure.

Urban Infrastructure

• Government will work towards raising the share of public transport in urban areas through expansion of metro rail network and augmentation of city bus service. A new scheme will be launched at a cost of Rs. 18,000 crore to support augmentation of public bus transport services.
• A total of 702 km of conventional metro is operational and another 1,016 km of metro and RRTS is under construction in 27 cities. Two new technologies i.e., ‘MetroLite’ and ‘MetroNeo’ will be deployed to provide metro rail systems at much lesser cost with same experience, convenience and safety in Tier-2 cities and peripheral areas of Tier-1 cities.

Power Infrastructure

• The past 6 years have seen a number of reforms and achievements in the power sector with the addition of 139 Giga Watts of installed capacity, connecting an additional 2.8 crore households and addition of  1.41 lakh circuit km of transmission lines.
• Expressing a serious concern over the viability of Distribution Companies, the Finance Minister proposed to launch a revamped reforms-based result-linked power distribution sector scheme with an outlay of Rs. 3,05,984 crore  over 5 years. The scheme will provide assistance to DISCOMS for Infrastructure creation including pre-paid smart metering and feeder separation, upgradation of systems, etc., tied to financial improvements.

Ports, Shipping, Waterways

• Major Ports will be moving from managing their operational services on their own to a model where a private partner will manage it for them.  For the purpose the budget proposes to offer  more than Rs. 2,000 crore by Major Ports on Public Private Partnership mode in FY21-22.
• A scheme to promote flagging of merchant ships in India will be launched by providing subsidy support to Indian shipping companies in global tenders floated by Ministries and CPSEs. An amount of 1624 crore will be provided over 5 years. This initiative will enable greater training and employment opportunities for Indian seafarers besides enhancing Indian companies share in global shipping.

Petroleum & Natural Gas

• Smt Sitharaman said that the government has kept fuel supplies running across the country without interruption during the COVID-19 lockdown period. Taking note of the crucial nature of this sector in people’s lives, the following key initiatives are being announced:

1. Ujjwala Scheme which has benefited 8 crore households will be extended to cover 1 crore more beneficiaries.
2. Government will add 100 more districts in next 3 years to the City Gas Distribution network.
3. A gas pipeline project will be taken up in Union Territory of Jammu & Kashmir.
4. An independent Gas Transport System Operator will be set up for facilitation and coordination of booking of common carrier capacity in all-natural gas pipelines on a non-discriminatory open access basis.

Financial Capital

• The Finance Minister proposed to consolidate the provisions of SEBI Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1956 and Government Securities Act, 2007 into a rationalized single Securities Markets Code.  The Government would support the development of a world class Fin-Tech hub at the GIFT-IFSC.

 

 

Increasing FDI in Insurance Sector

• She also proposed to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49% to 74% and allow foreignownership and control with safeguards. Under the new structure, the majority of Directors on the Board and key management persons would be resident Indians, with at least 50% of Directors being Independent Directors, and specified percentage of profits being retained as general reserve.

Disinvestment and Strategic Sale

• In spite of COVID-19, Government has kept working towards strategic disinvestment.  The Finance Minister said a number of transactions namely BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, NeelachalIspat Nigam limited among others would be completed in 2021-22. Other than IDBI Bank, Government propose to take up the privatization of two Public Sector Banks and one General Insurance company in the year 2021-22.

• In 2021-22, Government would also bring the IPO of LIC for which the requisite amendments will be made in this Session itself.
• In a very important announcement, the Finance Minister said that in the AtmaNirbhar Package, she had announced to come out with a policy of strategic disinvestment of public sector enterprises and said that the Government has approved the said policy.  The policy provides a clear roadmap for disinvestment in all non-strategic and strategic sectors.
• Government has kept four areas that are strategic where bare minimum CPSEs will be maintained and rest privatized. In the non-strategic sectors, CPSEs will be privatised, otherwise shall be closed. She said that to fast forward the disinvestment policy,  NITI Aayog will work out on the next list of Central Public Sector companies that would be taken up for strategic disinvestment. Government has estimated Rs. 1,75,000 crore as receipts from disinvestment in BE 2020-21 .

3. Inclusive Development for Aspirational India

• Under the pillar of Inclusive Development for Aspirational India, the Finance Minister announced to cover Agriculture and Allied sectors, farmers’ welfare and rural India, migrant workers and labour, and financial inclusion.

Agriculture

• Dwelling on agriculture, she said that the Government is committed to the welfare of farmers.  The MSP regime has undergone a sea change to assure price that is at least 1.5 times the cost of production across all commodities. The procurement has also continued to increase at a steady pace.  This has resulted in increase in payment to farmers substantially.
• In case of wheat, the total amount paid to farmers in 2013-2014 was Rs. 33,874 crore. In 2019-2020 it was Rs. 62,802 crore, and even better, in 2020-2021, this amount, paid to farmers, was Rs. 75,060 crore.  The number of wheat growing farmers that were benefitted increased in 2020-21 to 43.36 lakhs as compared to 35.57 lakhs in 2019-20.
• For paddy, the amount paid in 2013-14 was Rs. 63,928 crore. In 2019-2020, this increased to Rs.1,41,930 crore. Even better, in 2020-2021, this is further estimated to increase to Rs. 172,752 crore.  The farmers benefitted increased from 1.24 crore in 2019-20 to 1.54 crore in 2020-21.
• In the same vein, in case of pulses, the amount paid in 2013-2014 was ` 236 crore. In 2019-20 it increased to Rs. 8,285 crore. Now, in 2020-2021, it is at Rs.10,530 crore, a more than 40 times increase from 2013-14.
• The receipts to cotton farmers have seen a stupendous increase from Rs. 90 crore in 2013-14 to Rs. 25,974 crore (as on 27th January 2021).
• Early this year, Honourable Prime Minister had launched SWAMITVA Scheme. Under this, a record of rights is being given to property owners in villages. Up till now, about 1.80 lakh property-owners in 1,241 villages have been provided cards and the Finance Minister proposed during FY21-22 to extend this to cover all states/UTs.
• To provide adequate credit to our farmers, Government has enhanced the agricultural credit target to Rs. 16.5 lakh crore in FY22. Similarly, the allocation to the Rural Infrastructure Development Fund increased from Rs. 30,000 crore to Rs. 40,000 crore. The Micro Irrigation Fund, with a corpus of Rs.5,000 crore has been created under NABARD will be doubled.
• In an important announcement to boost value addition in agriculture and allied products and their exports, the scope of ‘Operation Green Scheme’ that is presently applicable to tomatoes, onions, and potatoes, will be enlarged to include 22 perishable products.
• Around 1.68 crore farmers are registered and Rs. 1.14 lakh crore of trade value has been carried out through e-NAMs. Keeping in view the transparency and competitiveness that e-NAM has brought into the agricultural market, 1,000 more mandis will be integrated with e-NAM. The Agriculture Infrastructure Funds would be made available to APMCs for augmenting their infrastructure facilities

Fisheries

• Finance Minister proposed substantial investments in the development of modern fishing harbours and fish landing centres. To start with, 5 major fishing harbours – Kochi, Chennai, Visakhapatnam, Paradip, and Petuaghat – will be developed as hubs of economic activity.

Migrant Workers and Labourers

• Government has launched the One Nation One Ration Card scheme through which beneficiaries can claim their rations anywhere in the country.One Nation One Ration Card plan is under implementation by 32 states and UTs, reaching about 69 crore beneficiaries – that’s a total of 86% beneficiaries covered. The remaining 4 states and UTs will be integrated in the next few months.
• Government proposes to conclude a process that began 20 years ago, with the implementation of the 4 labour codes. For the first time globally, social security benefits will extend to gig and platform workers.
• Minimum wages will apply to all categories of workers, and they will all be covered by the Employees State Insurance Corporation. Women will be allowed to work in all categories and also in the night-shifts with adequate protection. At the same time, compliance burden on employers will be reduced with single registration and licensing, and online returns.

Financial Inclusion

• To further facilitate credit flow under the scheme of Stand Up India for SCs, STs, and women, the  Finance Minister proposed to reduce the margin money requirement from 25% to 15%, and to also include loans for activities allied to agriculture. Moreover, a number of steps were taken to support the MSME sector and in this Budget, Government has provided Rs. 15,700 crore to this sector – more than double of this year’s BE.

4. Reinvigorating Human Capital

• The Finance Minister said that the National Education Policy (NEP) announced recently has had good reception, while adding that more than 15,000 schools will be qualitatively strengthened to include all components of the National Education Policy.  She also announced that 100 new Sainik Schools will be set up in partnership with NGOs/private schools/states.
• She also proposed to set up a Higher Education Commission of India, as an umbrella body having 4 separate vehicles for standard-setting, accreditation, regulation, and funding. For accessible higher education in Ladakh, Government proposed to set up a Central University in Leh.

Scheduled Castes and Scheduled Tribes Welfare

• Government has set a target of establishing 750 Eklavya model residential schools in  tribal areas with increase in unit cost of each such school from Rs. 20 crore to Rs. 38 crore, and for hilly and difficult areas, to Rs. 48 crore. Similarly, under the revamped Post Matric Scholarship Scheme for the welfare of Scheduled Castes, the Central Assistance was enhanced and allocated  Rs. 35,219 crore for 6 years till 2025-2026, to benefit 4 crore SC students.

Skilling

• An initiative is underway, in partnership with the United Arab Emirates (UAE), to benchmark skill qualifications, assessment, and certification, accompanied by the deployment of certified workforce. The Government also has a collaborative Training Inter Training Programme (TITP) between India and Japan to facilitate transfer of Japanese industrial and vocational skills, technique, and knowledge and the same would be taken forward with many more countries.

5. Innovation and R&D

• The Finance Minister said thatin her Budget Speech of July 2019, She had announced the National Research Foundation and added that the NRF outlay will be of Rs. 50,000 crore, over 5 years. It will ensure that the overall research ecosystem of the country is strengthened with focus on identified national-priority thrust areas.
• Government will undertake a new initiative – National Language Translation Mission (NTLM). This will enable the wealth of governance-and-policy related knowledge on the Internet being made available in major Indian languages.
• The New Space India Limited (NSIL), a PSU under the Department of Space will execute the PSLV-CS51 launch, carrying the Amazonia Satellite from Brazil, along with a few smaller Indian satellites.
• As part of the Gaganyaan mission activities, four Indian astronauts are being trained on Generic Space Flight aspects, in Russia. The first unmanned launch is slated for December 2021.

6. Minimum Government, Maximum Governance

• Dwelling on the last of the six pillars of the Budget, the Finance Minister proposed to take a number of steps to bring reforms in Tribunals in the last few years for speedy delivery of justice and proposes to take further measures to rationalised the functioning of Tribunals.
• Government has introduced the National Commission for Allied Healthcare Professionals Bill in Parliament, with a view to ensure transparent and efficient regulation of the 56 allied healthcare professions. She also announced that the forthcoming Census could be the first digital census in the history of India and for this monumental and milestone-marking task,  Rs. 3,768 crore allocated  in the year 2021-2022.
• On Fiscal position, she underlined that the pandemic’s impact on the economy resulted in a weak revenue inflow. Once the health situation stabilised, and the lockdown was being slowly lifted, Government spending was ramped up so as to revive domestic demand. As a result, against an original BE expenditure of Rs. 30.42 lakh crore for 2020-2021, RE estimates are Rs. 34.50 lakh crore and quality of expenditure was maintained. The capital expenditure, estimated in RE is Rs. 4.39 lakh crore in 2020-2021 as against Rs. 4.12 lakh crore in BE 2020-21.
• The Finance Minister said  fiscal deficit in RE 2020-21 is pegged at 9.5% of GDP and it has been funded through Government borrowings, multilateral borrowings, Small Saving Funds and short term borrowings. She added that the Government would need another Rs 80,000 crore for which it would be approaching the markets in these 2 months.  The fiscal deficit in BE 2021-2022 is estimated to be 6.8% of GDP. The gross borrowing from the market for the next year would be around 12 lakh crore.

 

• Smt Sitharaman announced that the Government plan to continue the path of fiscal consolidation, and intend to reach a fiscal deficit level below 4.5% of GDP by 2025-2026 with a fairly steady decline over the period. “We hope to achieve the consolidation by first, increasing the buoyancy of tax revenue through improved compliance, and secondly, by increased receipts from monetisation of assets, including Public Sector Enterprises and land”, she said.
• In accordance with the views of the 15thFinance Commission, Government is allowing a normal ceiling of net borrowing for the states at 4% of GSDP for the year 2021-2022.

• The FRBM Act mandates fiscal deficit of 3% of GDP to be achieved by 31stMarch 2020-2021. The effect of this year’s unforeseen and unprecedented circumstances has necessitated the submission of a deviation statement under Sections 4 (5) and 7 (3) (b) of the FRBM Act which the Finance Minister  laid on the Table of the House as part of the FRBM Documents.
• On 9thDecember 2020, the 15th Finance Commission submitted its final report, covering the period 2021-2026 to the Rashtrapatiji. The Government has laid the Commission’s report, along with the explanatory memorandum retaining the vertical shares of the states at 41%.  On the Commission’s recommendation, the Budget provided  Rs. 1,18,452 crore  as revenue deficit grant to 17 states in 2021-22.

PART-B

• In Part B of the Budget Speech, the Union Minister Smt. Nirmala Sitharaman seeks to further simplify the Tax Administration, Litigation Management and ease the compliance of Direct Tax Administration. The indirect proposal focuses on custom duty rationalization as well as rationalization of procedures and easing of compliance.

Taxation in Budget 2021

• Senior citizens over 75 years of age with only pension and interest income are exempted from filing income tax returns.
• Presently, the tax assessments can be reopened up to 6 years and in serious tax frauds up to 10 years. This has been reduced to 3 years and in the case of serious tax frauds, up to 10 years but with approval from the Principal Chief Commissioner.
• International Financial Services Centre (IFSC)
  • Govt has provided tax incentives for foreign funds to shift their assets to IFSC.
  • Govt has offered complete tax exemption on the transfer of their assets from other countries.
  • GIFT city has zero tax for 10 years.
  • This will help govt to develop IFSC as India’s fund management hub.
  • Those which are approved by BSE and NSE need no separate registration for trading in GIFT City.
• Dispute Resolution Committee

• • To reduce litigation of small taxpayers
  • It will be faceless
  • Taxable income up to ₹ 50 lakh and disputed income of up to ₹ 10 lakh will be eligible

• Income Tax Appellate Tribunal

• • It will be made faceless
  • All communications between the tribunal and the appellant shall be electronic
  • In case of personal hearing, it shall be done through video-conferencing

• Startups

• • Eligibility for claiming tax holiday for startups has been extended by one more year
  • Capital gains tax exemption for investment in startups has been extended by one more year

• Import duty on gold

• • Govt has reduced the import duty on gold and silver to 7.5% from 12.5%
  • It was increased to 12.5% in the July budget 2019
  • Govt has also imposed AIDF of 2.5%, taking the total to 10%
  • Demand for gold has come down by 35% in 2020, making it the lowest in the last 25 years

• • • Prices have increased significantly
    • Govt had increased import duty to 12.5%

• • The downward revision of import duty may also have a positive impact by bringing down gold smuggling

• Reduced import duty on steel

• • Govt has reduced the import duties on types of steel products to 7.5%
  • 70% of the steel imports done by India is from those countries with which India has a free trade agreement and hence attract zero customs duty

Fiscal Numbers

• Expenditure

• • The expenditure is pegged at ₹ 34.83 lakh Cr for FY22 against a revised expenditure of ₹ 34.5 lakh Cr. It represents an increase of 13.4% over budgeted estimates.

• • • Revenue expenditure is budgeted at ₹ 29.29 lakh Cr in FY22
    • Capex allocation – ₹ 5.54 lakh Cr

• • Govt has budgeted higher capex to aid economic recovery but overall spending as a percentage of GDP will fall in FY22.
  • As a percentage of GDP, it will fall to 15.6% for the current fiscal against 17.7% in the previous fiscal.

• Deficits

• • Fiscal Deficit stood at 9.5% for FY21 and is pegged to be reduced to 6.8% in FY22.
  • With a steady decline over a period, the fiscal deficit target of 4.5% of GDP will be met by 2025-26 (15th FC has recommended reducing the FD to 4% by FY26).

• • • The FRBM had set a target of 3% of GDP by FY21 (as per the amendment in 2018).

• • Revenue deficit has been revised for FY21 to 7.5% and for FY22 to 5.1%.
  • The FD for the current fiscal will be the highest since liberalization reforms began in 1991.
  • Govt had budgeted an FD target of 3.5% for the FY21 but the pandemic inflicted twin shocks to the balance sheet.

• • • Contraction in the nominal GDP, reducing the tax revenues
    • Greater spending
    • As a result of the two, the FD shot over 9.5%, for the FY22 the budgeted FD has been set at 6.8% (highest since 1994).
    • The fiscal deficit in the current fiscal is countercyclical, led by the need for the government to increase spending. Against this, post the global financial crisis the FD was driven by drop in tax revenues, disinvestments and rise in revenue expenditure.

• • As per the 15th FC, states have been provided with a normal ceiling of 4% GSDP for FY22.

• • • A portion of this will be earmarked for the incremental capital expenditure.
    • An additional ceiling of 0.5% GSDP will also be provided subject to certain conditions.
    • The states will be expected to reach the FD of 3% GSDP by 2023-24 as recommended by the 15th FC.

• • The loans from NSSF to Food Corporation of India for food subsidy will be discontinued.

DIRECT TAX PROPOSALS

• The Finance Minister provided relief to senior citizens in filing of income tax returns, reduced time limit for income tax proceedings announced setting up of the Dispute Resolution Committee, faceless ITAT, relaxation to NRIs, increase in exemption limit from audit and relief for dividend income.
• She also announced steps to attract foreign investment into infrastructure, relief to affordable housing and rental housing, tax incentives to IFSC, relief to small charitable trusts, and steps for incentivizing Start-ups in the country.
• Nirmala Sitharaman, in her Budget speech, said that post-pandemic, a new world order seems to be emerging and India will have a leading role therein.  She said in this scenario, our tax system has to be transparent, efficient and should promote investment and employment in the country.  The Minister said that at the same time, it should put minimum burden on our tax payers.
• She said that a series of reforms had been introduced by the Government for the benefit of tax payers and economy, including slashing of corporate tax rate, abolition of dividend distribution tax, and increasing of rebate for small tax payers.  In the year 2020, the income tax return filers saw a dramatic increase to 6.48 crore from 3.31 crore in 2014.
• The Budget seeks to reduce compliance burden on senior citizens who are of 75 years of age and above.  Such senior citizens having only pension and interest income will be exempted from filing their income tax return.  The paying Bank will deduct the necessary tax on their income.  The Budget proposes to notify rules for removing the hardship of non-Resident Indians returning to India on the issue of their accrued incomes in their foreign retirement account.
• The Budget proposes to make dividend payment to REIT/InvIT exempt from TDS.  For Foreign Portfolio Investors, the Budget proposes deduction of tax on dividend income at lower treaty rate.  The Budget provides that advanced tax liability on dividend income shall arise only after the declaration or payment of dividend.  The Minister said that this was being done as the amount of dividend income cannot be estimated correctly by the shareholders for paying advance tax.
• The Finance Minister proposed to extend the eligibility period for claim of additional deduction for interest of Rs. 1.5 lakh paid for loan taken for purchase of an affordable house to 31st March, 2022.  In order to increase the supply of affordable houses, she also announced extension of eligibility period for claiming tax holiday for affordable housing projects by one more year to 31st March, 2022.  For promoting supply of affordable rental housing for the migrant workers, the Minister announced a new tax exemption for the notified affordable rental housing projects.
• In order to incentivize start ups in the country, Smt. Sitharaman announced extension in the eligibility for claiming tax holiday for start ups by one more year till 31st March, 2022.  In order to incentivize funding of start ups, she proposed extending the Capital Gains exemption for investment in start ups by one more year till 31st March, 2022.
• The Finance Minister said that delay in deposit of the contribution of employees towards various welfare funds results in permanent loss of interest/income for the employees.  In order to ensure timely deposit of employee’s contribution to these funds by the employers, she announced that late deposit of employee’s contribution shall never be allowed as deduction to the employer.
• In order to reduce compliance burden, the Budget provides reduction in the time-limit for reopening of income tax proceeding for three years from the present six years.  In serious tax evasion cases, where there is evidence of concealment of income of Rs. 50 lakh or more in a year, the assessment can be reopened upto 10 years but only after the approval of the Principal Chief Commissioner.
• Stating the resolve of the Government to reduce litigation in the taxation system, the Finance Minister said that the Direct Tax Vivad se Vishwas Scheme announced by the Government has been received well.  Until 30th January, 2021, over one lakh ten thousand tax payers have opted to settle tax dispute of over Rs. 85  thousand crores under the Scheme.  To further reduce litigation of small tax payers, she proposed to constitute a Dispute Resolution Committee.  Anyone with a taxable income upto Rs. 50 lakh and disputed income upto Rs. 10 lakh shall be eligible to approach the Committee.  She also announced setting up of National Faceless Income Tax Appellate Tibunal Centre.
• To incentivize digital transaction and to reduce the compliance burden of the person who is carrying almost all of the transactions digitally, the Budget proposes to increase the limit for tax audit for persons who are undertaking 95 per cent of their transaction digitally from Rs. 5 Crore to Rs. 10 Crore.
• To attract foreign investment into infrastructure sector, the Budget proposes to relax certain conditions relating to prohibition on private funding, restriction on commercial activities and direct investment in infrastructure.  In order to allow funding of infrastructure by issue of zero coupon bonds, the Budget proposes to make notified infrastructure debt funds eligible to raise funds by issuing tax efficient zero coupon bonds.
• In order to promote International Financial Services Centre (IFSC) in GIFT City, the Budget proposes more tax incentives.
• The Budget proposes that details of capital gains from listed securities, dividend income and interest from banks, post office etc. will also be pre-filled to ease filing of returns.  Details of salary income, tax payment, TDS etc already come pre-filled in returns.
• In order to reduce compliance burden on the small charitable trust running educational institutions and hospitals, the Budget proposes to increase the limit on annual receipts for these trusts from present Rs.1 Crore to Rs. 5 Crore for non-applicability of various compliances.

INDIRECT TAX PROPOSALS

• On the issue of Indirect Tax proposals, the Minister said that record GST collections have been made in the last few months.  She said several measures have been taken to further simplify the GST.  The capacity of GSTN system has been announced.  Deep analytics and artificial intelligence have been deployed to identity tax evaders and fake billers, launching special drives against them.  The Finance Minister assured the House that every possible measure shall be taken to smoothen the GST further and remove anomalies such as the inverted duty structure.
• With respect to the custom duty policy, the Finance Minister said that it has the twin objectives of promoting domestic manufacturing and helping India get on to global value change and export better. She said that the thrust now has to be on easy access to raw materials and exports of value added products.   In this regard, she proposed to review 400 old exemptions in the custom duty structure this year.
• She announced that extensive consultation will be conducted and from 1st October, 2021, a revised custom duty structure free of distortions will be put in place. She also proposed that any new custom duty exemptions henceforth will have validity upto to the 31st March following 2 years of the date of its issue.
• The Finance Minister announced withdrawal of a few exemptions on parts of chargers and sub-parts of mobile phones further some parts of mobiles will move from “NIL” rate to a moderate 2.5  per cent. She also announced reducing custom duty uniformly to 7.5 per cent on semis, flat, and long products of non-alloy and stainless steel.  She also announced exempting duty on steel scrap for a period upto 31st March 2022.
• Stressing on the need to rationalize duty on raw material inputs to man-made textile, the Finance Minister announced bringing nylon chain on par with polyester and other man-made fibers. Announcing uniform deduction of the BCD rates on Caprolactam, nylon chips and nylon fiber and yarn to 5 per cent, the Minister said this will help the textile industry, MSMEs and exports too.  She also announced calibration of customs duty rate on chemical to encourage domestic value addition and to remove inversions.  The Minister also announced rationalization of custom duty on gold and silver.
• The Finance Minister said that a phased manufacturing plan for solar cells and solar panels will be notified to build up domestic capacity.  She announced raising duty on solar inverter from 5 per cent to 20 percent and on solar lanterns from 5 per cent to 15 per cent.
• The Finance Minister in her Budget speech said that there is immense potential in manufacturing heavy capital equipment domestically and the rate structure will be comprehensively reviewed in due course.  However, she announced revision in duty rates on certain items immediately including tunnel boring machine and certain auto parts.
• The Budget proposes certain changes to benefit MSMEs which include increasing duty on steel screws, plastic builder wares and prawn feed.  It also provide for rationalizing exemption on import of duty free items as an incentives to exporters of garments leather and handicraft items.  It also provides withdrawing exemption on imports of certain kind of leather and raising custom duty on finished synthetic gem stones.
• To benefit farmers, the Finance Minister announced raising custom duty on cotton, raw silk and silk yarn.  She also announced withdrawing end-use based concessions on denatured ethyl alcohol.  The Minister also proposed an Agriculture Infrastructure and Development Cess on a small number of items.  She said “while applying the cess, we have taken care not to put additional burden on consumers on most items.
• Regarding rationalization of procedures and easing of compliance, the Finance Minister proposed certain changes in the provisions relating to ADD and CVD levies.  She also said that to complete customs investigation, definite time-lines are being prescribed.  The Minister said that the Turant Custom Initiative rolled out in 2020 has helped in putting a check of misuse of FTAs.

Conclusion:

• As we saw after demonetisation, policies that destroy informal economic activitiesset in train processes of economic contraction that eventually come to bite formal enterprises as well.
• A similar process is under way in India now. Those who celebrate the higher profits of some large corporate houses or the gains in the stock market will find out soon enough that these are ephemeralif the vast bulk of the economy continues to stagnate or decline.
• Moving to a more expansionary fiscal stancethat prioritises employment generation and public service provision, would the Budget speech this year be worth listening to.

Budget 2021

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