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“Faith is the bird that feels the light and sings when the dawn is still dark.”

– Rabindranath Tagore (quoted by FM in her Budget Speech)

The Union Minister for Finance has finally presented the Union Budget 2021-22 in Parliament, which is the first budget of this new decade and also a digital one in the backdrop of unprecedented COVID-19 crisis.

It was been increasingly seen as a financial vaccine for the infected economy.

Before proceeding with the budget provisions, let’s brush up our basics of what the Union Budget actually is. Refer the following links:

[Prelims Spotlight] Important Keywords Regarding Budget, Fiscal Policy and Taxation

Budgetary procedure in India

Highlights of the 2021 Budget

Rupee Dynamics:

Part: A

The Budget proposals for 2021-22 rest on 6 pillars.

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

[I]  Health and Wellbeing

• There is substantial increase in investment in Health Infrastructure and the Budget outlay for Health and Wellbeing is Rs 2,23,846 crore in BE 2021-22 as against this year’s BE of Rs 94,452 crore.
• This is an increase of 137 %.

PM Aatmanirbhar Swasth Bharat Yojana

• FM announced this new centrally sponsored scheme, which 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. 

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

• The FM announced that the Jal Jeevan Mission (Urban), will be launched for universal water supply in all Urban Local Bodies with crore household tap connections.

Vehicle scrapping

• 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

[II] Physical and Financial Capital and Infrastructure

Aatmanirbhar Bharat-Production Linked Incentive Scheme

• FM 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.
• To achieve all of the above, PLI schemes to create manufacturing global champions for an Aatmanirbhar Bharat have been announced for 13 sectors.

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 FM 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, FM has 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.

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.

Roads and Highways Infrastructure

• FM 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 this 3,800 km have been constructed.
• By March 2022, govt. would be awarded another 8,500 km and complete an additional 11,000 km of national highway corridors.
• To further augment road infrastructure, more economic corridors are also being planned.

The states of West Bengal, Tamil Nadu, Kerala, Puducherry and Assam are due to go for Assembly polls by May. So, it is not surprising that budget announcements impacting these states would make headlines.

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.

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.
• We have almost achieved last mile connectivity, 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 FM proposed to launch a revamped reforms-based result-linked power distribution sector scheme.
• 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.

Also read UDAY Scheme

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.
• 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.
• This initiative will enable greater training and employment opportunities for Indian seafarers besides enhancing Indian companies share in global shipping.

Petroleum & Natural Gas

• 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:
• Ujjwala Scheme which has benefited 8 crore households will be extended to cover 1 crore more beneficiaries.
• Government will add 100 more districts in next 3 years to the City Gas Distribution network.
• A gas pipeline project will be taken up in Union Territory of Jammu & Kashmir.
• 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 FM 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

• FM also proposed to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49% to 74% and allow foreign ownership and control with safeguards. 

Disinvestment and Strategic Sale

• In spite of COVID-19, Government has kept working towards strategic disinvestment.
• The FM said a number of transactions namely BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat 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.

[III] Inclusive Development

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, FM has 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.

Land ownership and mapping

• Early this year, PM had launched SWAMITVA Scheme.
• Under this, a record of rights is being given to property owners in villages.
• To provide adequate credit to our farmers, the Government has enhanced the agricultural credit target to Rs. 16.5 lakh crore in FY22.

Operation Green Scheme

• In an important announcement to boost value addition in agriculture and allied products and their exports is the scope of ‘Operation Green Scheme’.
• It is presently applicable to tomatoes, onions, and potatoes, will be enlarged to include 22 perishable products.

Fisheries

• FM 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. 
• ONORC 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.

Financial Inclusion

• To further facilitate credit flow under the scheme of Stand Up India for SCs, STs, and women, the FM 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, the Government has provided Rs. 15,700 crore to this sector – more than double of this year’s BE.

[IV] Reinvigorating Human Capital

Education

• The FM has said that the National Education Policy (NEP) announced recently has had good reception.
• More than 15,000 schools will be qualitatively strengthened to include all components of the National Education Policy.

Welfare of the SCs/STs

• Government has set a target of establishing 750 Eklavya model residential schools in tribal areas with an increase in the 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 SCs will benefit 4 crore SC students till 2026.

[V] Innovation and R&D

Research

• The FM has 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.

Knowledge

• 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.

Space sector

• 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.

[VI] Minimum Government, Maximum Governance

• Tribunals: FM proposed to take a number of steps to bring reforms in Tribunals for speedy delivery of justice and proposes to take further measures to rationalized the functioning of Tribunals.
• Healthcare: 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.
• Census: FM 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.

Fiscal health

• On Fiscal position, FM underlined that the pandemic’s impact on the economy resulted in a weak revenue inflow.
• The FM said fiscal deficit in 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.
• The govt would need another Rs 80,000 crore for which it would be approaching the markets in these 2 months.

Deficit targets

• 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.
• The FRBM Act mandates fiscal deficit of 3% of GDP to be achieved by 31st March 2020-2021.
• The govt plans 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.

Fiscal consolidation

• The govt hopes to achieve this by-

 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 etc.

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Part: B

In Part B of the Budget Speech 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.

Direct Tax Proposals

• The FM 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, , relaxation to NRIs, increase in exemption limit from audit and relief for dividend income.
• FM 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.
• The Budget proposes to make dividend payment to REIT/InvIT exempt from TDS.
• Stating the resolve of the Government to reduce litigation in the taxation system, the FM said that the Direct Tax Vivad se Vishwas Scheme announced by the Government has been received well.
• 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.

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.
• With respect to the custom duty policy, the FM has said that it has the twin objectives of promoting domestic manufacturing and helping India get on to global value change and export better.

Export promotion

• 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 FM announced raising custom duty on cotton, raw silk and silk yarn.
• She also proposed an Agriculture Infrastructure and Development Cess on a small number of items.
• The Minister said that the Turant Custom Initiative rolled out in 2020 has helped in putting a check of misuse of Free Trade Agreements.

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Other Highlights of Budget Speech

Achievements and Milestones during the COVID-19 pandemic-

Pradhan Mantri Garib Kalyan Yojana (PMGKY)

• Valued at Rs. 2.76 lakh crore
• Free food grain to 80 crore people
• Free cooking gas for 8 crore families
• Direct cash to over 40 crore farmers, women, elderly, the poor and the needy

Aatmanirbhar Bharat package (ANB 1.0)

• Estimated at Rs. 23 lakh crore – more than 10% of GDP
• PMGKY, three ANB packages (ANB 1.0, 2.0, and 3.0), and announcements made later were like 5 mini-budgets in themselves
• Rs. 27.1 lakh crore worth of financial impact of all three ANB packages including RBI’s measures – amounting to more than 13% of GDP

Status of India’s fight against COVID-19

• 2 Made-in-India vaccines – medically safeguarding citizens of India and those of 100-plus countries against COVID-19
• 2 or more new vaccines expected soon
• Lowest death rate per million and the lowest active cases

2021 – Year of milestones for Indian history

• 75th year of India’s independence
• 60 years of Goa’s accession to India
• 50 years of the 1971 India-Pakistan War
• Year of the 8th Census of Independent India
• India’s turn at the BRICS Presidency
• Year for Chandrayaan-3 Mission
• Haridwar Maha-Kumbh

Vision for Aatmanirbhar Bharat

• Atmanirbharta – not a new idea – ancient India was self-reliant and a business epicentre of the world
• AtmaNirbhar Bharat – an expression of 130 crore Indians who have full confidence in their capabilities and skills

    Strengthening the Sankalp of:

• Nation First
• Doubling Farmer’s Income
• Strong Infrastructure
• Healthy India
• Good Governance
• Opportunities for Youth
• Education for All
• Women Empowerment
• Inclusive Development

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Reading the budget

• The Budget, at its simplest, is the government’s tentative income and expenditure statement. Like all financial statements, the devil lies in the fine print.
• At its broadest, the Budget is a pious statement of the government’s policy and ideological intentions.
• It is also the government’s statement of how it seeks to tackle the immediate political (electoral) and economic challenges.
• Hence, any quick assessment of the Budget has to be preliminary.

An act of balancing

• The Union Budget 2021-22 is focused on the revival of economic growth and takes cognizance of the need for higher allocation for Covid-19 vaccine development and distribution.
• The expansionary nature of the Budget was the need of the hour and comes along with a roadmap for fiscal consolidation.
• Higher allocation to capital expenditure should support growth revival and job creation.
• All in all, the Budget addresses key issues facing the Indian economy and does the balancing act required in these unusual times.

Few hits to count

• The government gave proper attention to fiscal sustainability while increasing the size of the Budget.
• The budget follows a series of measures as part of the AtmaNirbhar Bharat packages over the last 10 months, which she said, added up to Rs 27.1 lakh crore or 13 per cent of GDP.
• The FM in his speech has accepted the recommendations of the Fifteenth Finance Commission that 41 per cent of net Union tax proceeds be shared with states, and 1 per cent for the UTs of J7K, and Ladakh.
• The spending push is directed towards infrastructure sectors including roads and highways, railways, textiles, metro trains, health and water supply.
• A much-awaited scrapping policy for personal and commercial vehicles is also expected to boost demand for automobiles.
• The budget puts in place an institutional structure – a bad bank and a developmental financial institution (DFI) – that will enable low-cost funds for infrastructure investments.
• What really caught the attention of FIIs tracking the Indian economy was the decision to hike the FDI limit in the insurance sector to 74 per cent from 49 per cent now.
• Budget speech nods for a policy of strategic disinvestment of PSUs barring a bare minimum in four key strategic sectors: from transport and telecom to defence, atomic energy, power, coal, banking and insurance.

Major misses:

Job losses ignored

• The novel coronavirus pandemic and the resultant lockdown led to massive job and livelihood losses.
• Unlike most advanced countries and emerging market economies, India’s response to address the distress of the masses has been meagre.

Extreme spendings

• With its fiscal deficit at 9.5% of GDP for FY21 and 6.8% in FY22 Budget for 2021-22 seems to signal “spend like there is no tomorrow”.
• For well over a decade-and-a-half, we have tried attaining deficit targets (3%) set out in the Fiscal Responsibility and Budget Management (FRBM) Act (2003).

A mirage for farmers

• The Finance Minister has rightly drawn attention to the fact that the purchases under the MSP Programme have increased 1.5 times between 2013-4 and 2019-20.
• Thus, the “true” increase in the purchase price was a meagre 19 %in six years.
• Even this does not translate into a 19 % increase in incomes of the farmer because the costs of inputs such as diesel, labour and seeds have also gone up.

High on agri-subsidies

• From a policy perspective, one must point to the huge bias towards subsidies as compared to investments, especially research and development.
• India spends not even half of what a private global company like Bayer spends on agri-R&D — almost Rs 20,000 crore every year.
• The expenditure on agri-R&D needs to be doubled or even tripled in the next three years if growth in agriculture has to provide food security at a national level and subsidies on food and fertilizers need to be contained.

No tax relief

• Even though the revenue position of the government was tight going into the budget, it must be noted that citizens have also been waiting for a tax exemption relief since 2014.
• But only compliance issues were dealt with in the budget besides giving tax relief to those above 75 years of age.

Environment less in focus

• The budget announces good initiatives like a mission on hydrogen energy, a vehicle scrapping policy and reducing allocation to coal exploration.
• However, reducing the budget for autonomous institutes under the union environment ministry amounts to a symbolic message that when cash strapped environment takes a back seat.