The Budget of the Century
The Union Finance Minister, Nirmala Sitharaman unveiled her third — the first-ever paperless budget, on February 1st. Regarded as a once in a century budget, the 2021–2022 Budget was to be a formal policy response to the COVID-19 pandemic. It also came at a difficult moment for the Indian economy; it had been projected to contract by 7.7% in FY21 and had slipped into a technical recession after two successive quarters of decline. What solutions would the FM provide an economy that is expected to grow in double digits in the next fiscal?
HEALTHCARE:
As expected, there was a hike of 137% in the government expenditure on healthcare to almost 2 % of the GDP. A centrally sponsored scheme — the Aatmanirbhar Health Yojana Scheme was announced with an outlay of ₹64,180 crores over 6 years with the objective of to develop and strengthen the primary, secondary and tertiary health sector. The second round of the Swachh Bharat Mission will be rolled out with an expenditure of ₹1.41 lakh crores over 5 years. Most importantly, ₹35,000 crores are to be spent on COVID-19 vaccines. This would be increased, if necessary.
INFRASTRUCTURE:
The other major boost in this post-Covid era was provided to infrastructure building. The capital expenditure for the next fiscal year is increased by 34.5% to ₹5.54 lakh crores. In the states with upcoming elections — Kerala, Tamil Nadu, West Bengal and Assam, mega national highway projects had been announced. Predictions of the increase in FDI in insurance from 49% to 74% was confirmed by the FM.
Moving forward the privatization strategy, 2 PSB’s (Public Sector Banks) and 1 general insurance company would undergo disinvestment. The much-anticipated LIC IPO is to take place in FY22. Compared to past years, the govt set a more realistic disinvestment goal of ₹1.75 lakh crore.
AGRICULTURE:
With the farmers’ protests having taken center stage at the capital in the last few months, govt was expected to increase agriculture expenditure to pacify them. Meeting these expectations, the target for agricultural credit was increased to ₹ 16.5 lakh crores to ensure the availability of higher credit to farmers and for animal husbandry, dairy and fisheries sector. The allocation for rural infrastructure development fund is proposed to be increased to ₹ 40,000 crores by 2021–22.
MSME’s:
A provision of ₹ 15,700 crores was made to Micro, Small and Medium Enterprises (MSME) sector. The govt increased the turnover threshold for a tax audit of account from ₹5 crores to ₹10 crores, where 95% of receipts and payments are executed through digital modes. The eligibility period for incorporating an eligible start-up has been extended by one more year, subject to other conditions. A start-up incorporated on or before 1 April 2022 can now claim income tax holiday. To incentivize funding, capital gains are exempted in investment in start-ups till 31st March 2022.
FISCAL POSITION:
In the second half of her speech, the FM not only came clean on the under-reporting the fiscal deficit she indulged in the past but also added the off-budget borrowing; it had never been included in the deficit. The conventional Keynesian economics demanded a fiscal expansion to stimulate the pandemic hit economy, which was shown when it was reported that the fiscal deficit would be 9.5% of the GDP for FY21. The target for the fiscal deficit is at 6.8% of the GDP in FY22 with hopes to bring this target down 4.5% in FY26. This target was expected, however, is well below the 3% target for FY21 laid out by the Fiscal Responsibility and Budget Management Act (FRBM).
TAXES:
The rumored “Covid cess” and increased tax rate due to the large fiscal deficit was proven false on the noon of budget day. For the common taxpayer, no income tax relief was provided. With no change in basic exemption limits, income tax slabs and rates, an individual taxpayer will continue to pay the tax at the same rates applicable in FY21. Senior citizens above the age of 75 years, who only have a pension and interest income, are exempted from filing income tax returns. The pre-filled returns now will also cover capital gains from listed securities.
On the morning of February 1st, Sensex was already up 400 points, Nifty tops 13,700 and traders were expecting a volatile day ahead. For the past 3 years, FM’s budget speeches had failed to cheer Dalal Street. By the end of her speech, Sensex soared 1400 points, Nifty tops 14,000; the market clocked the best single-day gain in 10 months. Dalal Street celebrated the FM’s expansionary budget. Economic pundits also have favorable reviews of the budget. But whether this budget would revive the economy and reach the projected target growth of 10.5% is yet to be seen.
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