It was India's 100th budget and Finance Minister Nirmala Sitharaman was on the ball.
As promised, the Union Budget 2021-22 -- custom-made to support a post-Covid economic recovery -- turned out to be a milestone. There are no new taxes, no new Covid cess' (only farm cess and others), no additional surcharges, and certainly no hike in long term capital gains.
Still, from healthcare to infrastructure to small businesses to farmers, Sitharaman not only covered her bases but donning her speedy seven-league boots presented a sensible and stimulative budget to aid growth. Though India rolled out a Rs 27 lakh crore stimulus, fiscal policy was only an appetiser, while monetary measures were the full meal.
This budget was freighted with expectations of a Keynesian spending binge. Giving in to these temptations would have earned Sitharaman a near fiscal policy priesthood, but the FM clearly saw what sets fiscal prudence and fiscal irresponsibility apart. Hence, she took recourse to Napoleon's logic of geniuses doing the average thing when everyone is losing their minds.
First up, healthcare rightfully got its due with Sitharaman directing rolls of crisp currency notes aggregating Rs 2.38 lakh crore. That's a never-before 137% increase for the sector, which until now remained an understudy. The said sum will cater to primary, secondary and tertiary healthcare over six years. As for the ongoing vaccination drive, Rs 35,000 crore has been set aside, but finding a bit more money won't be a trouble.
The next big-ticket item includes infrastructure. From increasing capex to announcing institutional finance and setting up a new Development Financial Institution to asset monetisation, the sector got more than one gold vein to pump the heart of the economy.
Almost everything that's saleable at PSUs will be on the block with a price tag to boot. This includes land, railways' dedicated freight corridors after commissioning, airport assets for operations and management and even pipelines of GAIL and HPCL. A soon-to-be-launched national monetisation pipeline will do the honours.
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Just as Sitharaman reached the agriculture sector, the opposition attempted a mini-ruckus in the House, only to be silenced by facts. With anguish audible in her voice, a vindicated Sitharaman vowed to continue the Minimum Support Price, disclosing how 44 lakh wheat farmers were paid Rs 75,100 crore this fiscal. Amid table-thumping and cheering from colleagues, she raised agriculture credit to Rs 16.5 lakh crore. Other usual allocations included education to Urban Swacch Bharat mission to Jal Jeevan mission.
But where's the money? For FY21 the shortfall in tax collections is pegged at Rs 5.2 lakh crore and FY22 gross tax receipts are pegged at Rs 22 lakh crore, lower than FY21 budget estimates.
Perhaps the next fiscal will be a year of privatisation, with Sitharaman giving a definitive stance to disinvestments. Two state-run banks besides IDBI, and one general insurance company will be privatised next fiscal. We already have a few jilted brides in LIC (IPO), BPCL and Air India and for long, disinvestment proceeds have always been the bridesmaid. But going by the FM's resolve, LIC's IPO (for which the Insurance Act and all legislative amendments will be initiated in the ongoing budget session itself), and Air India's strategic sale should conclude in FY22. In all, the government hopes to raise Rs 1.75 lakh crore via disinvestments.
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The government needs to borrow Rs 80,000 crore more in the next two months and the FY21 fiscal deficit will shatter all records settling at 9.5% of GDP. Still, Sitharaman won't be a worrywart and will pursue a realistic fiscal glide path of 4.5% deficit five years from now. Importantly, putting an end to the UPA-era off-budget financing, she barred the Food Corporation of India from raising loans from the National Small Savings Fund. Perhaps, the commitment, transparency and deficit realism won investors' trust hands down. Minutes after the budget speech, bond markets seemed relaxed with the 10-year benchmark hovering just above 6%, while the Sensex and Nifty were up 3%.
In FY22, the government will borrow Rs 12 lakh crore, or Rs 3,287 crore per day, taking the fiscal deficit to 6.8% of GDP. In all, the FY22 expenditure budget is marginally raised to Rs 34.83 lakh crore from Rs 34.50 lakh crore in FY21. But within this, the meat of the matter is where the government is spending. This time, the king's ransom has gone to capital expenditure that shot up 34.5% at Rs 5.54 lakh crore. This ensures job creation and growth revival, instead of propping up the revenue budget that includes interest payments, salaries and others.
The banking sector is on pins and needles anticipating a fresh bout of bad loans. Sensing the need, the FM announced the setting up of a bad bank with Rs 20,000 crore capital and with a lending portfolio of Rs 5 lakh crore in the next three years. As a downpayment of sorts, she vowed to introduce the bill in Parliament soon. Besides, she also has a sum for capital infusion in banks, though experts believe it amounts to chicken feed.
The distressed power discoms got much-needed attention with Sitharaman allocating Rs 3.5 lakh crore to them over the next five years. To break their monopoly, a framework will be in place allowing consumers to choose from more than one discom.
As expected, election-bound states like West Bengal, Tamil Nadu and Kerala got a special mention in the speech, while of the Rs 1.18 lakh crore outlay for the Ministry of Road Transport and Highways, a significant sum of Rs 1.08 lakh crore includes capex -- the highest ever. As she announced private participation in ports, shipping and waterways, disapproval from the opposition benches began the next instant. But Sitharaman was quick to silence the critics clarifying that global tenders will be floated for the purpose. It means, business houses aren't entitled to a bowl of cherries.
Coming to taxes, the FM rolled out reforms including faceless IT appeals, besides setting up a national income tax appellate tribunal and allowing dispute resolution even for small taxpayers. Helpfully, tax filers will be greeted with prefilled tax forms sourcing capital gains, bank and postal savings data. While she hasn't set a date yet, it's getting clearer that going forward, transparency will reward honest tax filers.
Taxes may be inevitable, but senior citizens above 75 years with only pension and interest income will be exempted from filing IT returns. There are some more good eggs in Sitharaman's tax goodies basket.
While dividend distribution tax was scrapped last year, now dividend payments are exempted from TDS, while advance tax on dividend income can be paid only after payment of dividend. This should enthuse Foreign Portfolio Investors.
There's more. Dividend payments to REIT and Invits too are exempt from TDS, while funds relocating to IFSC will get exemptions too. In a boost to housing finance companies, the tax holiday has been extended to affordable housing projects till FY22 and so also tax exemptions to rental housing for migrant workers. Lastly, the proposed zero coupon bonds for infra financing is a significant move.
Indirect taxes have multiple moving parts. Custom duty structure is being tinkered with and 400 old exemptions could be eliminated in one go. The proposed new custom duty structure will be announced by October. The inverted duty GST structure, which has been irksome, too is under the chop, augmenting demand in many consumer segments. Import duty on some steel products was reduced to 7.5%, which will boost the infrastructure sector, while customs duty on mobile phone parts will be raised to 2.5%.
For the first time, social security benefits are to be extended to gig and platform workers, and despite the frequent border disputes, defence found no mention in the budget speech. There was not much poetic flourish, with Tagore and Tiruvalluvar being exceptions, but overall, Sitharaman chose wisely to craft her third budget.