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Thursday, March 23, 2023

Budget 2021-22: Infra-heavy, Bharat-healthy, Investor-hearty

The title probably tells everything. Being the first post pandemic budget, a thrust on reforming healthcare is obvious. The budget typically entails three sectors with increase in budgeted outlays of FY 2021-22 vis a vis last year along with special emphasis on our long lost textiles sector.

  1. Infrastructure –  Rs. 5.5 lakh crores vs 4.12 lakh crores YoY
  2. Investments (PLI scheme): Rs.1.97 lakh crores over next five years
  3. Healthcare  – Rs. 2.2 lakh crores vs 94 thousand crores YoY

The PLI (Production Linked Incentive) scheme was explained in the Atmanirbhar Bharat Package announced during the lockdown. Consisting of 13 sectors, it will rebuild the manufacturing capacities in an exponential way reaching global waters. It’s time to reclaim our power back in manufacturing as global economy takes a new shape. Investments in these sectors at the right time will be highly essential for generating employment in our economy.

The government aims to create 7 Mega Investment Textiles Parks with plug and play model to boost the sector as well as ensure employment for the youth in large numbers. Development of Bharat’s Shipping Industry, oceans research and seaweed cultivation will create new employment opportunities.  Also, an increase in the FDI limit in insurance has been proposed from 49% to 74%, given the under penetration in this sector.

On the fiscal side, the budget also covered the importance of disinvestments at this time and called out for the IPO of LIC in 2021-22 with a view to raise a sum of Rs. 80,000 crores. 

A couple of other strategy divestments are also in the pipeline. The receipts from divestments is budgeted at Rs. 175000 crores, which many are highly skeptical of achieving in full. This skepticism is not new and is a lingering concern for our government.

Fiscal deficit, a number that blows every economist’s mind, is unapologetically pegged at 9.5% of GDP for FY2020-21.  Caring about real employment growth by critical infra spending by not caring about the fiscal implications in the short term is the need of the hour.

Gross borrowings for FY2021-22 are estimated at Rs. 12 lakh crores and the deficit is estimated to slide down to 6.8% going into FY2021-22. A deviation statement from the FRBM act is submitted which vows to normalise the fiscal deficit below 4.5% in FY2025-26.

I believe the pandemic is a blessing in disguise for fiscal picture of the economy. The government was already facing the dilemma of non-spending to save the deficit vs spending for economic growth. The only curiosity here is the tug of war between revenue and borrowing, former’s shortfall leading to rise in the latter, thereby threatening the macro-economic position. 

There is no way other than boosting spending at the moment, in order to revive growth. We can see the significant rise in allocations to capital expenditure in the upcoming years.

I believe, as our FM rightly stated, that major changes are on the way and a new economic world order is emerging. 

Tax proposals mainly focus on resolving compliance issues. The main highlights are:

  1. Prefilling of capital gains, dividend and interest incomes in the ITR forms. 
  2. Reopening of assessment cases restricted to 3 years from 6 years.
  3. Exemption from TDS for dividend payments to REITs and InvITs. 
  4. Taxing dividends for FPIs on a lower treaty rate.
  5. Extension of tax holidays to start ups and affordable housing to 31st March, 2022. 
  6. Reducing import duties on iron, steel,  gold and silver
  7. Rationalising exemption on customs duty on other products.
  8. Agriculture Infrastructure and Development Cess on specified items.

Let’s take stock of events since this government was first sworn in. Did you ever imagine, being a citizen of Bharat, you will witness Demonetisation, Goods and Services Tax, Article 370 abrogation, Reconstructing Ram Mandir and Farm Bills? Not to forget Covid-19 and its repercussions. 

Bold moves cause turbulence for a while and amidst this turbulence, there is a change in the air. The air of strength and transformation. As per the evolving conditions of the pandemic, Bharat has been resilient, also benefitting from lower fatalities and normalised curve of Covid cases.

Gradual unlocking, phased spending and increasing demand have already culminated into growth recovery process as seen in Q2 GDP numbers, but it will be slow. 

I feel it is an oddly satisfying budget and the reforms will give the much required push to revive economic growth. Guidelines for Investments through debt and other institutional structures for financing infrastructure are highly valued and I hope the investments take place in the right spirit.

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Samiksha Punamiya
Samiksha Punamiya
An ardent researcher, deeply inclined toward understanding economics and policy making. Rich in experience of writing on economic research on various platforms. I am a CA by qualification having about five years of experience in financial services space.


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