Smt Nirmala Sitharaman, the Union Minister for Finance and Corporate Affairs presented the Union Budget 2021-22 in the Parliament on February 1, Monday. Notably, it is the new decade’s first budget and the first-ever digital one considering the COVID-19 crisis.
Sitharaman, laying vision for Atma Nirbhar Bharat, stated that it is an expression of 130 crore Indians with full confidence in their skills and capabilities. She added that Budget proposals would further strengthen the nation’s Sankalp, doubling farmer’s income, robust infrastructure, women empowerment, healthy India, good governance, opportunities for youth, inclusive development, and education for all, among others (2).
Besides, the budget is also on the path to fast implementation of the 13 promises of Budget 2015-16, which were to materialize during 2022’s AmrutMahotsav, the 75th year of our independence. She added that it also resonates with the vision of Aatma Nirbhar Bharat.
Notably, the budget proposals for 2021 rest on six pillars (2):
- Health and Wellbeing
- Innovation and R&D
- Physical and Financial Capital, and Infrastructure
- Inclusive Development
- Reinvigorating Human Capital
- Minimum and Maximum Governance
135% Increase in Health Spendings
The union finance minister has proposed increasing healthcare spending to 2,200 crore INR to improve public health systems and fund a huge vaccination program to immunize India’s 1.3 billion citizens.
In short, the government has set capital expenditure for 2021-2022 at 5,540 crore INR. Notably, it is 35% more than the previous year’s estimated budget (3).
At present, India is spending about 1% of its total GDP on health, which is among the lowest for any major economy across the globe.
Narendra Modi, the Prime Minister of India, stated that the new budget is to create ‘wealth and wellness’ in the nation that is battling the world’s highest COVID-19 cases after the United States.
Big Ramp Up for High Projects in the Poll-bound States
In the finance minister’s budget speech, four poll-bound states received a special mention, from 1.03 lakh crore highway projects for Tamil Nadu to 65k crore INR works for Kerala.
While tabling the Union Budget 2021 in Parliament, Nirmala Sitharaman specifically announced 2.27 lakh crore INR highway projects for four states, Tamil Nadu, Assam, West Bengal, and Kerala, considering the forthcoming assembly elections.
Notably, Tamil Nadu, Assam, Kerala, Puducherry, and West Bengal are scheduled for assembly polls in April-May 2021 (4).
PM-KISAN Scheme Bagging Half of Agriculture Budget
The agriculture and farmer’s welfare ministry has received 5.63% more budget allocations for 2021 at 1,31,531 crore INR. Notably, half of it would be spent on the government’s flagship PM-KISAN scheme. Moreover, slightly higher funds are available for the agri-infra fund and irrigation programs.
Sitharaman stated that the government’s payment on wheat procurement has risen to 62,802 crore INR to 2019-20 and even more in 2020-21 from 33,874 crore INR in 2013-14 while speaking about MSP procurement. She added that more than 43.36 lakh wheat growers have benefitted from the MSP payment in 2020-21 against 35.57 lakhs in the previous year.
Likewise, there is a surge in the MSP payment on rice procurement to 1,41,930 crore INR in 2019-20 and an estimated 1,72,752 crore INR in 2020-21 from 63,928 crore INR in 2013-2014.
There has been a change in the MSP regime to assure price that is at least 1.5 times the production cost across all commodities. The procurement has also continued to rise at a steady pace. It has increased farmers’ payment, added the finance minister (5).
Nothing Big for Defence
Notably, there was no big surge in the overall defense budget. However, India spent an additional unbudgeted 20,776 crore INR for emergency arms procurement amid the current fiscal in the face of China’s ongoing belligerence on India’s northern borders, especially in eastern Ladakh.
For the upcoming financial year, the overall defense budget is increased by a trifling sum to 4,78,196 crore INR from last year’s allocation of 4,71 378 crore INR, merely a 1.4% hike.
Spending and Earnings
The borrowings and liabilities of New Delhi have been the high source from which money is coming into the Indian economy. The Indian government resorted hard-pressed for funds to borrowing more to uplift the struggling economy via a spending boost.
The major source of revenue for India’s government has been GST and income tax collections in the last year.
Senior Citizens Tax Exemption
Elderly above 75 years of age with only interest and pension income are exempted from filing tax returns, as announced by the finance minister.
While tabling the upcoming fiscal year’s Union Budget in the Parliament, Sitharaman stated that the number of income tax return filers has rose to 6.48 crores at present from 3.48 crores in 2014.
She added that serious tax offenses of concealment of income more than 50 lakh INR could be reopened even after ten years. The finance minister also announced a dispute resolution for small taxpayers that would be faceless to ensure transparency, efficiency, and accountability. Anyone with taxable income up to 50 lakh INR and disputed income up to 10 lakh INR can approach the committee.
- Exemption from filing income tax returns for elederly aged 75 years and above who only have a pension and interest income. The paying bank would deduct the necessary tax on their income.
- The reduced time limit for reopening of income tax assessment.
- Faceless Income Tax Appellate Tribunal
- Dispute Resolution Committee constitution for small taxpayers.
- Increase limit for tax audit for persons who carry out 95% of their transactions digitally.
- TDS exemption for dividend payment to InvIT/RIT.
- Additional deduction of 1.5 lakh INR is available for loans taken up till March 31, 2022, to purchase an affordable house.
- Pre-filing returns to cover capital gains from listed securities.
- Proposal to extend the eligibility for claiming tax holiday by startups by one more year.
The Indian government capital expenditure as a proportion of GDP is set to rise from 1.7% in the financial year 2021 and further to 2.5% in 2022. It would be a 17-year high figure and would enhance medium-term growth prospects (6).
According to the finance minister, the government estimates a discal deficit of 6.8% of the GDP, gross domestic product in the next financial year beginning April 1, 2021.
However, the fiscal deficit in 2020-21 is estimated to soar up to 9.5% because of the rise in expenditure amid the COVID-19 outbreak and moderation in revenue.
Moreover, the lockdown to check coronavirus’s spread adversely impacted economic activities, resulting in an estimated 7.7% economic contraction. For the present financial year, the Indian government had previously clinched a fiscal deficit of 3.5%.
Increase in FDI
The Indian government proposed increasing FDI, foreign direct investment limit in the insurance sector to 74%, and a move to attract greater overseas capital inflows to enhance India’s insurance penetration. In 2015, the government had hiked the FDI cap in the insurance sector from 26% to 46%.
Capital expenditure increased by 35% in National Infrastructure Pipeline
Nirmala Sitharaman, while expressing commitment to augment India’s infrastructure, proposed to immensely enhance capital expenditure to 5.54 lakh crore INR in the next fiscal, apart from building institutional structures and offering a big thrust to monetize assets to achieve the NIP, National Infrastructure Pipeline’s goals.
The finance minister added that NIP, launched in December 2019 with over 6,835 projects, is now expanded to 7,400 projects. More than 217 projects are worth 1.10 lakh crore INR under some key infrastructure ministries have been completed.
For 2021-22, she proposed a sharp increase in capital expenditure and has allowed 5.54 lakh crore INR, 34.5% more than the BE of 2020-21.
High Fund Allocation for Metro Connectivity
Strengthening MGNREGA with an increase in minimum person-days from 100 to 150 days. The Indian government would be introducing legislation this year to implement the set up of the Higher Education Commission in the country.
The finance minister further added that the center would work towards increasing the public transport share in urban areas via the expansion of metro rail networks. She also announced two new technologies, Metrolite and MetroNeo, for Tier 2 cities.
While talking about the package of coming up with a policy of strategic disinvestment of public enterprises, Nirmala Sitharam stated several sectors come under it. It includes atomic energy, space and defense, telecommunication, transport, coal, petroleum, other minerals, banking, insurance, and financial services (7).
Aatma Nirbhar Bharat Abhiyan
- Increase in borrowing limits for state government
- Privatization of Public Sector Enterprise
MSMEs and Industry
- Collateral free business loans
- Fund of funds for MSMEs
- PM Garib Kalyan Yojana
- Subordinate debt for MSMEs
- Change in definition of MSMEs
- Disallowing global tenders of up to 200 crore INR
Agriculture and Allied Sectors
- Agri Infrastructure Fund
- Concessional Credit Boost for farmers
- Emergency working capital for farmers
- Amendments to the Essential Commodities Act
- Animal Husbandry Infrastructure development
- Agriculture marketing reforms
- One Nation One Card
- Free food grain supply
- Elimination of regulatory assets
- Commercial coal mining
- Liquidity support for discoms
- Reduction in cross-subsidy
- National digital health blueprint
- Technology-driven education
- Additional allocation to MGNREGA
- eVidya, National Foundational and Numeracy Mission
Here is a shortlist of winners and losers from the Union Budget 2021-22 (8).
The MSME Segment
Nevertheless, the budget has initiated positive sentiments across all industries, from announcing bad banks to extending social security benefits to the blue-collared workers and boosting healthcare to infrastructure and renewable energy.
The revision of the definition for small firms under the Companies Act, and 15,700 crore INR boost for MSME, and 50,000 crore INR to strengthen the Research and Development sector are some of the key takeaways of the budget.
- One ration card scheme for migrant workers
- One nation, one card under implementation by 32 states and union territories reached 69 crore beneficiaries.
- Minimum wages applicable to all categories of workers
- A new platform for gig workers
- Social security benefits for gig workers, covered by Employee State Insurance
- 15,700 crore INR to the MSME sector
Union Budget 2021: Leaving Startups Aatmanirbhar
The finance minister, Nirmala Sitharaman has announced a slew of measures for startups intending to incentivize the emerging economy.
- Extension of capital gain tax
- Tax holidays for startups
- Easing norms for one person company
- Eased startup funding via GIFT City-IFSC route
- 1500 Crore INR for the digital payments industry
- Digital Census 2021, MCA 21 3.0 for Indian IT firms
- Fintech hub in GIFT City
Even though some of these moves were welcomed, the startup economy feels that some of these moves are too little too late (9).
For instance, the move to allow tax holidays received huge criticism. There are arguments that startups don’t start making profits in the first few operations years. Hence, the tax incentive won’t apply to most of them, and extending it for one year is unlikely to make any difference except for a few.
According to Avimukt Dar, a founding partner of IndusLaw (9), startups previously had a five year tax holiday under the Startup India Scheme. If we think of the logic applied here, then it appears that we lost last year because of the COVID-19 pandemic, so the Indian government added a year of benefit.
He also added that a government often extends tax holidays where a stimulus is required. The catch here is that several startups benefited because of the pandemic, while many did not. It would be a lot to expect sector targeting for such stimulus beyond the broad categories such as startups.
On the other hand, the extension of capital gains exemption was applauded by all.
According to Paavan Nanda, the Co-founder of WinZO Games (10), the government’s measures indicate its bullishness towards the startup ecosystem. The extension of long-term capital gains would offer tailwinds to early-stage startup funding.
Nimesh Kampani, the President LetsVenture Plus (11), added that the Indian government had opened more channels for investment in the country by offering incentives for setting up one-person companies. It would allow NRIs to incorporate one-person companies and reducing the residency time to 120 days.
The would offer a wider spectrum for the startup community to work around when the capital gain exemption and tax holiday extension by one year would help them recover from the crisis.
It is also worth highlighting that so far, the Indian government has recognized 41,061 startups. According to the Economic Survey released last week (12), about 39,000 startups have created more than 4.7 lakh job opportunities till December.
Notably, India is now home to 38 unicorns, and at least 12 startups were getting added to the list in 2020, added the survey.
According to Karan Kalra, the founder of Bombay Law Chambers (13), the best aftermath of the coronavirus ridden economy is the job creation, at the core of reforms. Even though the budget has made its best to address it via infrastructure reforms, benefits for startups, which are as important, seem to fall short of the want.
Kalra further added that it would have been great to see more ‘ease of doing business’ measures announcements for startups. Such as permitting short-duration ECBs, building single-window clearances, and lower compliance requirements that go beyond increase the threshold limit for qualifying as a small firm under the Companies Act (14) and extending existing tax benefits for another year.
Akshay Mehrotra, the CEO, and Co-founder of Early Salary (15), sees the Union Budget 2021 positively. He believes that even though the budget was a consumer sentiment damper, its focus on Aatma Nirbhar Bharat and its six pillars would focus on internal growth and startup community. With a clear concentration on infrastructure, it would help build grass-root jobs, and the minimum wages would also uplift the core lower-income working population.
Kunal Bahl, the Co-founder of Snapdeal (16), has also given a thumbs up to the Union Budget 2021-22. He added that the move towards offering social security benefits for gig workers would add a much-required safety net to help the sector grow sustainably and help the millions that are its part (17).
It is worth highlighting that the Indian startup ecosystem is the third largest across the globe. One of the major factors contributing to its growth is the present Indian government’s various measures.
The government’s support would encourage startups, badly hit during the pandemic, to stay afloat in their fight.
While there are several ups and downs for the Union Budget 2021, it has given a New Year gift to the Indian startup ecosystem. We welcome all the move the government has made since they are shifting the focus towards startup growth. All moves would help the ecosystem to get back on its feet faster in the post-COVID era.