Macro-economic and sector wise highlights of Union Budget 2021
FM Nirmala Sitharaman announced the budget for 2021-22 today. Here are the important macro-economic, Sectoral and Income Tax highlights from today’s budget speech.
Sector wise Highlights
- Finance Minister Nirmala Sitharaman announced a big boost to the manufacturing sector by committing an infusion of Rs 1.97 lakh crore over 5 years.
- The government’s Production Linked Incentive Scheme (PLI) for large-scale electronics manufacturing is meant to provide incentives to producers, in a bid to make India a hub for manufacturing and exports. The PLI Scheme covering 13 sectors will create manufacturing global champions, advancing the spirit of Atmanirbhar Bharat.
- Electric vehicle makers, battery producers, textile firms and food processing companies are some others that will gain from the push to encourage local manufacturing.
- The textile sector has is back in focus. Launch of 7 mega textile parks within a span of 3 years in order to enable the industry to captivate bigger investments and boost employment generation. This scheme will be in addition to the PLI scheme.
- FM Sitharaman said that – “This will create world class infrastructure, with plug-and-play facilities to enable and create global champions in export. India’s manufacturing companies need to become an integral part of global supply chains, possess core competence and cutting-edge technology.”
- The auto sector has experienced slowdown in sales since 2019 and there have been plenty of attempts to revive the sector. The Union government has decided to introduce a voluntary vehicle scrappage policy as well as a scheme to augment public transport system by inducting more buses, and the decision to increase investment in the infrastructure sector.
- In the Vehicle Scrappage Policy the commercial vehicles that are 15 years old or more and personal vehicles more than 20 years old will have to be scrapped. Ministry of road transport and highways (MoRTH) will announce the further details of the scheme.
- FM Sitharaman also announced capital investment of Rs 5.54 trillion in developing infrastructure around the country, which is expected to boost the demand for medium and heavy commercial vehicles.
- The central government will spend Rs. 18,000 crore to improve public transport in Indian cities and procure 20,000 buses for this. This move will augur the bus segment, where sales are down as a consequence of the pandemic.
- On a more positive note, the government raised the foreign direct investment (FDI) limit in insurance from 49% to 74%. This will aid private insurers get access to more foreign capital which will accelerate their growth and enhance insurance penetration in India.
The following measures have been set forth by the Union Government:-
- National Infrastructure Pipeline (NIP) Outlay of Rs.1.18 Lakh Cr for Ministry of Road Transport & Highways.
- Introduction of DFI (Development & Financial Institution) for long-term financing for Infra sector. Rs.20,000 Cr provision to capitalize new DFI. New DFI is aimed to have lending portfolio of Rs.5 Lakh Cr in next 3 years .
- Debt Financing for InvITs & REITs will be enabled to attract more investment in the Real estate and Infrastructure sector.
- The “Ujjwala Yojana” to be extended – Addition of 100 cities to the City Gas Distribution network.
- Pipelines of GAIL, IOC and HPCL will be monetized.
- Formation of a gas pipeline project in Jammu & Kashmir.
- To boost infrastructure, FM Nirmala Sitharaman today declared ₹1.1 lakh crore allocation for Indian Railways and of this, ₹1.07 lakh crore would be for capital expenditure, announced finance minister.
- The finance minister said the Railways would take up the future dedicated freight corridor projects — East Coast Corridor from Kharagpur to Vijaywada, East-West Corridor from Bhusawal to Kharagpur to Dankuni and North-South Corridor from Itarsi to Vijaywada.
- The Railways would introduce the aesthetically-designed vista-dome Linke Hoffman Busch coaches on tourist routes for better travel experience to passengers. 100% broad gauge route electrification would also be completed by December 2023.
- Finance Minster Nirmala Sitharaman announced that the government will set up an asset reconstruction company (ARC)/ Bad Bank and an asset management company (AMC) to house stressed assets currently in book of Indian banks.
- What is a Bad Bank you ask?
- A bad bank is a corporate structure that is set up to buy the bad loans of another bank or financial institution with significant non-performing assets, usually at the market price.
- The government will also infuse ₹20,000 crore into public sector banks as part of its recapitalisation plan.
- More details on the bad bank will follow soon. A bad bank will help in reducing the bad loan burden by taking over Non Performing Assets (NPAs) and other stressed assets.
- Union Government has set Agri-Credit Target for FY22 at Rs.16.5 Lakh Crore. There has also been an increase in provision to Rural Development Infra Fund to Rs.40,000 Cr from Rs.30,000 Cr.
- Announcements in today’s budget also included a revamped reform-based research linked power distribution sector scheme which has been allocated an amount of Rs 35,984 crores.
- The Union Government has announced forming of a framework to provide alternatives to the consumers to choose from among more than one power distribution companies.
- Petrol and diesel are set to get more expensive as the central government has proposed agri-cess of Rs 2.5/litre on petrol and Rs 4 on diesel.
- Extension of the existing Pradhan Mantri Ujjwala Yojana scheme to 1 crore more beneficiaries.
Key Macro- Economic Indicators
Divestment Plans – 2021
- The much awaited LIC IPO will be launched in FY22. BPCL, Air India, Shipping Corp, Container Corp and other divestment will also be completed in 2021-22.
- The Finance Minister also announced a strategic divestment in two public sector companies and financial institutions, including 2 PSU banks and one general insurance company, in the coming fiscal year. Union Government will also put disinvestment receipts at ₹1.75 lakh crore for fiscal year beginning April 1, 2021.
Game changers in the Budget
Hydrogen as a Renewable Energy Source
FM Nirmala Sitharaman has proposed to launch a Hydrogen Energy Mission in 2021-22 for generating Hydrogen from green power sources.
FinTech hub in GIFT City
- The government will facilitate setting up of a world class fin-tech hub in Gujarat International Finance Tech (GIFT) city.
- GIFT City is a planned business district that spans over 886 acres of land with 62 Mn sq. ft. of built up area which includes office spaces, residential apartments, schools, hospital, hotels, clubs, retail and various recreational facilities. GIFT City consists of a conducive multi-service SEZ (Special Economic Zone) and an exclusive Domestic Area. The city is located on the bank of river Sabarmati connecting Ahmadabad and Gandhinagar.
- According to ResearchandMarkets – India is one of the fastest-growing fin-tech markets in the world. The fin-tech market in India is expected to reach Rs 6,207.41 billion by 2025, expanding at a compound annual growth rate (CAGR) of 22.7% during the 2020-2025 period.
Investment in Sea-weed Farming
To quote FM Nirmala Sitharaman – “Seaweed farming is an emerging sector with the potential to transform the lives of coastal community because it will produce large-scale employment and additional incomes. In order to promote seaweed farming and cultivation, I propose multi-purpose seaweed park to be established in Tamil Nadu.”
Deep Ocean Mission
Launch of Deep Ocean Mission with an outlay of Rs.4,000 Cr over next 4 years to investigate Seabed & Biodiversity.
For Start-ups Finance Minister announced that the government will allow incorporation of one-person companies with no restriction on paid-up capital and turnover. Cherry on the cake is that the start-ups will continue to enjoy tax holidays for 1 more year.
Income Tax Highlights
1. No change in Tax Regime
The union government has left direct taxes unchanged, however it has taken steps in to ease compliance for taxpayers by direct tax incentives. It has been suggested that the advance tax liability on dividend income shall arise only after payment of dividend. There will also be pre-filled tax forms with respect to details like salary income, tax payment and TDS.
2. Respite for Senior Citizens Above The Age of 75 & Small Tax Payers
There will be no tax filing for seniors above 75 with only interest income and pension. A dispute resolution committee for small taxpayers is being planned. Any individual with a taxable income of up to Rs 50 lakh, disputed income of up to Rs 10 lakh eligible to approach dispute resolution committee.
3. Deduction on Payment of Interest
The deduction on payment of interest for affordable housing is extended by 1 year. A tax exemption for notified affordable housing for migrant workers will help the poor.
4. Motivation for Home Buyers
The additional interest deduction (i.e. Sec 80 EEA) of Rs. 1.5 Lakhs for affordable housing will be extended for loans taken till March 2022.
5. Tax Exemption on Air-Craft Lease Rentals
The union government has announced tax exemption on aircraft lease rentals paid by air carriers to foreign lessors. This comes as a relief to the troubled aviation sector.