Union Finance Minister Nirmala Sitharaman will present the Budget 2021 on 1st February 2021, which will be the first budget after the devastating 2020 that hammered the Indian economy. What are the expectations? What would be the government’s move to address those?
Union finance minister Nirmala Sitharaman will present the Budget 2021 on 1st February 2021, the first of the New Year and the new decade as well. Budget 2021 is going to be an interesting one from many aspects.
The Union Budget 2021 will be the first budget after the independence that will be completely paperless, complying with the government’s agenda to promote Digital India. Also, this is going to be the first budget after a historic and rigorous nationwide lockdown due to the Coronavirus pandemic.
There will be eyes on Budget 2021 to see how the government tries to pull up the ailing economy. Several sectors are eyeing relief measures from the government to be rejuvenated from the prolonged economic crisis, which has been accelerated by the Covid-19 pandemic.
With the world’s second-highest cases of Coronavirus, despite the nationwide severe lockdown during early FY21, India’s economy is expected to contract by around 10% in the current financial year (2020-2021). Needless to say, the biggest concern at the moment is the contraction in GDP. The first advance estimates released just a few days ago indicate that the GDP would contract by at least 7.7% in FY21.
However, the government claims the Indian economy will return to growth in the next financial year (FY22) and there will be higher spending announcement in the Budget 2021, which will lay foundations for even stronger growth in the next 4-5 financial years. A couple of days back, FM Nirmala Sitharaman promised that Budget 2021 will be a budget like never before, indicating a wide range of difficult measures in a bid to boost the battered economy.
The factors such as the arrival of vaccines, gradual resumption of economic activities, and painstakingly slow but steady revival of businesses would play catalyst to this growth story.
Let’s take a look at the bits and pieces of the Budget 2021.
The Budget 2021 will be a completely digital budget, for the first time in India. Unlike every year, when the Union Budget is printed in the finance ministry’s in house press, involving around 100 employees who stay together for nearly a fortnight till the time the papers are printed, sealed, and delivered on the budget day, this year, due to the pandemic, the government will share soft copies of the budget. All members of the Parliament will receive the soft copies of the Union Budget, as said a finance ministry official.
Union Budget 2021 will be presented by finance minister Nirmala Sitharaman on 1st February 2021. The budget session in Parliament will begin on 29th January and go on till 8th April. There will be two parts of the session. The first one will take place in January and go on till 15th February, while the second session will take place between 8th March and 8th April. There will be a break between the two sessions.
What Budget 2021 may spell out?
The Budget 2021 would be a key step for the government to revive the country’s ailing economy, first due to the global meltdown and later due to the severe hammering by the Coronavirus pandemic. Since the announcement of the lockdown in March 2020, the government has announced several steps and reformative measures to boost the economy. However, Budget 2021 will put a greater focus on the comprehensive steps.
* Oil and gas
If we look at different sectors, the oil and gas industry players expect a provision of a floor for domestic gas prices. Also, they want a 20% ad-valorem cess on crude oil production to be reduced as it cuts off realizations and cash accruals of several companies during a high crude oil price period. Also, the industry demands the promotion of natural gas usage as fuel by exempting LNG imports from customs duty as crude draws nil duty while LNG attracts 2.5% customs duty. Budget 2021 might address these concerns.
As Nirmala Sitharaman has indicated, Budget 2021 might focus on increasing expenditure for the infrastructure sector. “I have to be conscious that if I don’t spend now, then the stimulus is meaningless. If I don’t spend now, the revival is going to get deferred and we can’t afford that,” said the finance minister, hinting that government aims to speed up spending to boost the growth rate and Budget 2021 might draw the outline for that.
The agriculture sector has drawn a lot of attention in 2020, especially with the Farm Bill that led to the farmers’ agitation in New Delhi. Interestingly, agriculture was one of the key sectors that performed strongly during the pandemic, which resulted in a quicker revival of the rural economy than urban India. Hence, the government is expected to send a positive message to the farmers of India through Budget 2021, where we might witness a focus on farmers’ welfare.
The government previously promised and re-uttered doubling farmers’ income by 2022. While the new farm laws were introduced as an effort to boost the farmers’ income, as the government claims, there would be a change of strategy in the budget, as the farmers’ are staunchly opposing the new laws.
The government could increase spending to improve warehousing and cold storage facilities for farmers. Apart from that, it would further limit the price of fertilizers and other chemicals used in the sector. Providing poor farmers with nominal transport logistics is another step the Budget 2021 could introduce. While farmers claim a guarantee on Minimum Support Price (MSP) and permanent withdrawal of the three farm laws, it is to be seen, how further the government steps back to pacify the agitating farmers.
The Coronavirus pandemic certainly exposed the gaps in India’s healthcare system and pointed out the need to increase expenditure in the sector to improve the service. The pandemic killed more than 1.5 lakh people in the country and many of them died because they didn’t receive proper treatment on time. Shortage of beds and ventilators made numerous headlines during 2020. Hence, expect Budget 2021 to focus widely on the improvement of the healthcare system, especially in the rural regions.
The healthcare sector has been demanding industry status for quite some time and we might see the government working towards that in the upcoming budget. Increased spending on pharmaceutical research and disease surveillance is also expected in the budget.
The Indian government has been promoting digital banking and digital payment as part of its Digital India campaign for quite some time, since the demonetization. The digitalization in banking has seen acceleration during the pandemic and the industry expects this will continue.
The government is expected to increase spending to improve internet infrastructure and connectivity in Tier-II and Tier III cities in a bid to promote digital payments. Digital and financial literacy are critical for the next wave of digital payments. Also, there might be steps from the government to operationalize the centralized KYC database in Budget 2021.
The education sector has witnessed major disruption during the pandemic. Instead of brick and mortar educational institutions, the classes have been being attended by the students from home, in a bid to avoid gathering and contamination.
Smartphones and laptops have become the new classrooms. However, network connectivity has played the villain in major places, especially in rural regions. Taking a lesson from this, the government might push digitalization in education and focus more on improving network connectivity and internet infrastructure.
*MSME and startups
MSMEs and startups have been among the key drivers of the Indian economy in the last decade. According to the data released by the MSME ministry, the country is home to around 6.8 million Udyog Aadhar registered MSMEs and nearly 63 million MSMEs in total. These MSMEs produce products that accounted for 49.81% of the total Indian exports in FY20.
Not only that, but the MSME sector also created employment for nearly 110 million people in the country. Apart from that, MSMEs have been leading entrepreneurial development and diversification of the industrial sector, besides providing depth to the industrial base of the economy.
Startups across segments too have been playing a major role in India’s growth. According to estimates, there are closely 30 unicorn Indian startups and 18 among them have major Foreign Direct Investments (FDI). India registered $73 billion FDI in FY20, as revealed by Commerce Ministry. The country has more than 40,000 DPIIT registered startups, as claimed by the Startup India portal.
During the pandemic, the startups have shown innovations that could lead to the country being a superpower in the future, with the government’s assistance. Focusing on this, Budget 2021 might emphasise taking steps that will improve the MSME and startup segments.
The MSMEs and startups have been demanding several measures by the government, which would be addressed in the budget. These demands include easing FEMA laws and inflow-outflow of foreign exchange funds inside and outside India, lowering or removing LTCG taxes on unlisted shares and dividend taxes and additional surcharges, simplification of GST and labour laws, ESOP taxes on unlisted companies, etc.
The pandemic has severely hammered the Indian aviation industry’s capacity and passenger growth. The financial woes of the sector have been accentuated by the Covid crisis. The industry stakeholders expect tax sops to revive their deteriorating financial health, which would reduce their high cost and debt burden. Lowering taxes on aviation turbine fuel (ATF), which accounts for 30-40% of the total cost of an airline is a measure, the industry expects from the budget. In India, the prices of ATF are 45-50% higher, as compared to international prices.
Apart from that, the industry also expects a reduction of levies like airport cess, parking, landing, and navigation charges. The airlines are following the fare bank directed by the Ministry of Civil Aviation, which the industry stakeholders expect to be relaxed in order to charge higher fares to revive their financial health.
The Budget 2021 would also reiterate its focus on regional connectivity through UDAN and Regional Connectivity Scheme (RCS). There might be more fund allocation for upgradation of Tier-II city airports. Also, there would be a focus on public-private-partnership (PPP) for these projects.
What’s for common man?
Every year, budget comes with expectations for the common man, and often they are left with a few pennies only. This year too, there is a big question what will be in the budget for the common man?
With the common man struggling with disruptions in income and cash flow, since lockdown; they would undoubtedly look up to the budget for various incentives, tax cuts, subsidies, easier credit access among other benefits. Loans at affordable interest rates, continued moratorium on loan payments are big expectations. However, it is unlikely that the government will offer any benefits on the income tax segment amid the lower revenue collections in 2020, due to the pandemic.