The Union Budget for financial year (FY) 2021-22 is on expected lines, after the Economic Survey urged the Government to increase spending and not introduce any new taxes. Since the pandemic took hold over the country at the beginning of FY 2020-21, the Union Government has been making piecemeal relief announcements aimed at strategic and vulnerable sectors and sections of society.
The real Gross Domestic Product (GDP) growth is projected to contract by 7.7 percent in 2020-21 as compared to a growth of 4.2 percent in 2019-20. GDP growth, however, is expected to rebound strongly in 2021-22 owing to the reform measures undertaken by the Government. Fiscal deficit for 2021-22 is estimated to be 6.8 percent of GDP. This sharp decline in fiscal deficit from revised estimate 2020-21 reflects Government’s commitment towards the fiscal health of the economy.
Revenue Estimates
The Union Budget has kept reasonable expectations from the GST collections in FY 2021-22 at ₹5,30,000 crores – it is a reduction of ₹50,000 crores from the last budget. A marginal increase is being estimated from union excise duties, primarily due to the taxes on petroleum products. Receipts from dividends and profits is estimated at ₹1,03,538 crores – which is a reduction of 33 per cent since from the last budget. Public Sector Units and Banks have been encouraged to plough back profits and retain surplus, if any, during the difficult economic conditions. As Government is looking to divest its stake in two banks, one general insurance company the revenues are bound to dry up.
The initial public offering of Life Insurance Corporation of India is slated to hit the market in FY 2021-22, and even a 10 per cent dilution of equity will fetch a jackpot for the Government. In the previous budget, Government had set an ambitious target of divestment, but it could not achieve it. This time round, monetizing IDBI Bank, Shipping Corporation of India, Air India, Container Corporation of India and other corporations mentioned above will be crucial for the exchequer’s fiscal arithmetic.
Expenditure Estimates
On the expenditure front, a 15 per cent increase is envisaged for interest payment and servicing of debt. A 10 per cent reduction has been budgeted for the pensions and other retirement benefits – with the gross outlay of ₹1,90,328 crores. The defence services will see an increase of one per cent over the last budget – 69 per cent of which is earmarked for the army and an aggregate of ₹9382 crores for research and development.
The social services expenditure for FY 2021-22 has been raised by 26 per cent when compared to the last budget. This particular head of expenditure for the Government witnessed variances in final outlay due to the pandemic. Medical and public health expense rose by ₹4,000 crores and on the other hand sports and youth services registered an underutilisation of ₹900 crores; cancellation of training and tournaments due to the pandemic was the primary cause for resources going unused. A contingency fund of ₹29,500 crores is being set up to meet unforeseen shock to the finances of Government arising from pandemics, natural calamities, climate change etc.
There are two noteworthy budget highlights under the social services head. Firstly, medical and public health for FY 2021-22 has been allocated ₹67,468 crores and water supply and sanitation has been allocated ₹19,133 crores. The budget estimates of FY 2021-22 for these two heads have been enhanced by 99 per cent and 1500 per cent, respectively. The allocations under general and technical education is almost identical to the last budget. Rest of the heads have seen performance and purpose related enhancements / reductions over previous year’s allocation.
An exception to the believable estimates of Budget is the amount allocated to Government expenditure on Petroleum. The revised estimate for FY 2020-21 is pegged at ₹39,958 crores and the budget estimate under the same head for FY 2021-22 is fixed at ₹15,447 crores. It remains to be seen how the Government will reduce its outlay under the Petroleum head by almost 60 per cent.
Railways Budget
Indian Railways received a special loan of ₹79,398 crores from general revenues for COVID-19 related resource gap in 2020-21 and to liquidate adverse balance in Public Account in 2019-20. In FY 2020-21, there will be shortfall of ₹46,000 crores and ₹22,816 crores from passenger and freight receipts, respectively. The budget estimates for passenger and freight revenue for FY 2021-22 are ₹61,000 crores and ₹1,37,810 crores, respectively. The appropriation to Railways pension fund is ₹53,300 crores, while the ordinary working expenses have been fixed at 95 per cent of FY 2020-21 budget. Resumption of normal train services is paramount for achieving the budget targets.
Noteworthy Announcements
Total financial impact of all AtmaNirbhar Bharat packages including measures taken by RBI is estimated to about ₹27.1 lakh crores, which amounts to more than 13% of GDP. The Budget proposals for FY 2021-22 rest on six pillars:
Health and Wellbeing;
Physical & Financial Capital, and Infrastructure;
Inclusive Development for Aspirational India;
Reinvigorating Human Capital;
Innovation and R&D; and
Minimum Government and Maximum Governance.
To phase out old and unfit vehicles, a voluntary vehicle scrapping policy has been announced. This will help in encouraging fuel efficient, environment friendly vehicles, thereby reducing vehicular pollution and oil import bill. Vehicles would undergo fitness tests in automated fitness centers after 20 years in case of personal vehicles, and after 15 years in case of commercial vehicles.
The Finance Minister (FM), Ms. Nirmala Sitharaman, has provided ₹35,000 crores for Covid-19 vaccine in FY 2021-22 and she reiterated that, if required, further funds will be made available. Production linked incentive schemes to create manufacturing global champions for an AtmaNirbhar Bharat have been announced for 13 sectors. For this, the government has committed nearly ₹1.97 lakh crores, over 5 years starting FY 2021-22.
Infrastructure
FM Sitharaman said, “Infrastructure needs long term debt financing. A professionally managed Development Financial Institution is necessary to act as a provider, enabler and catalyst for infrastructure financing. Accordingly, I shall introduce a Bill to set up a DFI. I have provided a sum of ₹20,000 crores to capitalise this institution. The ambition is to have a lending portfolio of at least ₹5 lakh crores for this DFI in three years’ time.”
Direct Taxes: Highlights
Senior citizens aged 75 years and above, who only have pension and interest income, have been exempted from filing their income tax returns. The onus of compliance will be on the paying bank to deduct the necessary tax. Time limit for re-opening of assessment is proposed to be reduced to three years from the present six years. In serious tax evasion cases too, only where there is evidence of concealment of income of ₹50 lakh or more in a year, can the assessment be re-opened up to 10 years. Even this reopening can be done only after the approval of the Principal Chief Commissioner, the highest level of the Income Tax Department.
In the February 2020 Budget, FM had increased the limit for tax audit to ₹5 crore for those who carry out 95% of their transactions digitally. To further incentivise digital transactions and reduce compliance burden, she proposed to increase this limit for tax audit for such persons from ₹5 crore to ₹10 crore. The eligibility of additional deduction of ₹1.5 lakh for loan taken to purchase an affordable house has been extended by one more year, to 31st March 2022.
In order to incentivise start-ups in the country, FM proposed to extend the eligibility for claiming tax holiday for start-ups by one more year – till 31st March, 2022. Further, in order to incentivise funding of the start-ups, she proposed to extend the capital gains exemption for investment in start-ups by one more year – till 31st March, 2022.