Budget Beyond Numbers
Lost in the sea of numbers in Budget 2021? Here's a jargon free version of what the budget envisions and what it means for you and the country. ReadOn!
The much-awaited Budget is finally here!
But, are you overwhelmed by the big numbers thrown around by the Finance Minister (FM)? And left wondering what lies behind the veil of fund allocations and the innumerable new schemes that have been launched?
In that case...ReadOn
The budget for 2021 has been established on six pillars. And those six pillars rest on one foundation. The foundation of faith.
''Faith is the bird that feels the light and sings when the dawn is still dark.'' as quoted by the FM.
So…hold that faith while we dissect the pillars, one at a time!
Pillar 1: Health and Wellbeing
With a pandemic shaking the country up, it is no surprise this segment got a big pie of the budget allocation (or so we are told). To build a healthy nation, one needs to focus on prevention and cure of diseases while taking care of well being in general. Overall, the funds allocated towards the Health of the Nation has increased by~ 137% to Rs. 2,23,846 crores in 2021-22, as against Rs. 94,452 in the previous year!
This fund will go towards improving healthcare infrastructure facilities and fighting malnourishment. And ofcourse, how can we forget vaccines.
But that’s not it. You know what is required for Swasth (healthy) Bharat? Swacch Bharat. Funds have been allocated for waste treatment and combating air pollution. To reduce vehicular pollution, the govt. has introduced a policy for scrapping old vehicles (which btw happened earlier as well, but did not get implemented).
Health is Wealth, finally? Interestingly, the “health” portion of the budget got 2% fund allocation of the entire expense in 2020-21 and the proportion has more or less remained the same in 2021-22.
Pillar 2: Physical & Financial Capital, and Infrastructure
India has set its eyes on becoming a 5 trillion-dollar economy by 2024 (ahem!). And for that to happen, the industry needs to grow by double digit, says the FM. Apart from covering the usual of more roads, highways, railway and metro construction projects (with special focus on States going for elections this year), the budget had many new schemes to boost growth.
> For 13 sectors, a Production Linked Incentive scheme has been launched. If you have a manufacturing unit in one of those sectors, the govt. will give you an incentive on the basis of how much sales you make and a bunch of other conditions.
> You must have heard tales of how Indian textile wowed the world all over before the not so expensive machine-made cloth crippled the industry. Not any more. Ms. Nirmala Sitharaman is set to weave a happy tale by announcing the launch of 7 Textile parks over the next 3 years.
> The Bijli companies got electrified with this budget. You will soon be able to choose who to get your electricity from. Infrastructure related support will be provided to power utility companies to make distribution viable.
> Fintech, the new hip thing in town is set to get a hub of its own.
> The Public Sector Banks are being haunted with bad loans. To deal with this mess, the govt. offers to establish bad banks! (Read all about bad banks in this piece).
So far, so good.
But the thing with infrastructure projects is that they require huge loans and investments. To boost the sector, the govt. will have to infuse cash. And so, it announced the setting up of a Development Financial Institution. The FM aspires to give out loans of Rs. 5,00,000 crores in three years’ time via this Institution.
Ab paise ped pe thodi ugte hai?
So much expenses require revenue, right? To increase its revenue, the govt. plans to go for increased disinvestments and asset monetization.
Umm, what?
The govt. owns many companies (like LIC, SBI, etc) and operates many facilities, like airports, warehouses, ports etc. If it wants some quick cash, it can:
> sell stakes in its companies to private entities (disinvestment) or,
> transfer the operations of its facilities to private parties and charge some fees (asset monetization).
This move got a lot of eye-balls rolling. Some feel that by selling off its crown jewels to make quick cash, the govt. is putting its future earning prospects in danger. Others say that govt. has no business running businesses. For govt. companies that are not running efficiently, isn’t it better to privatise them before their customers flock over to other private companies?
Having said that...you could soon hold shares of LIC, as its IPO is set to come out this year!
Even foreign investors can now hold majority shares in insurance companies as the permissible limit of FDI (Foreign Direct Investments) in the sector has been increased from 49% to 74%.
Pillar 3: Inclusive Development for Aspirational India
A distinct pillar has been attributed in this budget for reinforcing “Sabka saath Sabka Vikas”. The year did not go well for migrants and farmers if you recall. At least some effort has to be displayed to get into their good books, afterall?
So, the agricultural sector was in the limelight which ensured MSP at minimum 1.5 times the cost of production for all commodities.
And, what do the migrant workers get?
One Nation, One Ration Card to claim rations anywhere in the country.
Will the govt. be able to woo them? We will have to wait and watch...
Pillar 4: Reinvigorating Human Capital
India’s population is young and vibrant. Nurturing them and training them will lead to a bright future for the nation. While the National Education Policy (NEP) was announced in the previous year, this year mainly focused on implementing NEP and setting up new schools.
Since Budget 2019-20, the government has been announcing the setting up of the Higher Education Commision of India (HECI). HECI intends to replace UGC and AICTE which regulate universities and technical institutions. But, the move saw a strong rebellion from professors and student bodies and the commision couldn’t be set up. This budget again proposed setting up of HECI with revised legislation. Will they be able to succeed this time?
Pillar 5: Innovation and R&D
In spite of being the 5th largest economy, India’s gross expenditure on R&D is only 0.65% of GDP, much lower than that of the top 10 economies (1.5%-3%). Recent Economic Survey points out the need for India to pursue real innovation rather than ‘jugaad innovation’ in order to truly achieve its ambitions.
To strengthen the Research ecosystem in India, GOI will set up The National Research Foundation and spend Rs. 50,000 Cr +over the next 5 years.
Pillar 6: Minimum Government and Maximum Governance
Embrace yourself for the 1st digital census in the history of India. But at what cost? Rs. 3,768 crores. Rs. 1,000 crores has been set aside for the welfare of Tea Workers, especially women and their children in Assam and West Bengal through a special scheme (leaving no stone unturned for upcoming elections, no? But who are we to complain when it benefits the people).
That's it? All this while, you'd been wondering what the budget has in store for you, no?
Well, we have some good news and bad news for you.
Let’s start with the good news.
> Senior citizens (over 75-year-old) who have only pension and interest income don’t have to file returns!
Now don’t rush to get a Fixed Deposit in the name of your grandfather. Because, no return does not mean no taxes.
> Your CA won’t be able to charge you extra bucks for filing returns in the name of technical calculations. Your dividend income, interest income and capital gains will come pre-filled in the returns.
> Additional tax relief for affordable housing loans has been extended for one year.
Now, let’s flip the coin over.
In the spirit of Aatmanirbhar Bharat, custom duties have been increased for a whole host of products. But, how does it impact you?
As the local manufacturer cannot compete with the prices of imported products, the taxes charged on imported goods are increased. It’s like changing the question paper to suit the answers given by your favourite student. This will, in turn, increase the price of goods, leading to inflation.
But, to make India competitive in the world market, shouldn’t the govt. focus on increasing the ease of doing business and enabling them better? Let’s see what has been done for them.
> Tax holidays (don’t need to pay tax on profits) for startups have been extended by a year.
> Companies are required to fulfill umpteen formalities (how else do you think CAs and CS’ earn?). But, small companies have to meet lesser compliances. However, the definition of small was not so inclusive before. The FM has made Small more inclusive in this budget which will benefit more than 1,00,000 companies.
> If you are struggling to find a co-founder for your startup, you can now establish a One Person Company (OPC). No more capital and revenue restrictions to start one.
> The limit for tax audit has been increased further for companies carrying out 95% of their transactions digitally.
> Certain procedural offences by Companies were earlier considered criminal offences. It has now been decriminalized.
But, will this much suffice to take us out from the throes of the wreck left behind by the pandemic? The fiscal deficit rose to 9.5%. Even the worst estimates were somewhere near 6% (How will it impact us? Here, we have it covered).
Take a look at how much the budget allocations have changed from the previous year and how the revenue sources have evolved from the previous years:
Now, those are just broad plans and allocations. The execution will decide where the country goes. Is the budget good or bad? Is it as revolutionary as the government claims? Only time will tell…
Until then… ReadOn
Thousands of readers get our daily updates directly on WhatsApp! 👇 Join now!
We went live on Budget Day, alongside Madam Finance Minister, and had a lot of fun. You can check out the session here.