In India, unlike other western countries, Budget is not just an episode of reading accounting statements. It\’s much beyond that.
We have seen governments, understood their budgets; however, this was one of the best budgets we witnessed in recent times.
The Budget FY2021-22 has set a process for achieving significant economic freedom, faster and more rightful economic development and maturity.
In the second chapter of the budget series, we informed you about the government\’s steps for building infrastructure to set the economy in action. This chapter can be considered supplementary to the earlier one.
A look at various reforms undertaken by the government for India’s growth
For long, India has been a net importer of electronics, crude oil, automobiles and several other products. To change that face of the country, as part of the AtmaNirbhar Bharat policy, the Finance Minister has earmarked Rs 1.97 lakh crore over the next five years under the Productivity-Linked Incentive (PLI) scheme covering 13 sectors.
This move will attract global players to set up factories in India and export products to other countries.
The government will facilitate it by protective measures for the domestic industry by levying customs duty on various products, including electronic items, compressors for refrigerators and ACs, automobile parts such as electric motors and relays, etc.
India is aiming to be an integral part of the global supply chain. Considering this, the country is about to witness tremendous growth in the coming years.
A much-awaited scrapping policy for personal and commercial vehicles is also expected to boost demand for automobiles. Personal vehicles over 20 years and commercial vehicles over 15 years will have to undergo a fitness test to run on roads.
The scrapped vehicle will further provide low-cost raw material to Auto OEMs, thereby reducing the cost of vehicles. This will also help the country in reducing its environmental footprint and boost production of EVs.
According to FADA President Mr Vinkesh Gulati, “If we take 1990 as the base year, there are around 37 lakh commercial vehicles (CV) and 52 lakh passenger vehicles (PV) eligible for scrappage.
As an estimate, 10% of CV and 5% of PV may still be plying on the road.” As a direct result of implementing the policy, up to 50,000 jobs and investments of around Rs 10,000 crore are expected to be generated.
FDI In Insurance
With the intent to attract Foreign Institutional Investors (FIIs), the Finance Minister increased the foreign direct investment (FDI) limit in the insurance sector to 74% from 49%. Along with other disinvestments announcements, one state-owned general insurance company is likely to get privatized and boost government revenue.
The COVID-19 pandemic has proven that we have long overlooked the concept of having insurance. The penetration of insurance in India is much needed, and for that capital infusion is required.
Earlier, the government had raised the FDI limit from 26% to 49%. The further hike will allow foreign promoters to buy a stake in their Indian partners if required and provide the needed cash infusion.
The entry of a foreign partner will improve efficiencies, bring in greater transparency and align India\’s insurance sector policies in line with global standards.
After years of delay, FM announced introducing an entity to address the stressed assets banks through Asset Reconstruction Company (ARC) framework. Although it\’s not clear who this entity will be, the government is calling it “Bad Bank.”
This step is going to be a significant boost for inefficient asset resolution in the financial system. This entity will purchase distressed assets from banks at a discount. Then it will attempt to recover maximum possible value through a professional approach.
From a compliance and litigation perspective, there have been crucial changes. It is proposed to bring income tax appellate tribunal (ITAT) proceedings under the faceless regime.
To ease litigation for small & medium taxpayers (with income up to Rs 50 lakh), a dispute resolution committee is proposed to be formed.
Time limits & due dates for compliance have also been revised. The time limit for completion of regular & best judgment assessments has been reduced by three months. Duration for reopening of assessment has been reduced from 6 years to 3 years. Due dates for filing of revised belated returns are reduced by three months.
One Nation One Ration Card
Focusing on the migrant worker class, the government has implemented ‘One Nation, One Ration Card’ in 32 States and Union Territories, reaching about 69 crore beneficiaries. This scheme allows its beneficiaries to claim their rations anywhere in the country.
Migrant workers, those staying away from their families can partially claim their rations where they are stationed, while, their family in their native places can claim the rest.
Moreover, minimum wages will apply to all categories of workers, which will all be covered by the employee state insurance corporation.
One Person Company
The Budget proposal to allow forming One-Person Company (OPC) will push entrepreneurship in the country. OPC eradicates the requirement of traditional time-consuming and cumbersome methodologies like board meetings and financial statement inclusions.
The changes are sought to benefit approximately 200,000 companies in India in easing their compliance requirements. Earlier with the threshold of existing as an OPC was lower, converting to a private or public limited company meant more restrictions on the company’s trade.
Reducing Food Subsidy
For the first time, the government has acknowledged the use of extra-budgetary and other resources like the National Small Savings Fund (NSSF) for meeting the requirement of food subsidy. FCI has unpaid bills of Rs 1.8 lakh crores and lower provision of food subsidy in 2020-21 means that the government will see for options other than borrowing from NSSF at 8.4% interest to reduce the burden food subsidy.
Cutting the food subsidy can help provide more fiscal room.
This subsidy has seen a massive almost Rs 70,000 crore reduction in allocation this budget to Rs 1.15 trillion against the expectation of Rs 1.84 trillion for 2019-20. In the current year itself, the revised estimate of food subsidy has reduced to Rs 1.08 trillion.
Securities Market Code
The FM has proposed to bring together the provisions of SEBI Act, Depositories Act, Securities Contracts (Regulation) Act and Government Securities Act under a rationalized umbrella of securities markets code.
To best protect the investors’ interest, FM also proposes establishing an investor charter as a right for all investors in financial products.
A single code would provide more operational efficiency to the regulator, regulating various forms of securities like equity, commodity, currency and interest rate. Further, it also regulates stock exchanges, which provide a trading platform for government and private sector bonds.
Ujjwala scheme is being expanded to cover over one crore more families. India will have 100% blue fame coverage of all willing household access to clean cooking fuel, up from 55% of households with access in 2014.
This was a long read right, but I’m sure it was a good one! To conclude this chapter, I want to leave you with a question.
We have long been telling investors about a golden period that is approaching after the one that we during 2003-07.
Hadn’t it been for Covid, we would have seen more exponential growth in the market.
This budget has undoubtedly laid the foundation for the India’s growth that we all are eager to see.
The question here I want to ask you is-
“Will you now want to play an instrumental role in the growth story of our country and benefit from the opportunities that we see arising or will you again be speculative and turn away from the stock market?”
If you choose the latter, be ready to answer your children when they ask you what stopped you from investing in India’s growth story.