The Union Budget 2021 has been one of the most awaited events this year. Slated to be a budget like no other’ it held a momentous bearing on the economy’s growth trajectory as it strove to steady itself after the COVID-19 pandemic and the subsequent economic upheaval. A lot of expectations were riding on receiving substantial fiscal push to revitalise the economy, in order to nudge it back onto a strong growth path, now that the vaccination program is underway.
The Union Budget speech opened with heartening facts, noting that the COVID-19 outbreak was receding in the country. The budget was further described as aiming towards establishing an ‘Aatmanirbhar Bharat’, focusing on further strengthening the intent of Nation-first.
The following are some of the key highlights of the budget:
Health outlay receives a shot in the arm
The budget chose to focus on strengthening healthcare infrastructure, given the need to fortify the sector post the health emergency arising from the pandemic. PM AtmaNirbhar Swasth Bharat Yojana will be launched with an outlay of about Rs 64,180 crores over 6 years, centred on capacity development of the sector in order to mitigate the risk of further such adverse events. In urban areas, allocation would be made for effective pollution control by managing waste from construction-and-demolition activities and bio-remediation of all legacy dump sites.
Push to manufacturing sector
In order to enable the country’s manufacturing sector to achieve global competitiveness and usher in industrial growth, the budget announced a scheme of seven Textiles Parks over the next three years. These would not only encourage a range of competencies but also generate substantial employment in the country.
Continued thrust on infrastructure development
Infrastructure continued to be one of the key thrust areas of the budget. To further augment road infrastructure, new economic corridors are set to be created in the country, encompassing regions such as Madurai-Kollam and Mumbai-Kanyakumari, while upgrading existing highways and developing newer ones. There are also plans afoot for a ‘future ready’ railway system, as well as the expected commissioning of the Western and Eastern Dedicated Freight Corridors by June 2022. Urban infrastructure, too, is expected to witness considerable momentum with expansion of metro rail and city bus transport services on the cards. The development of a world class Fin-Tech hub at the GIFT-IFSC would also be supported by the government.
Increased emphasis on capital expenditure
The budget proposed a substantially enhanced capital expenditure which is 34.5% more than the previous budget. While a major share was kept aside to be provided for projects or departments that show good progress and are in need of further funds, there is also provision for allocation to states and autonomous bodies for their capital expenditure.
Creation of a Development Finance Institution (DFI)
The budget also proposed the setting up of a DFI capitalised with Rs 20,000 crore. This comes as a pertinent measure as there is an ardent need for infrastructure investment to help overcome pandemic-induced constraints, considering that very few commercial lenders are willing to take the risk of funding infrastructure now.
Continued impetus to affordable housing and affordable rental housing
The government has extended the tax holiday on affordable housing for another year to maintain momentum in the residential sector. Additional deduction of Rs 1.5 lakh shall therefore be available for loans taken up till 31st March 2022, for the purchase of affordable housing. The government further reiterated its commitment to affordable rental housing for migrant workers by allowing tax exemption for notified affordable rental housing projects. Meanwhile, with several industries being severely hit by a sharp increase in iron and steel prices, the budget has brought down customs duty uniformly to 7.5% on products of non-alloy, alloy, and stainless steel.
Increase in FDI limit
Notable emphasis was laid on attracting foreign inflow to the country, mainly by way of proposing to increase FDI limit in the insurance sector to 74%, from 49% applicable earlier. This would allow foreign ownership and control with safeguards.
Relief for REITs, InvITs, and start-ups
Coming as a relief to taxpayers, advance-tax liability on dividend income shall arise only after the declaration/payment of dividend. Thus, the dividend paid to REITs and InvITs shall be exempt from TDS. Further, the fact that suitable amendments would be carried out to enable debt financing of InVITs and REITs by foreign portfolio investors, will augur well for infrastructure and real estate sector as this will ease access to finance. As an incentive to home buyers and real estate developers, the safe harbour limit is increased from 10% to 20% for the specified primary sale of residential units below Rs. 2cr. Another significant announcement enhancing the country’s business environment is the extension of tax holiday for start-ups by one more year, while also proposing to reduce margin money requirement to 15%.
Strategic divestment plans and monetising of idle assets
The budget announced strategic divestment in two public sector companies and financial institutions in the next fiscal. The government would also be coming out with a policy that has been approved and provides a clear roadmap for disinvestment in both strategic and non-strategic sectors. Meanwhile, idle assets such as surplus land with government ministries and PSUs would be monetized by way of direct sale or concession. A Special Purpose Vehicle would be formed in order to carry out this activity.
Thus, while the realty fraternity harboured hopes of relief measures such as GST reforms and infrastructure status, the Union Budget 2021 decided to focus on strengthening healthcare, infrastructure creation, and augmenting foreign investment into the country. Altogether, the budget strove to touch upon several key issues impacting the economy, and going forward, it would be interesting to understand the new developments.