By: Tavaga Research
Finance minister Nirmala Sitharaman today presented the Union budget 2021 – with a laser-sharp focus on higher capital expenditure (CAPEX), disinvestments, and ease in tax compliance post the recession-induced by the Covid-19 pandemic. For the first time in India’s budget day history, the finance minister replaced her signature ‘bahi khata’ and used a ‘Made in India’ Tablet to carry the budget documents.
After turning negative YTD (Year-To-Date) post the huge sell-off last week, the stock markets rallied on Monday with the benchmark Nifty zooming by 646 points (intraday up 4.74%), and Nifty Bank rallying by more than 2500 points (up 8.2%). Nifty and Bank Nifty posted their best budget day gains since at least the start of this century.
YTD Performance of Nifty 50 Index
Having been the best performer of 2020, the Nifty Pharma was the only laggard to end in red with Nifty IT trimming its losses in the 2nd half of the trading day and ending with minor gains of around 1%.
Nifty Pharma ends in red
Budget 2021: From the government’s gallery
After an unprecedented crisis caused by the pandemic, this was probably the toughest budget for the Narendra Modi led government in the last 6 years as the administration faces twin challenges of a) steering the economy out of pandemic led recession, and b) ensuring due justice to the farmers without imposing additional taxes on the ultra-rich.
Agri infra cess of Rs 2.5 per litre on petrol and Rs. 4 per litre on diesel was introduced by the FM as a part of budget 2021, however, the end customer is said to have no impact due to excise duty cuts announced on the sidelines.
10 Significant Taxation Announcements
While there were no amendments in the marginal income tax rates/slabs, unlike last year, there was a slew of reforms announced to make the taxpayer’s life easier.
- No IT return filings for senior citizens above 75 years of age (Source of income: Only Pension & Interest)
- No tax-related audits up to 10 crore turnover (earlier: Rs 5 crore) for businesses with 95% digital transactions
- Tax holiday eligibility and capital gains tax exemption for startups extended by one more year (up to March 2022)
- Reopening time limit for cases related to tax disputes reduced to 3 years from the earlier 6 years
- Additional tax deduction of Rs 1.5 lakhs for those individuals who opt for a loan under the affordable housing scheme
- A likely reduction in customs duty on gold & silver
- NRIs to breathe a sigh of relief as the government proposes to eliminate double taxation on foreign retirement funds
- Beginning April 2021, interest on provident fund contribution above Rs. 2,50,000/year to be taxed
- Like mutual funds, maturity proceeds from ULIPS with a yearly premium over Rs 2,50,000/year to be taxed at 10% capital gains
- No TDS will be levied on REITs (Real Estate Investment Trusts)
Fiscal Deficit, Expenditure, And Borrowings
- The fiscal deficit for FY 2020-21 is seen at 9.5 percent of GDP
- The FM pegged the fiscal deficit for FY 2021-22 at 6.8 percent of GDP
- The FM proposed to bring the fiscal deficit to 4.5 percent of GDP by 2025-26
- A growth-oriented budget cannot be without higher capital expenditure and thus, the finance minister has proposed to hike the CAPEX by a whopping 34.5% to Rs 5.54 lakh crore in FY 22 from the current Rs 4.4 lakh crores
- States and other autonomous bodies to receive 2 lakh crores over and above the 5.54 lakh crores set aside for the purpose of capital expenditure
- The government is set to borrow Rs 800 billion from the bond market in the next two months
- For FY 2021-22, the government expects a total market borrowing of up to Rs 12 trillion
The Six Pillars That Made the news
In her speech, the finance minister announced the series of six pillars that Budget 2021 rests upon, namely:
- Health & Well-being
- Physical & Financial Capital and Infrastructure
- Inclusive Development for Aspirational India
- Reinvigorating Human Capital
- Innovation and R&D
- Minimum Government, Maximum Governance
Health & Well-being
The budget allocation for the health sector has been increased by a whopping 137% after underscoring the sector for all these years. While Covid-19 has taken many lives all over the world, it has surely made an impact on the healthcare budgets set aside by governments around the globe.
- In addition to the National Health Mission (NHM), the PM Aatma Nirbhar Swasth Bharat Yojana will be launched to strengthen and develop primary, secondary, and tertiary care health systems. Apart from developing existing systems, the scheme will cater to the detection and cure of new diseases, if any. A total outlay of Rs 64,180 crores has been set aside for the same.
- Rs 35,000 crore was allocated for Covid-19 vaccines
- Mission Poshan 2.0, an umbrella of the Supplementary Nutrition program and the Poshan Abhiyan was launched to improve and strengthen the nutritional content, delivery, and outcomes by allocating Rs 71,269 crores
2. Physical & Financial Capital and Infrastructure
In order to achieve the target of USD 5 trillion (GDP), India’s manufacturing sector has to grow in double digits sustainably. For this, the government had previously earmarked Rs 1.97 lakh crore as a part of the Production Linked Incentive (PLI) scheme.
- Launch of 7 mega-investment textile parks to make India’s textile companies, globally competitive and help in generating employment.
- The sharp uptick in capital expenditure (CAPEX): FY22 CAPEX pegged at 5.4 lakh crore as against 4.4 lakh crore seen in FY21
- Completion of 217 projects worth Rs 1.10 lakh crore under the National Infrastructure Pipeline framework
- Establishing the Development Financial Institution (DFI) for debt financing for infrastructure and real estate projects
- In order to facilitate asset monetization without further hiccups, NHAI will sponsor the creation of an InvIT that will be a beneficiary of institutional investors. Railways and Airports will continue monetizing their assets for operational purposes
- Under the Bharatmala Pariyojana project, the government has set an ambitious target of awarding 8,500 km of additional national highway corridors with a total outlay of Rs 1.18 trillion
- The government further aims to improve the public infrastructure in the urban areas by setting aside Rs 18,000 crores for an integrated bus transportation service
- Subsidy support to Indian shipping companies worth Rs 1624 crores over the next 5 years
- Ujjwala Scheme to be extended by 1 more year (The scheme has till date has benefitted 8 crore households)
- Gas pipeline project to be launched in the UT of Jammu & Kashmir
- Infusion worth Rs 1,000 crore in Solar Energy Corporation of India
- Deposit insurance scheme to allow the depositors of stressed banks (e.g.: PMC Bank) to access up to Rs 5 lakh
Inclusive Development for Aspirational India
The farmers, migrant workers, laborers, other allied sectors were covered under the third pillar – Inclusive Development for Aspirational India.
- Swamitva Scheme – Under the said scheme, a record of rights is provided to the property owners in a village to bring transparency in property ownership. The scheme, previously launched by the Prime Minister himself, was extended to all the states and union territories as announced in today’s union budget
- Micro-irrigation fund – An additional corpus of Rs 5,000 crores was proposed into the micro-irrigation fund which comes under the purview of NABARD.
- Adequate credit facilities – The government will ensure increased credit flows to dairy and fisheries farmers and focus on overall credit enhancement of up to Rs 16.5 lakh crore
- Rural infrastructure gets a boost as FM proposed an additional allocation of Rs. 10,000 crores to the development fund
- 1,000 more Mandis to integrate with the e-NAM portal eventually leading to more competitiveness and transparency
- The APMCs will get access to the agriculture infrastructure fund in order to strengthen their agriculture facilities
Migrant workers, laborers, and financial inclusion
- One Nation, One Ration Card – The scheme launched for the migrant laborers to get access to ration anywhere in the country, will cover the remaining 4 states as well, thus ensuring 100% coverage
- Social Security benefits to be extended to gig, building, and construction workers
- Apart from the reforms announced for the MSME sector, an additional outlay of Rs 15,700 crores was proposed during the budget
Reinvigorating Human Capital + Innovation and R&D + Minimum Government, Maximum Governance
- Along with setting up a Central University in Leh, the government has also proposed to increase the number of schools, benefits of the Post Matric Scholarship Schemes, and apprenticeship opportunities for graduates and engineering graduates.
- The government has also allotted Rs. 50,000 crores for the National Research Foundation and Rs. 1,500 Crore to promote digital modes of payments.
- Similarly, allotments for the first digital census, tea workers of Assam and West Bengal have also been made in the Budget for FY 21-22.
What lies ahead?
Team Tavaga firmly believes that markets would continue to extend their gains, given the fact that spending hasn’t been compromised at all. Moreover, with no imposition of additional taxes, consumption is all set to get a further boost. Businesses related to the ‘Make In India’ and ‘Aatma Nirbhar Bharat’ themes will continue to stay in limelight and attract investors’ interests.
With a hike in FDI limits from the current 49% to 74%, the insurance sector would continue to stay in the news.
On a lighter note, the carnage of bears could continue tomorrow as well, if global markets don’t throw any negative surprises.
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