Budget 2021: What it means for the economy

The FM's aggressive approach with sizeable investments in healthcare and infrastructure sector may help secure India's long-term growth

Updated: Feb 4, 2021 03:52:24 PM UTC

Shalini Pillay is an Office Managing Partner, Bangalore at KPMG In India

Image: Anushree Fadnavis/ Reuters

From doing away with a colonial-era tradition of carrying Budget papers in a briefcase to now holding a tablet with the National Emblem on it, India has come a long way and may well be poised to become a self-reliant $ 5 trillion economy by 2025. Budget 2021 can be seen as one aimed at securing India's long-term growth. Expansion of new opportunities for growth, giving a new dimension to human resources, infrastructure development opportunities for the youth, and support for new sectors to grow, were the five principles that were behind Budget 2021. We take a look at some more features of the Union Budget 2021 that was declared earlier this week.

The Budget aims at doubling farmers’ income, augment health infrastructure, education for all, opportunities for youth, women empowerment, and inclusive development. It draws a roadmap for asset monetisation and privatisation of non-strategic public sector units, and introduces enhanced customs duty to further accelerate the ‘Make in India’ flagship programme.

Proposals to privatise two public sector banks and the state-owned insurance and investment corporation and setting-up of bad bank to take over non-performing assets would help banks focus on lending and will be transformative to the financial sector.  ‘One country, one Securities code’ will eliminate duplication, simplify the law and stimulate ease of doing business in India. Setting-up of a Development Finance Institution to provide, enable and catalyse infrastructure financing is a step in the right direction.

Budget 2021 also broached key themes of research and innovation, education and digital skilling and promoting startups. The India growth story will be incomplete without startups getting their due recognition. Tax incentives for startups have been further enhanced by a year and compliance provisions for One Person Company (OPC), which will see increased investments in the startup space, have been made less tedious. These announcements will provide a boost to the innovation and R&D [research and development] ecosystem in India, and monetise its rich demographic dividends that will steer the country's digital future and create large capability hubs to undertake global transformation.

India Inc’s worst fears of the levy of a Covid-19 cess, reinstatement of the wealth tax, a hike in capital gains tax or securities transaction tax, rich tax, and more, in the aftermath of Covid-19 were put to rest. Budget 2021 did not tinker with any of the existing rates, but instead excluded dividends from advance tax computation, slashed down the time limits for income escapement tax proceedings, curtailed timelines to complete assessment, and dispute resolution by setting-up a Dispute Resolution Committee, and so on.

Markets cheered when foreign institutional investors (FIIs) were finally given an option to access the more beneficial tax treaty provisions for offering dividends to income tax in India. Non-withholding of tax on REITs and InvITs and clarifications on tax provisions relating to investments by sovereign wealth funds and pension funds will further promote funding in the infrastructure space.

The budget also emphasises skilling programs, GST reform path, tackling the issue of inverted duty structure; frictionless customs duty structure; ease of doing business, reducing compliance burden for senior citizens, and a new national policy on official statistics to improve data collection and dissemination with the help of technology. These are encouraging steps promising ease and growth.

Overall, the Finance Minister has prioritised an aggressive approach with sizeable investments in healthcare and infrastructure sector that carry a high multiplier effect.

The writer is an Office Managing Partner, Bangalore at KPMG In India 

The thoughts and opinions shared here are of the author.

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