9.5% of GDP deficit budget presented, boost for infra-structure projects

KT NEWS SERVICE. Dated: 2/2/2021 12:46:46 AM

NEW DELHI, Feb 1: Finance Minister Nirmala Sitharaman has presented the Union Budget 2021-22 in Parliament. In significant changes to the taxation process, Sitharaman announced the scrapping of income tax for senior citizens under certain conditions, new rules for removal of double taxation for NRIs, and a reduction in the time period of tax assessments among other measures. Startups will get an extension in their tax holiday for an additional year. Sitharaman also announced that the advance tax liability on dividend income shall arise after declaration of payment of dividend. At the conclusion of her speech, Sensex was at 47451.62, up 1165.85 points.
In her speech, Sitharaman announced that India’s fiscal deficit is set to jump to 9.5 per cent of Gross Domestic Product in 2020-21 as per Revised Estimates. This is sharply higher than 3.5 per cent of GDP that was projected in the Budget Estimates. A slump in government revenues amid the Covid-19pandemic has led to a sharp rise in deficit and market borrowing. In health care spending, Sitharaman announced a total spend of around Rs 2 lakh crore on healthcare with Rs 35,000 crore on Covid-19 vaccine development and innoculation.
Sitharaman, in her speech, announced a push to the textile industry, a hike in custom duty on cotton and raw silk, a new cess on agriculture development – Rs 2.5 per litre on petrol and Rs 4 per litre on diesel – a central university in Leh, a focus on sea-weed farming with a new facility in Tamil Nadu and a new vehicle scrapping policy that aims to provide the auto sector a boost among other announcements. Sitharaman also announced that an additional 1 crore families will now benefit under the Centre’s Ujjwala scheme. Four poll-bound states – Kerala, Tamil Nadu, Assam and West Bengal – will see significant spending on highway road expansion.
Addressing the nation after the Budget, Modi said it speaks of “all-round development.” “From Covid-related reforms to Atmanirbhar resolve, we moved ahead with this mantra in Budget 2021. It’s an active and not a reactive budget,” he added, congratulated the Finance Ministry team.
This was Sitharaman’s third budget under the National Democratic Alliance (NDA) government led by Prime Minister Narendra Modi. In a significant departure from the tradition, this year’s Budget was not printed and was only made available in a digital format.
The budget’s goal, the minister said, was to make quality spending that will result in a demand push.
“If there are two important features of this budget, it is that we chose to spend big on infrastructure which spans across roads, bridges, ports, power generation and so on. The second feature is to attend to the need of the health sector. Capacity for better health management had to be brought up in light of what we have gone through last year," the minister said.
The minister explained that health spending was raised from ?94,492 crore this fiscal to ?2.23 trillion in the next fiscal, while capital expenditure has been stepped up from ?4.39 trillion this year to ?5.45 trillion.
Sitharaman also signalled that the fiscal support to economy will continue for at least three years, with the deficit being brought under 4.5% by FY26. Fiscal deficit -- the difference between revenue and spending met through borrowing-- for the current year shot up to 9.5% of the gross domestic product (GDP) against the original target of 3.5%. For the next fiscal, it is projected at 6.8%. Stake sale in state run companies is expected to fetch ?1.75 trillion next fiscal.
To support growth, the government sought to give more protection for domestic industry from imports by re-working import duty which is expected to fetch about ?30,000 crore to the exchequer. The budget also offered incentives to attract investments, especially in projects of social importance such as affordable housing. The fine print of the Budget focuses on ensuring compliances and settling certain tax positions and overall, it represents stability in tax regime, according to Rajiv Chugh, Partner and National Leader, Policy Advisory and Speciality Services at EY India. The government has already offered liberal alternative tax schemes with lower rates to both companies as well as individuals who do not avail of tax exemptions.
Sitharaman explained that the central government’s excise duty on petrol and diesel, the only major class of tax that showed strong growth this year, was a specific duty unlike the value added tax (VAT) that states levy which is on an ad valorem rate. Thus, the proceeds to states from VATon petrol and diesel goes up when price goes up, but Centre’s excise collection stays steady, the minister said.
Union budget assumed a lower nominal GDP growth rate of 14.4 for FY22 for budget calculations compared to the 15.4% projected by the Economic Survey tabled in Parliament on Friday.
Two days ahead of Budget, the Economic Survey Friday pitched for an “expansionary fiscal policy” in 2021-22 to boost growth. It also advised the government to continue with structural reforms and significant privatisation of state-owned companies.
Tabled by Finance Minister Nirmala Sitharaman in the Lok Sabha, the survey for 2020-21 emphasised that a stringent lockdown from March 25 to May 31 helped in breaking the chain of the pandemic’s spread and preventing loss of lives. The subsequent policy response helped in ensuring a V-shaped economic recovery, it said.
After an estimated 7.7 per cent contraction in 2020-21, the Survey projects real GDP to record a 11 per cent growth in 2021-22. The nominal GDP growth has been estimated at 15.4 per cent, implying a 4.4 per cent inflation during the year. The Ministry’s projections are in line with IMF estimates of real GDP growth of 11.5 per cent in 2021-22 for India and 6.8 per cent in 2022-23. India is expected to emerge as the fastest growing economy in the next two years as per IMF (International Monetary Fund), the Survey said.

 

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