A Bold Expansionist Budget 2021-22: Budget Does What Economy Requires it to Do

The Finance Minister presented a well-balanced Budget with an equal emphasis on growth and social objectives with a primary focus on fiscal push and infrastructure – sends out much-needed message, Government means business. The economy is likely to witness a V-shaped growth and rebound by 11 percent in FY2022.

The rebound will be on the back of a steady decline in the number of infections, a rapid vaccination drive, and effective government support in the form of stimulus and reforms.

The Government enhances the confidence of the foreign investors finding the budget provisions on Infrastructure investment, Business environment and ecosystem, move up the global value chain, deficit management, demand generation and employment, financial sector stabilisation and innovation and up skilling.

The finance ministry has allocated INR 2,631.32 crore for various schemes to boost electronic manufacturing in the country, including PLI scheme, MSIPS, EMC scheme and electronic development fund.

Enhanced outlay of INR 1.97 lakh crore in PLI scheme and INR 5.54 lakh crore for capex spending would help support core competencies to position Indian manufacturing hubs within the global supply chain.

Measures such as rationalising old custom duties, extending exemptions to the electronic and mobile industry could help increase domestic value addition and reduce production costs.

The government also allocated INR 500 billion for the next five years to the national research foundation to strengthen the research ecosystem.

Incentivising start-ups and MSMEs, restricting imports through hike in custom duties will foster high scale local manufacturing. The strong focus on digital covering setting up of fintech hub, enhancing digital payments and use of AI ML etc in governance provide a great platform for digital India.

The Budget introduced higher import duty rates on over a dozen handset and automobile components like printed circuit board assembly, camera module and connectors. These hikes enable the push for local production of electronics and auto components. Increase in basic Customs duty on electronics and select auto components will encourage local manufacturing.

Foreign investors should track the key provisions on major spending hikes promised for healthcare, infrastructure, and capital expenditure; Changes announced in the definition threshold for small companies to ease compliance as well as modifications for One Person Companies that can now be set up by NRIs.

FDI limit raised to 74% and other amendments proposed for the insurance sector and a revised customs duty structure will be rolled out in October 2021. Tax holiday for start-ups has been extended by one more year, to March 31, 2022.

The theme of this year’s budget is economic revival and boost to government’s pending rather than fiscal control. Neither this government nor the country can afford laxity in reviving the economic growth engine. If all these proposals materialize well, it would amount to reforms of the kind that were seen during 1991 and at the time of Vajpayee government. Through the budget the Government has tried to give a big push to set the Indian economy on a high growth path for the rest of this decade.

By Devendra Kumar, Editor in Chief, ELE Times