Union Budget 2021-22

Context:

The Finance Minister presented the Union Budget 2021-22 in Parliament on February 1, 2021, which is the first budget of this new decade and also a digital one in the backdrop of the unprecedented COVID-19 crisis. It laid emphasis on the vision for AatmaNirbhar Bharat. The Budget proposals will further strengthen the Sankalp of Nation First, Doubling Farmer’s Income, Strong Infrastructure, Healthy India, Good Governance, Opportunities for youth, Education for All, Women Empowerment, and Inclusive Development among others. Additionally, also on the path to fast-implementation are the 13 promises of Budget 2015-16-which were to materialize during the AmrutMahotsav of 2022, on the 75th year of our Independence. They too resonate with this vision of AatmaNirbharta.

The Union Budget is also known as the Annual Financial Statement.

• Article 112 of the Constitution of India lays down that it is a statement of the estimated expenditure and receipts of the Government for a particular year.
• The Budget keeps the account of the finances of the government for the fiscal year (from 1st April to 31st March).
• The Budget is presented on 1st February (until 2016, it was presented on the last working day of February) so that it can materialize before the commencement of the new financial year which starts on 1st April.
• In 2017, a 92-year-old tradition was broken when the railway budget was merged with the Union Budget and presented together.
• The Budget has to be passed by the Lok Sabha before it can come into effect
• The Union Budget is divided into Revenue Budget and Capital Budget.
• In the Union Budget, the disbursements and receipts of the government comprise the various types of government funds in India namely:

  1. the Consolidated Fund of India,

  2. the Contingency Fund and

  3. the Public Account.

• The Economic Survey of India is released ahead of the presentation of the Budget. This document is prepared under the guidance of the Chief Economic Advisor and is presented for discussion in both Houses during the Budget session.

• Borrowings and other liabilities are known as Fiscal Deficit.

  • Fiscal Deficit= Total Expenditure– Total Receipts excluding borrowings.
  • Higher the fiscal deficit, the higher will be the market borrowings.
  • However, borrowing is not always a bad idea- if the borrowed money is used for productive purposes.
  • For example, if the borrowed money is used to build capital assets like factories, roads, railways, etc– that is productive.
  • We have already seen that investments like those in National Infrastructure Pipeline would result in better employment opportunities as well.
• Apart from market borrowings, other debt receipts like Securities against Small Savings, Other Receipts (Internal Debts and Public Account), Draw Down of Cash Balance, etc. are also proposed to be widely used this time.
• Spending on the revenue side does not create any new assets.
  • Revenue expenditures take place after a fixed asset had been put into service and simply keeps the asset in working order.
  • Revenue expenditure is used for day-to-day expenses of running the government machinery like salary, pension, interest payments, etc.
  • Ideally, a government system should be efficient enough to generate surplus income from the resources on which it gives a salary, pension, etc so that the additional revenue can be used for capital expenditure.
  • However, in the case of India, the government machinery is not generating enough income to even to meet their salary or pension.
  • To understand the case better, consider a government project to collect a particular tax.
  • If the salaries, pension, and administrative expenses of the project are Rs.30 crores, and if the project is able to collect only Rs.24 crores as tax, running this project results in a loss of Rs.6 crore rupees.

Where does the money come from and where does it go?

What is a V-shaped recovery?

• V-shaped recovery is a type of economic recession and recovery that resembles a “V” shape in charting.
• A V-shaped recovery is characterized by a quick and sustained recovery in measures of economic performance after a sharp economic decline.
• Because of the speed of economic adjustment and recovery in macroeconomic performance, a V-shaped recovery is a best case scenario given the recession.
• The recoveries that followed the recessions of 1920-21 and 1953 in the U.S. are examples of V-shaped recoveries.

New Schemes/Initiatives/Institutions proposed in this year's Budget:

1. AatmaNirbhar Bharat-Production Linked Incentive Scheme
2. Mission Poshan 2.0. 
3. PM AatmaNirbhar Swasth Bharat Yojana
4. Jal Jeevan Mission (Urban)
5. AatmaNirbhar Bharat-Production Linked Incentive Scheme
6. Mega Investment Textiles Parks (MITRA)
7. National Monetization Pipeline
8. Operation Greens(scope expanded)

9. Development Financial Institution (DFI)

10. Micro Irrigation Fund

11. Higher Education Commission of India

12. National Research Foundation

13. National Language Translation Mission (NTLM)

14. National Hydrogen Energy Mission 

15. Multipurpose Seaweed Park

The Budget proposals for 2021-22 rest on 6 pillars.

1. Health and Wellbeing
2. Physical & Financial Capital, and Infrastructure
3. Inclusive Development for Aspirational India
4. Reinvigorating Human Capital
5. Innovation and R&D
6. Minimum Government and Maximum Governance

1. Health and Wellbeing:

There is a substantial increase in investment in Health Infrastructure and the Budget outlay for Health and Wellbeing is Rs 2,23,846 crore in BE 2021-22 as against this year’s BE of Rs 94,452 crore, an increase of 137%.

• The Finance Minister announced that a new centrally sponsored scheme, PM AatmaNirbhar Swasth Bharat Yojana, will be launched with an outlay of about Rs 64, 180 crore over 6 years. This will develop capacities of primary, secondary, and tertiary care Health Systems, strengthen existing national institutions and create new institutions, to cater to the detection and cure of new and emerging diseases. This will be in addition to the National Health Mission.
• The main interventions under the PM AatmaNirbhar Swasth Bharat  scheme are:
  1. Support for 17,788 rural and 11,024 urban Health and Wellness Centers
  2. Setting up integrated public health labs in all districts and 3382 block public health units in 11 states;
  3. Establishing critical care hospital blocks in 602 districts and 12 central institutions;
  4. Strengthening of the National Centre for Disease Control (NCDC), its 5 regional branches and 20 metropolitan health surveillance units;
  5. Expansion of the Integrated Health Information Portal to all States/UTs to connect all public health labs;
  6. Operationalization of 17 new Public Health Units and strengthening of 33 existing Public Health Units at Points of Entry, that is at 32 Airports, 11 Seaports and 7 land crossings;
  7. Setting up of 15 Health Emergency Operation Centers and 2 mobile hospitals; and
  8. Setting up of a national institution for One Health, a Regional Research Platform for WHO South-East Asia Region, 9 Bio-Safety Level III laboratories and 4 regional National Institutes for Virology.
• Vaccines:
  • Provision of  Rs 35,000 crore made for Covid-19 vaccine in BE 2021-22.
  • The Pneumococcal Vaccine, a Made in India product, presently limited to only 5 states, will be rolled out across the country aimed at averting 50,000 child deaths annually.
• Nutrition:
  • To strengthen nutritional content, delivery, outreach, and outcome, the Government will merge the Supplementary Nutrition Programme and the PoshanAbhiyan and launch the Mission Poshan 2.0. 
  • Mission Poshan 2.0 aims to consolidate supplementary nutrition programmes and Poshan Abhiyan into a single scheme.
  • The government will adopt an intensified strategy to improve nutritional outcomes across 112 Aspirational Districts.
• Universal Coverage of Water Supply and Swachch Bharat Mission
  • The Finance Minister announced that the  JalJeevan Mission (Urban), will be launched for universal water supply in all 4,378 Urban Local Bodies with 2.86 crore household tap connections, as well as liquid waste management in 500 AMRUT cities.
  • It will be implemented over 5 years, with an outlay of Rs. 2,87,000 crore.
  • Moreover, the  Urban Swachh Bharat Mission will be implemented over a period of 5 years from 2021-2026. Also to tackle the burgeoning problem of air pollution, the government proposed to provide an additional amount 42 urban centres with a million-plus population in this budget.
  • A voluntary vehicle scrapping policy to phase out old and unfit vehicles was also announced.
  • Fitness tests have been proposed in automated fitness centres after 20 years in case of personal vehicles, and after 15 years in case of commercial vehicles.

2. Physical and Financial Capital and Infrastructure

• AatmaNirbhar Bharat-Production Linked Incentive Scheme:
  • For a USD 5 trillion economy, our manufacturing sector has to grow in double digits on a sustained basis.
  • Our manufacturing companies need to become an integral part of global supply chains, possess core competence and cutting-edge technology.
  • To achieve all of the above, PLI schemes to create manufacturing global champions for an AatmaNirbhar Bharat have been announced for 13 sectors. For this, the government has committed nearly Rs.1.97 lakh crore in the next 5 years starting FY 2021-22. This initiative will help bring scale and size in key sectors, create and nurture global champions and provide jobs to our youth. 
• Textiles:
  • Similarly, to enable the textile industry to become globally competitive, attract large investments and boost employment generation, a scheme of Mega Investment Textiles Parks (MITRA) will be launched in addition to the PLI scheme. This will create world-class infrastructure with plug and play facilities to enable create global champions in exports. 7 Textile Parks will be established over 3 years.

• Infrastructure financing – Development Financial Institution (DFI):
  • A professionally managed Development Financial Institution is necessary to act as a provider, enabler, and catalyst for infrastructure financing. Accordingly, a Bill to set up a DFI will be introduced. The government has provided a sum of Rs 20,000 crore to capitalize this institution and the ambition is to have a lending portfolio of at least Rs 5 lakh crore for this DFI in three years time.
• Asset Monetisation
  • Monetizing operating public infrastructure assets is a very important financing option for new infrastructure construction. A “National Monetization Pipeline” of potential Brownfield infrastructure assets will be launched.  An Asset Monetization dashboard will also be created for tracking the progress and to provide visibility to investors.

• Roads and Highways Infrastructure:
  • By March 2022, Government would be awarding another 8,500 kms and complete an additional 11,000 kms of national highway corridors. To further augment road infrastructure, more economic corridors are also being planned. 
  • The budget also provided an enhanced outlay of Rs. 1,18,101 lakh crore for Ministry of Road Transport and Highways, of which Rs.1,08,230 crore is for capital, the highest ever.
• Railway Infrastructure:
  • Indian Railways have prepared a National Rail Plan for India – 2030. The Plan is to create a ‘future-ready’ Railway system by 2030.
  • Bringing down the logistic costs for our industry is at the core of our strategy to enable ‘Make in India’. It is expected that Western Dedicated Freight Corridor (DFC) and Eastern DFC will be commissioned by June 2022.
• Urban Infrastructure:
  • Government will work towards raising the share of public transport in urban areas through expansion of metro rail network and augmentation of city bus service. A new scheme will be launched to support augmentation of public bus transport services.
  • Two new technologies i.e., ‘MetroLite’ and ‘MetroNeo’ will be deployed to provide metro rail systems at much lesser cost with same experience, convenience and safety in Tier-2 cities and peripheral areas of Tier-1 cities. 

• Power Infrastructure
  • Expressing a serious concern over the viability of Distribution Companies, the Finance Minister proposed to launch a revamped reforms-based result-linked power distribution sector scheme with an outlay of Rs. 3,05,984 crore  over 5 years.
  • The scheme will provide assistance to DISCOMS for Infrastructure creation including pre-paid smart
  • National Hydrogen Energy Mission is now proposed to launch in 2021-22 for generating hydrogen from green power sources.
• Ports, Shipping, Waterways:
• Major Ports will be moving from managing their operational services on their own to a model where a private partner will manage it for them.  For this purpose, the budget proposes to offer more than Rs. 2,000 crore by Major Ports on Public-Private Partnership mode in FY21-22.
• A scheme to promote the flagging of merchant ships in India will be launched by providing subsidy support to Indian shipping companies in global tenders floated by Ministries and CPSEs.
• This initiative will enable greater training and employment opportunities for Indian seafarers besides enhancing Indian companies' share in global shipping.

• Petroleum & Natural Gas:
  1. The Finance Minister said that the government has kept fuel supplies running across the country without interruption during the COVID-19 lockdown period. Taking note of the crucial nature of this sector in people’s lives, the following key initiatives are being announced:

     1. Ujjwala Scheme which has benefited 8 crore households will be extended to cover 1 crore more beneficiaries.

     2. Government will add 100 more districts in next 3 years to the City Gas Distribution network. 

     3. A gas pipeline project will be taken up in Union Territory of Jammu & Kashmir.

     4. An independent Gas Transport System Operator will be set up for facilitation and coordination of booking of common carrier capacity in all-natural gas pipelines on a non-discriminatory open access basis.

Major Financial Reforms:

• Financial Capital:
  • The Finance Minister proposed to consolidate the provisions of SEBI Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1956 and Government Securities Act, 2007 into a rationalized single Securities Markets Code. 
  • The Government would support the development of a world-class Fin-Tech hub at the GIFT-IFSC.
• Increasing FDI in Insurance Sector:
  • The FM proposed to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49% to 74% and allow foreign ownership and control with safeguards.
  • Under the new structure, the majority of Directors on the Board and key management persons would be resident Indians, with at least 50% of Directors being Independent Directors, and a specified percentage of profits being retained as a general reserve.
• Company Matters:
  • As a further measure that directly benefits Start-ups and Innovators,it proposed to incentivize the incorporation of One Person Companies (OPCs) by allowing OPCs to grow without any restrictions on paid-up capital and turnover, allowing their conversion into any other type of company at any time, reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days and also allow Non-Resident Indians (NRIs) to incorporate OPCs in India.
  • To improve credit discipline for NBFCs with a minimum asset size of `100 crores, the minimum loan size eligible for debt recovery under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 is proposed to be reduced from the existing level of `50 lakhs to `20 lakhs.
  • To ensure faster resolution of cases, the NCLT framework will be strengthened, the e-Courts system shall be implemented, and alternate methods of debt resolution and special framework for MSMEs shall be introduced
  • In 2021-22, govt will be launching data analytics, artificial intelligence, machine learning-driven MCA21 Version 3.0. This Version 3.0 will have additional modules for e-scrutiny, e-Adjudication, e-Consultation and Compliance Management.
• Treasury Single Account:
  • Under the Treasury Single Account (TSA) System autonomous bodies directly draw funds from the Government’s account at the time of actual expenditure, saving interest costs. The govt will extend the TSA System for universal application from 2021-22.
• Multi-State Cooperatives 
  • The Government is committed to the development of Multi-State Cooperatives and will provide all support to them. To further streamline the ‘Ease of Doing Business’ for Cooperatives, it proposed to set up a separate Administrative Structure for them.
• Disinvestment and Strategic Sale:
  • The policy provides a clear roadmap for disinvestment in all non-strategic and strategic sectors.  The government has kept four areas that are strategic where bare minimum CPSEs will be maintained and rest privatized.
  • In the non-strategic sectors, CPSEs will be privatized, otherwise shall be closed.
  • To fast forward the disinvestment policy,  NITI Aayog will work out on the next list of Central Public Sector companies that would be taken up for strategic disinvestment.

3. Inclusive Development for Aspirational India

Under the pillar of Inclusive Development for Aspirational India, the Finance Minister announced to cover Agriculture and Allied sectors, farmers’ welfare and rural India, migrant workers and labour, and financial inclusion.

• Agriculture:
  • The MSP regime has undergone a sea change to assure price that is at least 1.5 times the cost of production across all commodities. The procurement has also continued to increase at a steady pace.  This has resulted in an increase in payment to farmers substantially.
  • Early this year, the Prime Minister had launched SWAMITVA Scheme. Under this, a record of rights is being given to property owners in villages. Up till now, about 1.80 lakh property-owners in 1,241 villages have been provided cards and the Finance Minister proposed during FY21-22 to extend this to cover all states/UTs.
  • The allocation to the Rural Infrastructure Development Fund increased from Rs. 30,000 crore to Rs. 40,000 crore. The Micro Irrigation Fund, with a corpus of Rs.5,000 crore has been created under NABARD will be doubled.
  • In an important announcement to boost value addition in agriculture and allied products and their exports, the scope of ‘Operation Green Scheme’ that is presently applicable to tomatoes, onions, and potatoes, will be enlarged to include 22 perishable products.
  • Keeping in view the transparency and competitiveness that e-NAM has brought into the agricultural market, 1,000 more mandis will be integrated with e-NAM. The Agriculture Infrastructure Funds would be made available to APMCs for augmenting their infrastructure facilities.

• Fisheries:
  • Finance Minister proposed substantial investments in the development of modern fishing harbours and fish landing centres.
  • To start with, 5 major fishing harbours – Kochi, Chennai, Visakhapatnam, Paradip, and Petuaghat – will be developed as hubs of economic activity.
  • Seaweed farming is an emerging sector with the potential to transform the lives of coastal communities. It will provide large scale employment and additional incomes. To promote seaweed cultivation, it proposed a Multipurpose Seaweed Park to be established in Tamil Nadu.
• Migrant Workers and Labourers:
  • For the first time globally, social security benefits will extend to gig and platform workers.
  • Minimum wages will apply to all categories of workers, and they will all be covered by the Employees State Insurance Corporation.
  • Women will be allowed to work in all categories and also in the night-shifts with adequate protection.
  • At the same time, compliance burden on employers will be reduced with single registration and licensing, and online returns.

• Financial Inclusion:
  • To further facilitate credit flow under the scheme of Stand Up India for SCs, STs, and women, the  Finance Minister proposed to reduce the margin money requirement from 25% to 15%, and to also include loans for activities allied to agriculture.

4. Reinvigorating Human Capital:

• The Finance Minister said that the National Education Policy (NEP) announced recently has had good reception, while adding that more than 15,000 schools will be qualitatively strengthened to include all components of the National Education Policy. 
• 100 new Sainik Schools will be set up in partnership with NGOs/private schools/states.
• It proposed to set up a Higher Education Commission of India, as an umbrella body having 4 separate vehicles for standard-setting, accreditation, regulation, and funding.
• For accessible higher education in Ladakh, the Government proposed to set up a Central University in Leh.
• National Digital Educational Architecture (NDEAR) will be set up within the context of a Digital First Mindset where the Digital Architecture will not only support teaching and learning activities but also educational planning, governance and administrative activities of the Centre and the States/ Union Territories.

• Scheduled Castes and Scheduled Tribes Welfare:
  • The government has set a target of establishing 750 Eklavya model residential schools in  tribal areas with increase in unit cost of each such school from Rs. 20 crore to Rs. 38 crore, and for hilly and difficult areas, to Rs. 48 crore.
• Skilling:

5. Innovation and R&D:

• The National Research Foundation to ensure that the overall research ecosystem of the country is strengthened with focus on identified national-priority thrust areas.
• The government will undertake a new initiative – National Language Translation Mission (NTLM). This will enable the wealth of governance-and-policy related knowledge on the Internet being made available in major Indian languages.
• The New Space India Limited (NSIL), a PSU under the Department of Space will execute the PSLV-CS51 launch, carrying the Amazonia Satellite from Brazil, along with a few smaller Indian satellites.
• As part of the Gaganyaan mission activities, four Indian astronauts are being trained on Generic Space Flight aspects, in Russia. The first unmanned launch is slated for December 2021.

6.  Minimum Government, Maximum Governance

• The Finance Minister proposed to take a number of steps to bring reforms in Tribunals in the last few years for speedy delivery of justice and proposes to take further measures to rationalised the functioning of Tribunals.
• Government has introduced the National Commission for Allied Healthcare Professionals Bill in Parliament, with a view to ensure transparent and efficient regulation of the 56 allied healthcare professions.
• The FM also announced that the forthcoming Census could be the first digital census in the history of India and for this monumental and milestone-marking task.

What is the Fiscal Position?

• On Fiscal position, she underlined that the pandemic’s impact on the economy resulted in a weak revenue inflow. Once the health situation stabilised, and the lockdown was being slowly lifted, Government spending was ramped up so as to revive domestic demand.
• The Finance Minister said fiscal deficit in RE 2020-21 is pegged at 9.5% of GDP and it has been funded through Government borrowings, multilateral borrowings, Small Saving Funds and short term borrowings. 
• The fiscal deficit in BE 2021-2022 is estimated to be 6.8% of GDP.
• The FM announced that the Government plans to continue the path of fiscal consolidation, and intend to reach a fiscal deficit level below 4.5% of GDP by 2025-2026 with a fairly steady decline over the period. 
• The Government hopes to achieve the consolidation by first, increasing the buoyancy of tax revenue through improved compliance, and secondly, by increased receipts from monetisation of assets, including Public Sector Enterprises and land.
• In accordance with the views of the 15th Finance Commission, Government is allowing a normal ceiling of net borrowing for the states at 4% of GSDP for the year 2021-2022. 
• On the Commission’s recommendation, the Budget provided  Rs. 1,18,452 crore as revenue deficit grant to 17 states in 2021-22.
• The FRBM Act mandates fiscal deficit of 3% of GDP to be achieved by 31st March 2020-2021. The effect of this year’s unforeseen and unprecedented circumstances has necessitated the submission of a deviation statement under Sections 4 (5) and 7 (3) (b) of the FRBM Act which the Finance Minister laid on the Table of the House as part of the FRBM Documents.

Direct Tax Proposals:

• Faceless Assessment and Faceless Appeal:
  • In order to provide transparent tax appellate the mechanism, it is proposed to make the Income Tax Appellate Tribunal faceless and jurisdiction-less.
  • A National Faceless Income-tax Appellate Tribunal Centre shall be established and all the communication between the Tribunal and the appellant shall be made electronically. Wherever personal hearing is needed, it shall be done through video-conferencing.
• Reduction in Time for Income Tax Proceedings:
  • presently, an assessment can be re-opened up to 6 years and in serious tax fraud cases for up to 10 years. As a result, taxpayers have to remain under uncertainty for a long time. The budget, therefore, proposed to reduce this time-limit for re-opening of assessment to 3 years from the present 6 years.
• Dispute Resolution Committee:
  • To reduce litigation for small taxpayers, the budget proposed to constitute a Dispute Resolution Committee for them, which will be faceless to ensure efficiency, transparency, and accountability. Anyone with a taxable income up to `50 lakh and disputed income up to `10 lakh shall be eligible to approach the Committee.
• Tax Neutrality of conversion of Urban Cooperative Bank (UCB) into a Small Finance Bank (SFB):
  • In order to facilitate the transition of UCBs to SFBs, it is proposed to provide tax neutrality for the transition of UCBs to SFBs. Hence, the UCB shall not be required to pay capital gains for the assets transferred to the SFBs.
• Clarification for Equalisation Levy:
  • In order to provide certainty, it is being expressly clarified that transaction taxable under income-tax are not liable for equalisation levy. Further, it is also proposed to clarify regarding applicability of equalisation levy on physical/offline supply of goods and services.
• Agricultural Infrastructure Cess:
  • The budget has imposed an Agricultural Infrastructure Cess, especially to be levied on fuel and liquor. The rates of the agri-infra cess will be steep at Rs2.50/litre on petrol and Rs4.00/litre on diesel. Agri Infra cess on liquor will be 100%.

Please Note: There will be a separate post on the 'Analysis of the budget'