Budget 2021-22: On reform and rationalisation path
Fiscal deficit in RE 2020-21 is pegged at 9.5% of GDP, while fiscal deficit in BE 2021-2022 is estimated to be 6.8% of GDP. Intends to reach a fiscal deficit level below 4.5% of GDP by 2025-2026 with a fairly steady decline over the period.
In the backdrop of unprecedented COVID-19 crisis, the Union Finance Minister Nirmala Sitharaman presented the first budget of this new decade today. The Budget 2021-22 proposals, as she mentioned, rest on 6 pillars - health & wellbeing; physical & financial capital, and infrastructure; inclusive development for aspirational India; reinvigorating human capital; innovation and R&D; and minimum government & maximum governance.
To become a $ 5 trillion economy, India’s manufacturing sector needs to grow in double digits on a sustained basis and, for this, Indian manufacturers 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.
To enable the textile industry to become globally competitive, attract large investments and boost employment generation, Budget 2021 has proposed a scheme of Mega Investment Textiles Parks (MITRA) in addition to the already announced PLI scheme. Seven textile parks will be established over 3 years and these will create world class infrastructure with plug and play facilities to enable create global champions in exports.
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.
Budget has provided a record sum of Rs 1,10,055 crore, for Railways of which Rs 1,07,100 crore is for capital expenditure.
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. As a result, against an original BE expenditure of Rs 30.42 lakh crore for 2020-2021, RE estimates are Rs 34.50 lakh crore and quality of expenditure was maintained. The capital expenditure, estimated in RE is Rs 4.39 lakh crore in 2020-2021 as against Rs 4.12 lakh crore in BE 2020-21.
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. She added that the Government would need another Rs 80,000 crore for which it would be approaching the markets in these 2 months. The fiscal deficit in BE 2021-2022 is estimated to be 6.8% of GDP. The gross borrowing from the market for the next year would be around 12 lakh crore.
Nirmala Sitharaman announced that the Government plan 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.
FM Nirmala Sitharaman focuses on the indirect proposal of Budget 2021 focuses on custom duty rationalisation as well as rationalisation of procedures and easing of compliance.
With respect to the custom duty policy, the Finance Minister said that it has the twin objectives of promoting domestic manufacturing and helping India get on to global value change and export better. She said that
With the thrust on easy access to raw materials and exports of value added products, the budget 2021 has proposed to review 400 old exemptions in the custom duty structure this year. The Finance Minister announced withdrawal of a few exemptions on parts of chargers and sub-parts of mobile phones further some parts of mobiles will move from “NIL” rate to a moderate 2.5 per cent. She also announced reducing custom duty uniformly to 7.5 per cent on semis, flat, and long products of non-alloy and stainless steel. She also announced exempting duty on steel scrap for a period upto 31st March 2022.
Announcing uniform deduction of the BCD rates on Caprolactam, nylon chips and nylon fiber and yarn to 5 per cent, the Minister said this will help the textile industry, MSMEs and exports too. She also announced calibration of customs duty rate on chemical to encourage domestic value addition and to remove inversions. The Minister also announced rationalisation of custom duty on gold and silver.
The Budget proposes certain changes to benefit MSMEs which include increasing duty on steel screws, plastic builder wares and prawn feed. It also provides for rationalizing exemption on import of duty-free items as an incentives to exporters of garments leather and handicraft items. It also provides withdrawing exemption on imports of certain kind of leather and raising custom duty on finished synthetic gem stones.