Union Budget 2021-22: Growth Engine for the Economy

The eagerly awaited Union budget 2021-22 presented by our Finance Minister, Mrs. Nirmala Sitharaman, on February 1^st, includes several force multiplier initiatives aimed at accelerating the economy’s slowing pace, with big spending plans for many sectors. Here is a detailed look at everything it entails. 
 
Focus on revival and growth

According to the budget, growth is being considered as top priority. The Finance Minister, in her budget speech, pegged fiscal deficit at 9.5 percent for FY20-21 and 6.8 percent for FY21-22. The aim is to reach a manageable fiscal deficit of 4.5 percent of GDP by FY26, and the hope is that the Indian economy will be able to tame the fiscal deficit without compromising on the growth impetus. 
 
The current financial year may end with a deficit of 9.5 per cent. According to the Finance Minister, a fiscal deficit of 6.8 percent of GDP is expected for 2021-22. That is higher than the 5.5 per cent forecasted by economists.
 
The government’s plan to borrow Rs12,00,000 crore from the market is deftly balanced by a massive Rs 5,54,000 crore allocation for capital expenditure.

This is despite the enhanced revenue expenditure of Rs 4,39,000 crore for FY21. It is meant to pave the way for channelling the fiscal deficit productively. The budget evoked a positive response in the stock market and bond yields jumped as the government unveiled plans to raise additional funds from the market over the next two months.

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Wealth and wellness
The focus of the budget was apparent in the comments of our Prime Minister, Mr. Narendra Modi - that the budget is more about “creating wealth and wellness” in the country.
 
The budget has boosted the country’s healthcare spending by 135 percent. Out of Rs 2,23,846 crore, nearly Rs 35,000 crore has been earmarked for the COVID vaccination program. The higher allocation in healthcare has made its share equal to 1.3 percent of the GDP, although the ideal is 3 percent.
 
Higher capital spending
In the budget, the government has provisioned a massive amount of capital expenditure for 2021-2022 (Rs 5.54 lakhs crore), which is higher by 35 percent than what was allocated in the last budget estimate. Although the government has estimated that the economy might shrink by 7.7 percent in the current fiscal year, ending in March, a strong recovery is anticipated in 2021-2022 at an 11 percent growth rate. That can place India ahead of China's projected growth of 8.1 percent. 
 
Job generation  
The focus on job generation is evident in proposals such as national infrastructure pipeline, textile parks, aggressive disinvestment plans of public sector enterprises, and expansion of emergency credit lines for MSMEs.
 
Finance minister Nirmala Sitharaman’s budget mentions the creation of a new Development Finance Institution (DFI) for handling government spending in infrastructure. The budget spares Rs 20,000 crore to capitalize the new DFI, which will have the infrastructure lending portfolio of Rs 500,000 crore in 3 years. 
 
In case of highways and power sectors, the NHAI and PGCIL will use the INViT route to monetize specific projects with the help of future cash flows. The Scrappage policy for old cars under a green tax is being considered.
 
The disinvestment agenda in the central public sector enterprises (CPSEs) and financial institutions aims at inducting private capital, technology and management practices to enable growth and jobs. 

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FDI liberalised in insurance
The Finance Minister announced a boost in foreign direct investment (FDI) in the insurance sector, from 49 to 74 percent. The government will also raise Rs 1.75 lakh crore by selling stake in the state-run companies and banks, including IDBI bank, insurance and energy companies. 
 
Relief for Banking and NBFCs 
The budget addresses the pain points of lenders at formal and non-banking financial institutions. For stressed banks, the Finance Minister has announced the allocation of Rs 20, 000 crore, to recapitalise government-owned banks battling bad loans. The government will also set up an asset reconstruction company (ARC) and an asset management company (AMC) to deal with bad loans of public sector banks.  
 
Known as Bad Bank, the ARC-AMC will take control of the stressed assets of banks and use discounted prices or sale and securitization of the receivables in the mitigation plan. 
 
NBFC debt recovery made easy
The new budget also offers relief for non-banking financial companies by agreeing to lower the threshold for recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (Sarfaesi Act).
 
The Finance Minister noted that the step was to “improve credit discipline and protect the interest of NBFCs with a minimum asset size of Rs 100 crore and the minimum loan size eligible for debt recovery under the Sarfaesi Act will be reduced from the existing level of Rs 50 lakh to Rs 20 lakh.”
 
The broadening ambit of the act will help NBFCs to recover faster from defaults without losing time in legal disputes.  Otherwise, when a lender cannot apply the Sarfaesi Act, it calls for filing cases in civil courts and the legal process takes many years. 
 
Sarfaesi recovery applies to secured loans, allowing auctioning of the property to recover dues from defaulters. 
 
Under the Sarfaesi Act, the lender can take possession of the mortgaged assets after a 60-day notice, to sell or transfer to a buyer, without intervention from any third party, including courts. After auctioning the property, the lender will deduct its dues and pay the rest of the funds to the property owner.

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Depositors’ concerns addressed
The budget eases the situation for investors too, by tweaking the rules of the Deposit Insurance and Credit Guarantee Corporation (DICGC). Which means, when a bank fails, depositors will not have to panic while they wait for the bank window to revive. So, depositors can access Rs 5 lakhs straight away from DICGC and avoid the risk of funds getting blocked.
 
Help for MSMEs and Agriculture
For MSMEs, the budget has allocated Rs 1 5,700 crore, which combines elements like easy capital and enhanced technological support. The idea of One Person Company (OPC) is another fabulous concept in terms of simple incorporation, compliance and the subsequent conversion. 
 
For the Agriculture sector, the budget commits linking 1000 Agriculture Produce Market Committees (APMC) via the electronic national market (e-NAM) chain, reinforcing the government’s assertion that it is strengthening APMC and MSP.

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Top 10 takeaways from the budget

1. Fiscal deficit to reduce from 9.5 percent in FY21 to 4.5 percent by FY26
2. Drastic hike in healthcare spend by 137 percent.
3. Big infrastructure push
4. Capital expenditure up by 34.5 percent at Rs 5.54 lakh crore
5. Monetisation of Infrastructure projects via InVITs
6. DFI with Rs 20,000 crore capitalisation for infrastructure funding
7. Bad Bank for NPAs and PSU bank recapitalization by Rs 20,000 crore
8. No major overhaul in direct taxes
9. Relief for NBFCs by broadening debt recovery
10. One-man company proposal