CA 2 February 2021

Finance Minister has presented the Union Budget 2021-22 in Parliament.

BUDGET 2021 PROPOSALS

1. Production-linked incentive (PLI) scheme push

The government aims to spend Rs 1.97 lakh crore on various PLI schemes over the next five years, from this fiscal year. This is in addition to the Rs 40,951 crore announced for the PLI for electronic manufacturing schemes.

WHY? To attract global players in the Indian manufacturing sector as the government is planning to offer plug-and-play infrastructure to the companies willing to come to India.

A new central healthcare scheme was announced to strengthen the country’s healthcare infrastructure over the next six years. The Pradhan Mantri Atma Nirbhar Swasthya Bharat Yojana, which will operate in addition to the existing National Health Mission, has been allocated around Rs 64,180 crore.

WHY? This scheme is expected to be used to develop capacities of primary, secondary and tertiary healthcare systems as well as existing national institutions over a period of six years.

It would be used towards creating new institutions to cater to the detection and cure of new and emerging diseases.

Investment on health in this budget has increased “substantially”, with a focus on strengthening preventive care, curative and well-being of the population.

2. Power push

The government has decided to create a framework to give consumers alternatives to choose from more than one power distribution company.

Why? It is aimed at offering competition at operator level and more choice to consumers. Targets better efficiency levels in the distribution sector.

3. Divestment push and Bad bank proposal

Strategic disinvestment of companies, including BPCL, Air India, Pawan Hans, IDBI Bank, Container Corporation of India, to be completed in 2021-22.

Bad Bank proposal: The government will set up an Asset Reconstruction and Management Company for Stressed Assets to take over bad loans. Alongside, a Rs 20,000-crore equity infusion has been announced for public sector banks.

Government will take up strategic sale of two public sector banks and one general insurance company along with completing the sale of BPCL, Concor, SCI, IDBI and BEML among others in 2021-22.

WHY?  To strengthen the state-owned banks and hasten the process of clean up of their balance sheet. The divestment’s will help raise revenue for the government and is expected to improve efficiency and provide momentum to privatization.

It’s more about the principle of separating the good from the bad. It’s about not wasting more good money on bad assets.

4. FDI limit hiked in Insurance

Hike the FDI limit in Insurance from 49% to 74%. Majority directors on board and Key management personnels will be Indians.

WHY? To increase capital inflow in insurance companies and enhance their expansion and growth.

5. Development Financial Institution reborn

Due to lack of finance for infrastructure and long gestation projects, Budget has announced the setting up of a Development Financial Institution (DFI). The DFI will have statutory backing and Rs 27,000 crore capital.

WHAT WILL BE ITS FOCUS? The proposed DFI will be used to finance both social and economic infrastructure projects identified under the National Infrastructure Pipeline (NIP).

6. Scrapping policy

The government has introduced the scrapping policy to remove unfit vehicles on a voluntary basis. All private vehicles beyond 20 years and commercial vehicles older than 15 years old will have to undergo a fitness test.

WHY? The proposal is expected to offer a boost to the auto sector, both for commercial and private vehicles.

7. Bad debt resolution

The government plans to further strengthen the NCLT framework and continue with the e-court system for faster resolution of bad debts. A separate framework for MSMEs will also be made by the government.

WHY? With the government-imposed moratorium on admission of new cases likely to end by March 31, a number of MSMEs, which have not been able to earn enough during the fiscal are likely to be taken to insolvency by their creditors. The separate framework may help MSME owners avoid losing their company while continuing to pay the debt.

8. Gas transport

An independent gas transport system operator for booking and coordination to ensure for unbiased allocation of natural gas transportation capacity.

WHY? The government aims to address concerns of bias in the allocation of gas transportation capacity by players such as GAIL involved in both the supply and transportation of natural gas.

9. Ujjawala push

The extension of benefits of the Ujjawala scheme to an additional 1 crore people.

WHY? The scheme, which provides LPG connections with financial assistance from the central government and currently benefits 12 crore households, will be extended further to provide clean cheap cooking fuel.

10. Power sector push

Rs 3.60 lakh crore has been allocated towards launching a “revamped”, reforms-based, result-linked power distribution sector scheme.

A framework will also be put in place to give consumers alternatives to choose from more than one distribution company.

WHY? This comes amid “serious” concerns over the viability of power distribution companies (discoms) in the country. The scheme is expected to provide assistance to discoms for infrastructure creation tied to financial improvements, including prepaid smart metering, feeder separation and upgradation of systems.

Discoms across the country are monopolies, whether government or private. There is a need to provide a choice to the consumer.

11. Relief for gig workers

Social security benefits will be extended to gig and platform workers. Minimum wages will apply to all categories of workers and will be covered under ESIC.

This will impact around 15 million gig workers in India, in addition to online platform providers across sectors such as transportation (Uber and Ola), food delivery (Swiggy and Zomato), and the contract workers in IT and software firms.

IMPORTANCE: The economic survey had noted that India has become one of the largest markets for flexi-staffing in the world due to the wider adoption of e-commerce and online retailing. It had also said that the increasing role of the gig economy was evident through the significant growth of online retail businesses during the lockdown caused by Covid-19 pandemic.

12. Penion relief

  • The government has given relief measures for senior citizens by removing the need to file income tax returns for those aged over 75 years.

13. Effective Implementation of NEP

For the effective implementation of National Education Policy, 15000 schools will be strengthened initially. These schools will mentor and work as a model for the NEP implementation across the country. 100 new Sainik schools will be established in collaboration with NGOs and private organizations.

14. Health and Well Being

  • Taking a holistic approach to health. Focus on strengthening three areas, prevention curation, and well being.
  • Rs 64,180 crore will be invested over 6 years to improve primary, secondary and tertiary healthcare.
  • Health outlay to be used to establish critical care units and hospital block.
  • Finance minister announces outlay of Rs 2.87 lakh crore for Jal Jeevan Mission. Proposes Rs 2,217 crore outlay for 42 urban centers to tackle air pollution