Sitharaman presents Budget 2021
- Cess to finance agri infra
- No change in tax rates
- Outlay for healthcare doubled
- Rs 20,000 cr recapitalisation of PSU banks
New Delhi, Feb 1: Finance Minister Nirmala Sitharaman on Monday proposed a sharp increase in expenditure on infrastructure, doubling of healthcare spending and raising the cap on foreign investment in insurance in her Budget 2021 in a bid to pull the economy out of the pandemic-induced trough.
The Budget for the fiscal year beginning April made no changes in personal or corporate tax rates but raised customs duties on certain auto parts, mobile phone components and solar panels in order to provide impetus to domestic manufacturing.
It also imposed an agriculture infrastructure and development cess on the import of certain items (like apples, peas, lentils, alcohol, chemicals, silver and cotton) to finance agricultural infrastructure and other development expenditure. But its impact on prices has been offset by an equivalent or more reduction in the import duty.
In her third budget and the Narendra Modi government’s eighth, Sitharaman proposed a vehicle scrappage policy, Rs 20,000 crore recapitalisation of public sector banks, divestment of some state-owned lenders and sale of non-strategic PSUs with a view to bolstering an economy that plunged into its deepest recorded slump amid the pandemic outbreak.
The stock markets cheered the Budget announcements, with the biggest jump in indices on a budget day in over two decades while India Inc hailed Sitharaman as a reformist.
Prime Minister Narendra Modi said the Budget puts a lot of emphasis on strengthening the farm sector but opposition Congress termed it a “letdown like never before” and said it was a case of “wrong diagnosis and prescription”.
In the Budget for 2021-22, Sitharaman made interest on employee contributions to PF over Rs 2.5 lakh per annum taxable, effective April 1, 2021. In the previous 2020 Budget, the Finance Minister had capped the tax exemption on employers contribution to PF, NPS and superannuation funds at an aggregate of Rs 7.5 lakh per annum.
In a relief to senior citizens, those above 75 years of age with only pension and interest income would no longer have to file income tax returns, subject to certain conditions.
She allocated Rs 5.54 lakh crore for capital creation in the infrastructure sector. This included Rs 1.18 lakh crore for the roads and highways sector and Rs 1.08 lakh crore for railways. The allocation was 37 per cent more than last year.
The increased spending is aimed at creating demand in the economy and support job creation.
With just one per cent of GDP being spent on health, she proposed raising the spending to Rs 2.2 lakh crore next fiscal to help improve health systems as well as fund the vaccination drive against coronavirus.
Additional resources required are targeted to be raised through divestment and monetisation. While Rs 1.75 lakh crore is being targeted from the sale of non-strategic public sector companies, the government will get Rs 30,000 crore from the new agri cess.
With government spending more to support the economy during the pandemic that hit revenue collections, the fiscal deficit – the difference between revenue and expenditure – for the current year was put at 9.5 per cent of the GDP as against a target of 3.5 per cent.
For the next fiscal, the fiscal deficit was projected at 6.8 per cent. “We have spent, we have spent and we have spent. That’s why fiscal deficit has reached this number,” she said.
She also signalled that the fiscal policy support of the economy will continue for at least three years, with the deficit being brought under 4.5 per cent by the 2025-26 financial year.
For the agriculture sector, she maintained the reform momentum such as the extension of farm credit provision to farmers, commodity expansion under ‘Operation Green’ and extension of Agriculture Infrastructure Fund (AIF) to APMCs.
In order to incentivise the purchase of affordable house, the Finance Minister proposed to extend the period for claiming an additional deduction for the interest of Rs 1.5 lakh paid for home loans by one year to March 31, 2022.
To remove hardship faced by NRIs in respect of their income accrued on foreign retirement benefits account due to mismatch in taxation, new rules for alignment will be notified.
Foreign direct investment (FDI) limit in insurance was proposed to be raised to 74 per cent from the current 49 per cent.
Reduction in customs duties on gold and silver should bring some relief to the consumers while the hike in import duty on certain iron and steel products may adversely affect the real estate and infrastructure sector.
An agri cess of Rs 2.5 per litre on petrol and Rs 4 per litre on diesel was also slapped but this was offset by a reduction of an equivalent amount in the excise duty – making it price neutral for consumers.
To address concerns around asset quality, credit loss and liquidity stress, this Budget proposed to infuse additional capital of Rs 20,000 crore into PSU banks for providing continued credit access to wholesale and retail borrowers. – PTI