The Union budget 2021 has proved to be an innovative and game changer budget. The Hon’ble Finance Minister has tried to revive the economic sentiment by presenting a growth oriented budget which has laid emphasis on boosting investment both in public and private sectors. It was the first digital budget in the history of India.
Few highlights from the budget are as below :
- Privatisation of banks is a great change of mind-set and the strategic disinvestment policy should prove to be a game changer.
- Various measures have been taken to rejuvenate the Indian financial sector including addressing issues such as non-performing and doubtful loans, improving source of longer term funding for infrastructure projects, capitalization of public sector banks and setting up of an entity to address the stressed assets of banks.
- Financial reforms announced in this budget include Rationalised single Securities Markets Code by 2022, World class fintech hub at GIFT IFSC, Permanent institutional framework for Corporate bond market, SEBI as regulator and greater role for WDRA for development of commodity market ecosystem, Investor charter as a right across all financial products, Amending the Insurance Act,1938 to increase the FDI limit from 49% to 74% with safeguards, Asset Reconstruction Company Limited and Asset Management Company to resolve stressed assets problem of PSBs.
- Budget allocation on capital spending has been increased sharply especially on infrastructure, health, and education. FY22 Capex is targeted at Rs 5.54 lakh crore v/s FY21’s Rs. 4.39 lakh crore. Rs 1,10,055 crore to be provided for the Indian Railways.
- With an allocation of Rs. 64,180 Crore for new health schemes, this budget has highly focused in health sector including setting up of Integrated Public Health Labs, Establishing critical care hospital blocks, etc. Government has also announced to launch 2 more covid vaccines soon. Rs 35,000 crore to be allocated for further funds for COVID-19 vaccines.
- There were no new taxes other than an agriculture infrastructure cess on some goods. There has been no change in personal and corporate tax, wealth tax, STT or LTCG. The extension of tax holiday for one more year for affordable rental housing projects has also proved to be a great relief to the real estate sector which is showing signs of revival.
- The government has taken a bold step to increase the fiscal deficit at 6.8 % of GDP and has assumed market borrowing of Rs 12 lakh crore for FY22. This has impact on increase in G-sec yield. However, RBI may go for OMOs to ensure lower interest rate regime.
I believe that the actions taken in this budget are in right direction and will definitely help in reviving the Indian economy to a larger extent in coming years.
In India, there has been a significant fall in the inflation rate in the last couple of months. The rise in inflation in India during the lock down phase was driven by demand supply mismatch in food products. These issues have now got resolved. However, non-food inflation remains relatively elevated. Normalization of demand, recent hardening of global commodity prices coupled with continuation of large liquidity remain challenges for longer term inflation outlook. That said, we do not expect any major rise in inflation or interest rate either in India or in rest of the world. With the appropriate policy support, low interest rate and accommodative liquidity situation would boost corporate investment, productive employment, private consumption, and the overall growth outlook.
After an unprecedented 2020, the first month of 2021 has been relatively sedate. The normalization of the global and the Indian economy continues. The new administration in the US is showing resolve to restore multilateral frameworks and provide further stimulus to rejuvenate growth in the country. Despite considerable loss of global market shares, the US continues to remain the largest economy of the world and orderly development in that country bodes well for the global economy.
Today India stands at the crossroads. We are at the inflection point of our demographic advantage. During the pandemic, we have been able to show to the world our position of strength in many areas including pharmaceuticals. India has the most influential diaspora in the world with many Indians and people of Indian origin assuming leadership positions at the major global corporate and senior ranks in the administration of various countries. In the world concerned about excessive dependence on China as a sourcing centre, India with large capabilities offers the opportunity to acquire this market share. India is also one of the last frontiers for large demand for the global companies. We are a democratic country with stable government. Voters in this country are increasingly supporting political parties with good developmental policies. I am sure that with all these advantages India will make major strides in the next 5 years.
As large vaccination programs roll out across the world including in India and all of us are avidly waiting to return to the environment we were used to before the start of the pandemic. India is Atma-nirbhar for producing our own vaccines and should help covering us in a short period of time.
I would like to conclude with a famous quote by Bobby Knight:
“The will to succeed is important, but what’s more important is the will to prepare.”