The Backdrop
India's Union Budget for the fiscal year 2021-2022 was perhaps one of the most awaited budgets in the country. Coming close on the heels of a year characterised by a global pandemic and a plethora of unforeseen challenges, this year's budget had the unique task of tightrope walking between addressing the government's revenue shortfalls while providing a much-needed impetus to growth.
Growth Push: Key announcements
Against the backdrop of a tight fiscal situation (fiscal deficit for 2020-21 settled at 9.5%), the Finance Minister, Nirmala Sitharaman in her "budget like never before" speech on 1 February sought to boost growth via a major public spending push.
A clear fillip for infrastructure, with a 34.5% increase in capital expenditure from last year and the setting up of a Development Financial Institution (DFI), allowing FPIs to debt finance InVITs and REITs and a National Asset Monetisation Pipeline.
No surprise, healthcare took centre-stage, with the outlay rising by 137% and a special focus on the vaccination drive.
The setting up of an asset reconstruction and management company (a 'bad bank') to handle stressed assets and sell them to AIF players has been viewed as a positive step towards tackling the NPA menace.
Recapitalisation of PSU banks, along with the announcement of two PSU banks to be privatised was also well-received.
The red carpet has been rolled out for foreign investment in the insurance sector with the FDI limit increased to 74%, signalling a period of buzzing activity in this space around the corner. Moreover, a singular code for securities market transactions has been announced and was met with a thumbs up from traders.
Key tax measures
The conspicuous absence of any perceptible increase in direct tax rates was a marquee feature this year. Coupled with the absence of a "COVID" cess which some anticipated, it was just enough to keep spirits buoyed.
While tax concessions have been announced to boost GIFT City, funds sector, sovereign funds' interest in infrastructure sector, divestments of PSUs, the noose has been tightened for M&A restructuring and the scope of Equalisation Levy with respect to e-commerce has been widened. The proposed changes to assessment timelines and other steps focussed on effective dispute resolution and towards faceless administration are game-changers as well.
Another noteworthy move was the introduction of an Agriculture and Infrastructure development cess on certain goods. The government has coupled this with an equivalent reduction in existing levies, thus resulting in no net change in the tax burden.
The customs duty regime has been streamlined, with all conditional exemptions now having a sunset clause. A common Customs Electronic Portal to improve ease of doing business has been proposed.
On the GST front, taxpayers are received by two retrospective amendments applicable with effect from 1 July 2017. Levy of interest for delayed payment of tax on the cash component only has been affirmed with retrospective effect and scope of "supply" was extended to include transactions between a person and its members or constituents (think of clubs, societies and joint ventures). Aside from this, routine compliances have been streamlined and penal provisions have been tightened. Scope of property attachment has been widened and consequences of detention and seizure of goods and conveyances in transit have been made harsher.
The withdrawal of concessional central sales tax on inter-state purchase of petroleum products will be painful to power producers and other manufacturers.
Where did it fall short?
This year's budget did fall short of making certain widely expected announcements such as bringing legislative changes to enable foreign listing of Indian start-ups, rationalization of capital gains tax on transfer of listed shares and tax parity for Category-III AIFs, absence of any revised residency norms on account of the pandemic, deferring applicability of provision which deems economic presence of non-residents as taxable presence pending global consensus on taxation of digital economy, among others.Nevertheless, this seems to be a budget committed to growth.
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