A driver of economic revival
Given the difficult balancing act of pushing growth and ensuring fiscal discipline, it is rare for a finance minister to get enough headroom to design a budget fitted with all guns out and blazing to channelise growth and fuel economic activity.
But the backdrop against which the Budget was presented allowed Nirmala Sitharaman a unique opportunity to not be bogged down by such concerns, and she appears to have encashed this occasion to the fullest.
First and foremost, the government must be appreciated for resisting the temptation to increase the corporate tax and indirect taxes, despite lower collection of taxes and historic rise in revenue deficits amidst the pandemic. There was a general consensus that a new tax or cess may be necessary to fulfil the huge shortfall in projected tax collection.
However, the finance minister has discovered other innovative methods to raise the revenue, including land monetisation, renewed focus on disinvestment and reducing compliance burden on businesses, for India to grow at a sustained rate. This decision not to increase tax burden was crucial to boost business sentiment and to sustain consumption and economic recovery.
The Budget has placed a stronger emphasis on physical, financial and capital infrastructure by launching the National Monetisation Pipeline. A dedicated dashboard for tracking asset monetisation progress providing increased increased visibility would instill investor and rating agencies’ confidence. At the same time, it conveys the government’s intent to raise non-tax revenues. Allocation of special funds to important infra projects, including metro rail, dedicated freight corridors, highways and economic corridors coupled with deployment of the public-private partnership model for execution of these projects will propel the economy on a “Make in India” track.
Providing a leg up to participants in the corporate bond market, a permanent institutional framework is being created to purchase investment-grade debt securities both in stressed and normal times, infusing greater liquidity. The infrastructure debt funds will now be able to issue zero-coupon bonds in a tax efficient way that is yet to be notified. Protection of small borrowers continues to be a priority of the government, as it has reduced the threshold for minimum loan size to invoke debt recovery under the SARFAESI route to Rs 20 lakh.
Trust, a theme that prevailed in Budget 2020 has been reasserted, this time through the introduction of an Investor Charter. A new charter will (a) standardise (b) rationalise and (c) provide clarity on ensuring service standards are implemented and expectations maintained. A long-standing industry demand of hiking the foreign direct investment cap on insurance to 74 per cent (from 49 per cent) with safeguards on ensuring independence within the board and of key managerial persons will be notified.
The Budget makes bold moves towards tackling the burgeoning problem of non-performing assets, and resolution of stressed asset through a newly formed asset reconstruction company. The Reserve Bank of India had previously expressed its confidence in administration of such “bad banks” with regulatory framework already being in place. However, Banks and other lenders must now ensure to adopt appropriate compliance culture and identify risks early on, such that this menace of bad loans does not resurface.
Innovative methods include monetisation of non-core government assets, which largely consist of land parcels for which a special purpose vehicle shall be created. An initial public offering for LIC of India, which was announced in 2020, could potentially be the largest float resulting in windfall for the government. The finance minister also emphasised the renewed efforts towards strategic divestment and closing loss-making public sector enterprises. Such sustained efforts shall improve the macro-economic indicators and reduce the dependence on tax collections for revenue.
As part of its mission towards inclusive development, extension of minimum wages and coverage under the Employees State Insurance Corporation to all categories of workers, including gig and platform workers, is a laudable move. Equally, the need to increase the quality of education has not been lost sight of, and the Budget’s focus on setting up model schools, an umbrella structure for higher education institutes and national education will go a long way in building education infrastructure. The measures for promoting transfer of skills, technique and knowledge through international partnerships are commendable.
In a continuing trend to curtail litigation, the finance minister announced a Dispute Resolution Committee, which shall be tasked to settle disputes of small taxpayers. After experimenting with faceless assessment scheme, the Ms Sitharaman announced the National Faceless Income Tax Appellate Tribunal Centre, mandating all interactions through electronic mode. This shall make India one of the pioneers in faceless assessment and appeals and open the doors to such innovation in other courts and tribunals. Further, the government has taken steps to reduce the audit and compliance burden on common taxpayers for both goods and services tax and income tax.
Aspirations to catapult India into a higher growth trajectory have also been taken into account as the government has enhanced capital outlays by a massive 34 per cent in light of an unprecedented economic contraction due to the pandemic.
Overall, the finance minister has delivered a well-balanced Budget, which to a large extent manages the expectations and aspirations of India. Most importantly, it is a Budget that ensures that the momentum of economic recovery shall be sustained with least disruption.