Current Affairs 2nd February (Budget 2021 Special)

Budget 2021

Union Finance Minister Nirmala Sitharaman loosened the exchequer’s purse strings #GS3 #Economy

Finance Minister Nirmala Sitharaman loosened the exchequer’s purse strings and presented an expansionary Budget for 2021-22 , with a push for infrastructure and health care spending, even as she sought to reduce the fiscal deficit from an estimated 9.5% of GDP this year without ostensibly raising the tax burden.

While there was no direct support for the middle classes, there was some relief as the Budget refrained from levying a COVID cess or surcharge. The Finance Minister set aside ₹35,000 crore for the COVID-19 vaccination program with a promise to provide more if the need arises. The overall Budget outlay for ‘Health and Wellbeing’, she said, is ₹2.23 lakh crore, marking a 137% rise over 2020-21.

Direct succour for some of the sectors and sections worst-affected by the pandemic may be short, but the government is betting on a real GDP growth of 10%-10.5% in the coming year after the estimated 7.7% decline in 2020-21. It hopes to ride on the multiplier effect of infrastructure spending which the minister said would also spur demand and job creation.

Invoking Rabindranath Tagore’s aphorism ‘Faith is the bird that feels the light and sings when the dawn is still dark’Ms Sitharaman compared the Budget to Team India’s successful comeback in the test series against Australia and said it provides every opportunity for ‘our economy to raise and capture the pace that it needs for sustainable growth’.

The foreign direct investment limit in the insurance sector will be raised to 74% from 49% and a ‘bare minimum’ number of public sector enterprises will be retained even in strategic sectors like defence, under an ambitious new strategic disinvestment policy that will kick off with the sale of two public sector banks and a general insurance company in 2021-22.

A new development finance institution is being set up to fund infrastructure projects under the National Infrastructure Pipeline, while an asset reconstruction firm or ‘bad bank’ will be tasked with taking over public sector banks’ bad loans to cope with rising NPAs. 

However, just ₹20,000 crore has been earmarked for recapitalisation of banks, lower than expectations given the festering stress on bank’s books from the pandemic’s effects.

Proposing a capital expenditure of ₹5.54 lakh crore in the year, 34.5% higher than 2020-21, the Finance Minister has targeted a fiscal deficit of 6.8% of GDP with gross market borrowings of about ₹12 lakh crores. Analysts said the Budget’s fiscal arithmetic was perhaps the most credible in recent years but achieving disinvestment and non-tax revenue targets will be critical to meet the deficit target.

We plan to continue with our path of fiscal consolidation and intend to reach a fiscal deficit level below 4.5% of GDP by 2025-2026 with a fairly steady decline over the period. We hope to achieve the consolidation by first, increasing the buoyancy of tax revenue through improved compliance, and secondly, by increased receipts from monetisation of assets, including public sector enterprises and land

An agriculture infrastructure development cess has been announced on several items including petrol and diesel but the Minister said there will be no impact on consumers as these entailed reducing certain customs duties and adding a cess component to those products. 

This will ensure that funds are carved out for the sole purpose of building farm infrastructure, Ms. Sitharaman said, emphasising the government’s commitment to the farm sector at a time it is facing protests over recent farm law changes.,without%20ostensibly%20raising%20the%20tax

States allowed enhanced 4% of GSDP borrowing

The government has accepted the 15th Finance Commission’s recommendation to maintain the States’ share in the divisible pool of taxes to 41% for the five-year period starting 2021-22. The Commission has given an “in-principle” approval for creating a separate non-lapsable fund for the purpose of defence and internal security modernisation.

The States have been granted enhanced borrowing room of up to 4% of the Gross State Domestic Product (GSDP) for 2021-22, with an additional 0.5% limit for those undertaking critical power sector reforms.

Fiscal federalism

Terming the government’s acceptance of the 41% vertical share for the States recommended by the Commission as a sign of its commitment to fiscal federalism, Union Finance Minister Nirmala Sitharaman announced revenue deficit grants for 17 States amounting to Rs. 1.18 lakh crore in 2021-22.

The Commission has recommended additional revenue deficit grants of Rs. 2.94 lakh crore for 17 States over the next five years.

Interest on PF contributions over Rs. 2.5 lakh to be taxed 

The Union Budget has proposed taxing the income on Provident Fund contributions of more than Rs. 2.5 lakh a year, usually made on a voluntary basis by employees.

A similar tax exemption offered to investors in unit-linked insurance plans (ULIPs) has also been capped to ensure that maturity benefits accruing from premium payments of more than Rs. 2.5 lakh a year will be subjected to capital gains tax.

For contributions up to Rs. 2.5 lakh a year to the Employees’ Provident Fund (EPF), tax exemptions will remain, along with guaranteed returns.

Exemption without threshold

This exemption, without any threshold, benefits only those who can contribute a large amount to these funds as their share. In the case of ULIPs, death benefits will remain exempt from tax irrespective of the premium payment.

‘Record’ allocation of Rs. 1.1 lakh crore for Railways 

Finance Minister Nirmala Sitharaman proposed a “record” budgetary allocation of Rs. 1.1 lakh crore for the Railways, with a total capital expenditure outlay of Rs. 2.15 lakh crore for the coming financial year.

With a 33% increase in total capital expenditure for 2021-22 over Rs. 1.61 lakh crore (revised estimates) for 2020-21, the Railways said funds would be utilised to boost the ‘Atmanirbhar Bharat Mission’ and towards the completion of vital infrastructure projects, capacity-building passenger amenities and safety enhancement.

According to the Budget documents, during the year, the Railways were provided Rs. 79,398 crore as “special loan for COVID-19-related resource gap” and towards liquidating the adverse balance occurred in public account in 2019-2020.

The total capital expenditure outlay includes the “highest ever” Rs. 1.07 lakh crore from gross budgetary support, Rs. 7,500 crore from internal resources and more than Rs. 1 lakh crore from external budgetary resources.

In the upcoming year, the government expects its revenue receipts from the Railways, including passenger, goods and other coaching, sundry other heads, to be about Rs. 2.17 lakh crore as against Rs. 1.46 lakh crore in 2020-21 (revised estimate).

Tax slabs remain unchanged

Without making any changes to the personal income tax slab, the Union Budget 2021-22 has provided relief to senior citizens in the filing of I-T returns; reduced the time limit for I-T proceedings; announced the setting-up of a Dispute Resolution Committee and faceless Income Tax Appellate Tribunal proceedings; provided relaxations for Non-Resident Indians (NRI); offered an increase in the exemption limit from audit; and accounted for relief for dividend income.

To reduce the compliance burden on senior citizens aged 75 years or above, such taxpayers with only pension and interest income will be exempted from filing an I-T return — the paying bank will deduct the necessary tax on their income.

Easing complexity

In her Budget speech, Union Minister for Finance and Corporate Affairs Nirmala Sitharaman committed to reduce the complexity that NRIs face, on their return to India, on the issue of accrued incomes in their foreign retirement account. The Budget proposes to notify rules governing it.

The Minister, while presenting the Budget, also announced steps to attract foreign investment into infrastructure; relief for affordable housing and rental housing; tax incentives to the International Financial Services Centre (IFSC); relief to small charitable trusts; and steps for incentivising start-ups in the country.

The Budget has proposed to make dividend payments to REIT (Real Estate Investment Trusts) / InvIT (Infrastructure Investment Trusts) exempt from TDS (tax deducted at source).

For Foreign Portfolio Investors (FPI), the Budget has proposed the deduction of tax on dividend income at a lower treaty rate. As per the proposal, advanced tax liability on dividend income will arise only after the declaration or payment of dividend.

Affordable housing

Towards housing for all, the FM has proposed to extend the eligibility period for claim of additional deduction for interest of Rs. 1.5 lakh on loan taken for the purchase of an affordable house to March 31, 2022. For increasing the supply of affordable houses, she also announced the extension of an eligibility period for claiming a tax holiday for affordable housing projects by one more year to March 31, 2022.

To promote supply of affordable rental housing for the migrant workers, the FM announced a new tax exemption for notified affordable rental housing projects.

To reduce litigation in the system, a Dispute Resolution Committee for small taxpayers facing litigation is to be set up.

Anyone with a taxable income up to Rs. 50 lakh and disputed income up to Rs. 10 lakh shall be eligible to approach the committee, which will be faceless to ensure efficiency, transparency and accountability. She also announced the setting up of a National Faceless Income Tax Appellate Tribunal Centre.

Zero coupon bonds

The Budget has proposed to make notified infrastructure debt funds eligible to raise funds by issuing tax-efficient zero-coupon bonds.

To promote the IFSC in GIFT City (Gujarat International Finance Tec-City), the Budget has proposed more tax incentives, which include a tax holiday for capital gains from the incomes of aircraft leasing companies; tax exemption for aircraft lease rentals paid to foreign lessors; tax incentives for relocating foreign funds in the IFSC; and to allow tax exemption for the investment divisions of foreign banks located in IFSC.

For ease filing of returns, the Budget has proposed that details of capital gains from listed securities, dividend income, and interest from banks and post offices, will also be pre-filled in returns.

ULIPs tax exemption linked to premium

Tax exemption on maturity proceeds of unit-linked insurance plans (ULIPs) offering components of both life insurance and investment, in debt and equity, will be available only if the annual premium paid is up to Rs. 2.5 lakh. The proposal will apply to ULIPs purchased on or after February 1.

However, the amount received on death, by nominee, will continue to remain exempt without any limit on the annual premium.

Under existing provisions of the Income Tax Act, there is no cap on the amount of annual premium paid by any person during the term of the policy. High net worth individuals are claiming exemption under this clause by investing in ULIP with huge premium. 

Allowing such exemption in policy/policies with huge premium defeats the legislative intent… to provide benefit to small and genuine cases of life insurance. Now, ULIPs for which the annual premium paid is over Rs. 2.5 lakh would be treated as equity-oriented funds. The rate of tax will depend on period of holding.

Another announcement significance was the proposal to raise the foreign direct investment limit from 49% to 74% in insurance firms.

Under the new structure, the majority of directors on the board and key management persons would be resident Indians, with at least 50% of directors being independent directors, and specified percentage of profits being retained as general reserve.

Stake sale expected to fetch Rs. 1.75 lakh crore

The government budgeted Rs. 1.75 lakh crore from stake sale in public sector companies and financial institutions, including two PSU banks and one general insurance company, in the next fiscal year beginning April 1.

The amount is lower than the record Rs. 2.10 lakh crore which was budgeted to be raised from CPSE disinvestment in the current fiscal year.

Impact of pandemic

However, the COVID-19 pandemic impacted the government’s CPSE stake sale programme, and the target has been lowered to Rs. 32,000 crore in the Revised Estimates.

So far this fiscal year, the government has mopped up Rs. 19,499 crore from CPSE stake sale and share buyback.

For FY22, out of the total Rs. 1.75 lakh crore, Rs. 1 lakh crore is to come from selling government stake in public sector banks and financial institutions. About Rs. 75,000 crore would come as CPSE disinvestment receipts.

Unveiling the Disinvestment/Strategic Disinvestment Policy, Finance Minister Nirmala Sitharaman said four sectors — Atomic energy, Space and Defence; Transport and Telecommunications; Power, Petroleum, Coal and other minerals; and Banking, Insurance and financial services — would be strategic sectors.

In strategic sectors, there will be bare minimum presence of the public sector enterprises.

The remaining CPSEs in the strategic sectors will be privatised or merged or subsidiarised with other CPSEs or closed. In non-strategic sectors, CPSEs will be privatised, otherwise shall be closed.

In her 2021-22 Budget speech, she said strategic disinvestment of BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam Ltd, among others would be completed in 2021-22.

Also the legislative amendments required for launching the IPO of LIC would be brought in in the ongoing session of Parliament. To fast-track the disinvestment policy, NITI Aayog would work out on the next list of central public sector companies that would be taken up for strategic disinvestment.

Govt. agrees to maintain States’ share in the divisible pool of taxes

The government has accepted the Fifteenth Finance Commission’s recommendation to maintain the States’ share in the divisible pool of taxes to 41% for the five-year period starting 2021-22, and given an ‘in-principle’ nod to the panel’s suggestion to set up a separate non-lapsable fund for defence and internal security modernisation.

The Fourteenth Finance Commission had raised States’ share to 42% of divisible revenues, but the Fifteenth Finance panel had reduced the share to 41% in its interim report for 2020-21, citing the conversion of Jammu, Kashmir and Ladakh into Union Territories.

The Commission’s report, which was submitted to the President in November but tabled in Parliament on Monday with the government’s action taken report on its suggestions, has recommended additional revenue deficit grants of Rs. 2.94 lakh crore for 17 States over the next five years. The government has accepted this recommendation as well as the panel’s suggestion to enhance State’s borrowing ceilings in 2021-22.

In accordance with the views of the 15th Finance Commission, we are allowing a normal ceiling of net borrowing for the States at 4% of Gross State Domestic Product (GSDP) for the year 2021-2022. A portion of this ceiling will be earmarked to be spent on incremental capital expenditure.

An additional borrowing ceiling of 0.5% of GSDP will also be provided based on meeting specified reforms in the power sector. States are expected to reach a fiscal deficit of 3% of GSDP by 2023-24, and maintain that level till 2025-26, as per the Commission’s report. The Centre has accepted ‘in-principle’ this quantum of net borrowing ceilings for the States, as per the action taken report.

While the Commission has suggested the additional ceiling for power sector reforms be offered up to 2024-25, the government has said it will examine recommendations related to States’ fiscal road map separately. 

Similarly, the Commission’s recommendation to overhaul the Fiscal Responsibility and Budget Management law to ensure legislations are in sync with fiscal sustainability frameworks, will be examined separately.

The Commission, headed by N.K. Singh, has recommended creating a separate non-lapsable fund for modernisation of defence and internal security, a term of reference the Centre had sought its views on. To bridge the gap between defence budget allocations and the projected budgetary requirements, the panel has mooted a fund of Rs. 2.38 lakh crore for the coming five-year period. 

It has recommended that Rs. 1.54 lakh crore of this fund be transferred from the Consolidated Fund of India, partially using receipts from the disinvestment of defence public sector enterprises and land monetisation. The government has said the modalities and sources of funding will be examined in due course.

The Commission has sought to assuage the fears of southern States about losing some share in tax transfers due to the reliance on the 2011 Census data instead of the 1971 census, which could penalise States that did better on managing demographics. It has done so by giving a 12.5% weightage for demographic performance in its tax-transfer calculations.

Centre to amalgamate market laws into single code

The Centre announced setting up of a Single Security Market Code by consolidating the provisions of SEBI Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1956 and Government Securities Act, 2007.

According to analysts, this move will improve ease of doing business in the country’s financial markets, cut down compliances, reduce cost and do away with friction between various stakeholders.

In order to instil confidence among participants in the corporate bond market during times of stress and to generally enhance secondary market liquidity, the Budget has proposed to create a permanent institutional framework.

The proposed body would purchase investment grade debt securities both in stressed and normal times and help in the development of the bond market. While further details on the modus operandi for such a framework is awaited, it will clearly help to deepen the corporate bond market which continues to face liquidity challenges.

In our opinion, this will be fairly positive for debt mutual funds particularly credit funds which had witnessed significant outflows last year due to poor liquidity in certain corporate papers. This will also help to reduce the volatility in secondary market yields of relatively lower rated bonds in the AA and A category.

The government also announced establishing a system of regulated gold exchanges in the country.

For this purpose, SEBI will be notified as the regulator and the Warehousing Development and Regulatory Authority will be strengthened to set up a commodity market ecosystem with arrangements including vaulting, assaying and logistics in addition to warehousing.

To provide protection to investors, the Finance Minister has proposed to introduce an investor charter as a right of all financial investors across all financial products.

‘Consumers will not be burdened by farm cess’

Pointing at an immediate need to improve agricultural infrastructure in the country, Finance Minister Nirmala Sitharaman announced an Agriculture Infrastructure and Development Cess (AIDC) on select items such as petrol, diesel, apples and alcohol. However, she stressed that this will not lead to an additional burden on the consumers.

During the post-Budget interaction with the media, the FM said basic Customs Duty rates have been reduced on most items where AIDC is being imposed, so as to not put a burden on the end consumer. She added that this would ensure enhanced remuneration for the farmers.

We reduced the Customs Duty and we levied a disproportionate amount of cess. So, it was not the exact amount of reduction in Customs Duty that we levied in the form of cess. For example, 10% was brought down for Customs, we have only added 5-6% [in AIDC], so the price for the end consumer has been reduced or in some cases has remained the same.

She added that this has been done only to make sure that there is a dedicated amount coming out to the Budget to improve agricultural infrastructure.

Additionally, AIDC of Rs. 2.5 per litre has been levied on petrol and Rs. 4 per litre on diesel. However, the Basic Excise duty and Special Additional Excise Duty rates on them have been reduced so that there is no additional cost to the consumer.

Meanwhile, asked about the farmers’ protest, the Finance Minister said she believed that dialogue was the way forward.

We have taken on nominal GDP at 14.4% and the revenue at 16.7%. So, the buoyancy is only 1.16%. We are hopeful we will be able to get more than this and achieve more in the other areas of non-tax revenue under disinvestment. We will definitely be within 6.8% and could be lower also.

Ms. Sitharaman said, our fiscal deficit, which started at 3.5% during February, has gone to 9.5% of the GDP. Otherwise, fiscal deficit would not have reached this number. We’ve also given a clear glide path for deficit management and bringing it down.

She added that there were two important features to the Budget. “It is that we chose to spend big on infrastructure, which spans roads, bridges, ports, power generation, and so on and, to also attend to the needs of the health sector. Capacity building in health has taken a very big place in the Budget.

Govt. mulls Rs. 3 lakh-crore plan to revive discoms

Finance Minister Nirmala Sitharaman proposed a Rs. 3.05 lakh-crore scheme, spread over five years, to revive discoms and a framework to provide electricity consumers an option to choose from service providers.

The announcements are aimed at ensuring 24-hour power for all as envisaged by the Central government. Last year, the government had enforced consumer rules for the power sector to ensure delivery of services.

But loss-making and cash-strapped discoms — which are mostly owned and run by States — are unable to buy sufficient power from generation firms to provide round-the-clock supply. Total outstanding dues of the discoms towards power-generating firms stood at over Rs. 1.35 lakh crore as of December.

Government assistance

The Minister said the scheme will provide assistance to discoms from infrastructure creation to financial improvements.

The Centre had in November 2015 introduced UDAY (Ujjwal DISCOM Assurance Yojana) scheme for the revival of the debt-laden discoms. Under the scheme, discoms were envisaged to turn around financially within three years from signing agreements.

Ms. Sitharaman, in the Budget 2021, “The distribution companies across the country are monopolies, either government or private. There is a need to provide choice to consumers by promoting competition. A framework will be put in place to give consumers alternatives to choose from among more than one distribution company”.

She also said during the last six years, 139 GW of power-generation capacity has been added and 2.8 crore households provided electricity connection. The Minister also announced a proposal to introduce a National Hydrogen Energy Mission in the next financial year for generating hydrogen from green power sources.

Government to privatise seven major ports, says Sitharaman

Seven major ports, worth Rs. 2,000 crore, will see their operations privatised in the year 2021-2022, Finance Minister Nirmala Sitharaman said while presenting the Union Budget 2021-22.

The Finance Minister also announced a subsidy scheme of Rs. 1,624 crore for a period of five years for Indian shipping companies to encourage more merchant ships with Indian flags. “This initiative will enable greater training and employment opportunities for Indian seafarers.

The Budget also envisages boosting the recycling of ships at Alang in Gujarat. The Minister said the capacity of recycling shipyards would be doubled from 4.5 million light displacement tonne by 2024. India has enacted Recycling of Ships Act, 2019 and acceded to the Hong Kong International Convention (HKC).

She said post-enactment of the law, about 90 ship recycling yards at Alang had already achieved HKC-compliant certificates.

India has 12 major ports under the control of the Centre. These major ports handle about 60% of its total cargo traffic. Ports, Shipping and Waterways Minister Mansukh Mandaviya had recently said India aspired to grab at least 50% of the global ship-recycling business. The country’s share in the ship recycling business is around 30% at present.

Auto sector welcomes vehicle scrappage policy 

Leading players in the automotive sector have welcomed the Centre’s announcement on the voluntary vehicle scrappage policy to phase out old and unfit vehicles. While tabling the Union Budget for 2021-22, Finance Minister Nirmala Sitharaman said the policy would help in encouraging fuel-efficient, environment-friendly vehicles, thereby reducing vehicular pollution and the oil import bill.

Vehicles would undergo fitness tests after 20 years in automated fitness centres in the case of personal vehicles (PV), and after 15 years in the case of commercial vehicles (CV).

Federation of Automobile Dealers Associations president Vinkesh Gulati said, “If we take 1990 as the base year, there are approximately 37 lakh CVs and 52 lakh PVs eligible for voluntarily scrappage. “As an estimate, 10% of CVs and 5% of PVs may still be plying on the road.”

Vipin Sondhi, MD & CEO, Ashok Leyland Ltd., said the policy is good for the environment and for setting in motion a circular economy. “However, we await further details of the policy as the industry had requested an incentive-based scrappage policy for it to be effective.

Govt. hopes to cut fiscal deficit to 4.5% by FY26

Finance Minister Nirmala Sitharaman has pegged the fiscal deficit for 2021-22 at 6.8% of the GDP and aims to bring it back below the 4.5% mark by 2025-26.

The original fiscal deficit target for 2020-21 was 3.5%. However, in reality, the deficit has shot up to a high of 9.5% of the GDP due to the impact of the COVID-19 pandemic — low revenue flows due to the lockdown and negative economic growth clubbed with high government spending to provide relief to vulnerable sections of society, as well as a stimulus package to revive demand.

The government also took the opportunity to bring the food subsidy bill back on the budget books, which includes a one-time payment of more than Rs. 2 lakh crore to the Food Corporation of India (FCI) to deal with its accumulated loan from the National Small Savings Fund.

The Centre proposes to make amendments to the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, to reflect these changes to the fiscal consolidation road map. She added that the Centre hopes to return to the path of fiscal consolidation by higher tax buoyancy through improved compliance on the one hand, and increased monetisation of its assets, including public sector enterprises and land, on the other. 

She also proposed to augment the Contingency Fund of India from Rs. 500 crore to Rs. 30,000 crore.

More market borrowings

This year’s fiscal deficit has been funded through government borrowings, multilateral borrowings, small saving funds and short-term borrowings. We would need another Rs. 80,000 crore, for which we would be approaching the markets in these two months.

In 2021-22, the government proposes to spend a total of Rs. 34.83 lakh crore, higher than the budget estimate of Rs. 30.42 lakh crore in the previous year, as well as the actual expenditure of Rs. 34.5 lakh crore. 

The coming year’s spending plan includes Rs. 5.54 lakh crore as capital expenditure, an increase of 34.5% over the current year’s budget estimates. The gross borrowing from the market for the next year would be around Rs. 12 lakh crore, said Ms. Sitharaman.

The States are being allowed a net borrowing ceiling of 4% of GSDP in 2021-22, and will be expected to consolidate their fiscal deficits to 3% of GSDP by 2021-22, as recommended by the 15th Finance Commission.

The government has indicated it is willing to borrow significantly more than FRBM targets currently allow. There are no additional taxes or funding mechanisms, so the government expects this will be financed through normal growth of the GDP. The only other revenues expected are from the monetisation of assets and disinvestment.

Highways Ministry gets Rs. 1,18,101 crore outlay

The Ministry of Road Transport and Highways received Rs. 1,18,101 crore in the Union Budget, of which Rs. 1,08,230 crore is for capital expenditure. Finance Minister Nirmala Sitharaman said this was the highest-ever outlay for the sector.

The Finance Minister informed Parliament that under the Bharatmala Project, more than 13,000 km of roads had been awarded, and that by March next year, another 8,500 km would be awarded for construction.

The government also announced National Highway projects for the poll-bound States of Tamil Nadu, Kerala, West Bengal and Assam.

Ms. Sitharaman said Tamil Nadu would get National Highway works totalling 3,500 km at Rs. 1.03 lakh crore. These would include the Madurai-Kollam and Chittoor-Thatchur corridors, where construction would begin next year.

Kerala will get National Highway works of 1,100 km at an outlay of Rs. 6,500 crore, including the Mumbai-Kanyakumari corridor.

National Highway projects totalling 675 km will be built in West Bengal at a cost of Rs. 25,000 crore, including upgrading the existing road from Kolkata to Siliguri.

Assam currently has National Highway works of Rs. 19,000 crore under way and will see an investment of additional Rs. 34,000 crore in the coming three years for building 1,300 km of roads.

LAC stand-off factored in for defence outlay

Against the backdrop of the stand-off with China and an impetus for military modernisation, the allocation for capital expenditure in the defence budget saw an increase of Rs. 21,326 crore, or 18.75%, from the Budget estimates of 2020-21.

This is the highest increase in capital outlay for defence in the past 15 years, a release said.

Budget data also show that the armed forces got an additional allocation of Rs. 20,776 crore under capital expenditure in 2020-21 for emergency procurements in the face of massive mobilisation along the Line of Actual Control (LAC).

The total allocation for defence in the Union Budget at Rs. 4.78 lakh crore, including for defence pensions, saw a marginal increase of 1.48% from the Rs. 4.71 lakh crore last year. The allocation for 2021-22 stands at Rs. 3.62 lakh crore, excluding defence pensions, which stood at Rs. 1.16 lakh crore. Excluding defence pensions, the increase is about 7.34%, up from Rs. 3.37 lakh crore to Rs. 3.62 lakh crore.

Pension dip

However, data show that defence pensions have gone down significantly from the Budget estimates of 2020-21. The capital allocation for 2020-21 was Rs. 1.13 lakh crore, which went up to Rs. 1.35 lakh crore for 2021-22.

Budget data show that in 2020-21, the armed forces got an additional allocation of Rs. 20,776 crore under capital expenditure in the revised estimates, largely to cater to emergency procurements due to the LAC stand-off.

As the stand-off began with China in May last year, the Army deployed 50,000 troops and equipment along the LAC in eastern Ladakh.

The Indian Air Force (IAF), too, forward-deployed its frontline fighters. The services also went in for a series of emergency procurements, including equipment and extreme weather clothing for the troops deployed in the high-altitude areas in peak winter.

Last month, the Chief of the Army Staff, Gen. Manoj Naravane, said that 38 deals, estimated at Rs. 5,000 crore, were made last year through the “emergency and fast track” route and in addition, capital procurements for Rs. 13,000 crore were concluded.

The defence pensions saw a significant dip from Rs. 1.34 lakh crore in the Budget estimate of 2020-21 to Rs. 1.25 lakh crore in the revised estimate and further to Rs. 1.15 lakh crore allocated for 2021-22. From 2020-21 to 2021-22, this represents a decrease of Rs. 17,775 crore or about 13.4%.

The 15th Finance Commission observed it its report that the expenditure on defence services as a proportion of GDP declined from 2% in 2011-12 to 1.5% in 2018-19 and to 1.4% in 2020-21.

Non-lapsable fund for modernisation mooted

The 15th Finance Commission has recommended the constitution of a dedicated non-lapsable Modernisation Fund for Defence and Internal Security (MFDIS) to bridge the gap between projected budgetary requirements and the allocation for defence and internal security.

The indicative size of the MFDIS for 2021 to 2026 is Rs. 2,38,354 crore and the maximum recommended is Rs. 51,000 crore a year. However, the unutilised amount from the normal budgetary allocations to the Defence Ministry and the Home Ministry for capital expenditure shall not be part of the fund.

The Defence Ministry has for long been demanding a non-lapsable fund, keeping in view the long trajectory of military modernisation. In the action-taken report tabled in Parliament, the government said it had “in principle” accepted the creation of the fund in the Public Account of India.

The Commission said the fund will have four specific sources of incremental funding, which include transfers from the Consolidated Fund of India, disinvestment proceeds of defence public sector undertakings (DPSUs), proceeds from the monetisation of surplus defence land, including realisation of arrears of payment for defence land used by the State governments and for public projects and cost recovered from encroached land and proceeds of receipts from defence land.

The proceeds will be utilised for capital investment for modernisation of the defence services, capital investment for the Central Armed Police Forces (CAPF) and modernisation of State police forces as projected by the Home Ministry and a small component as welfare fund for soldiers and paramilitary personnel.

The Defence Ministry would have exclusive rights over the use of the amounts deposited in the fund from the specified sources of revenue. The Home Ministry will only be permitted to use what is earmarked for it from the source of revenue.

The amount proposed for capital expenditure towards internal security for the five years is Rs. 50,000 crore, of which the Home Ministry will allocate Rs. 500 crore for redeveloping and improving the residential facilities for police personnel in Delhi.

This would be augmented by Rs. 100 crore a year for improved communication systems and technology upgrade for the police.

The Commission said the fund may be operated by a high-power committee notified by the Union government and may be headed by the Cabinet Secretary with the Secretaries of Defence, Home and Expenditure and the Chief of the Defence Staff as members.

Culture Ministry suffers a 15% cut

The Culture Ministry’s expenditure budget for 2021-22 was cut by nearly 15% from the Budget estimates (BE) for 2020-21. The Ministry has been allocated Rs. 2,687.99 crore. It was Rs. 3,149.86 crore in the previous financial year, though the actual expenditure was Rs. 2,211.85 crore, according to the revised estimates (RE) for the year.

The bulk of the expenditure in the BE for 2021-22 was under the developmental head of “art and culture”; Rs. 2,513.01 crore was allocated for it. The remaining amount was allocated for “secretariat-social services” (Rs. 50.7 crore), “capital outlay on education, sports, art and culture” (Rs. 78.76 crore) and “North-Eastern areas” (Rs. 45.52 crore).

The Archaeological Survey of India, which is responsible for the upkeep of over 3,000 Centrally protected monuments, saw its budget cut from Rs. 1,246.7 crore in the 2020-2021 BE to Rs. 1,042.63 crore in the 2021-2022 BE.

However, the expenditure budget for ASI was revised to Rs. 860.8 crore in the RE for 2020-2021.

The Museum on Prime Ministers of India, which is going to be inaugurated in the next financial year, has been allocated Rs. 77.78 crore. As India is going to celebrate the 75th anniversary of freedom and the 125th birth anniversary of Subhas Chandra Bose, the budget of the Centenary and Anniversary Celebration scheme has been enhanced by 38.5% and Rs. 144.64 crore has been allocated.

Farmers dismiss FinMin claims on MSP hike

Several farmer outfits dismissed Finance Minister Nirmala Sitharaman’s assertion in the Budget speech on Monday that there has been a sea change in the minimum support price (MSP) regime to ensure at least 1.5 times the cost of production across all commodities, besides a steady increase in the procurement of crops. The farmer groups termed the claim an “eyewash”.

Bharatiya Kisan Union (Ekta-Ugrahan), one of the largest farmer unions in Punjab, said ensuring 1.5 times the cost of production on crops does not help in addressing farmers’ plight as it does not provide a remunerative price. Farmers have been demanding the MSP based on the Swaminathan Commission’s formula of C2 plus 50%, the BKU faction said.

Sarvan Singh Pandher of Kisan Mazdoor Sangarsh Samiti said the reason for the rise in procurement of wheat and paddy is on account of private traders buying the foodgrain in States that lack Agriculture Produce Marketing Committee (APMC) mandis ; the traders then sell the crop in mandis of Punjab and Haryana.

5 fishing harbours to be modernised

Five major fishing harbours will see substantial investments for modernisation and development. To start with, five major fishing harbours — Kochi, Chennai, Visakhapatnam, Paradip and Petuaghat — will be developed as hubs of economic activity. We will also develop inland fishing harbours and fish-landing centres along the banks of rivers and waterways.

Emerging sector

Ms. Sitharaman also announced measures to promote seaweed cultivation. “Seaweed farming is an emerging sector with potential to transform the lives of coastal communities. It will provide large scale employment and additional incomes. “To promote seaweed cultivation, I propose a Multipurpose Seaweed Park to be established in Tamil Nadu.

Overall, the Fisheries Department saw an increase in budget allocations from Rs. 825 crore in 2020-21 to Rs. 1,220 crore in 2021-22. The Blue Revolution centrally sponsored schemes saw their budget allocations double, with the new Pradhan Mantri Matsya Samada Yojana alone getting a Rs. 1,000 crore allocation.

Food subsidy budget set at almost Rs. 2.43 lakh crore

The food subsidy bill spiked sharply this year, from Rs. 1.15 lakh crore in the 2020-21 budget estimates to Rs. 4.22 lakh crore in the revised estimates, reflecting the additional cost of free foodgrain distribution in the wake of the COVID-19 pandemic, as well as the government’s decision to pay the Food Corporation of India’s burgeoning loans and return to budgetary transfers to fund the food subsidy bill. In 2021-22, the food subsidy budget has been set at almost Rs. 2.43 lakh crore. Economists welcomed the Centre’s move, saying it would help clean up the government’s accounts and improve the financial health of the FCI.

I propose to discontinue the NSSF [National Small Savings Fund] loan to FCI for food subsidy and accordingly Budget provisions have been made in RE 2020-21 and BE 2021-22.

FCI procures grains from farmers at an economic cost of almost Rs. 27 a kg for wheat and Rs. 37 for rice, and then provides it to 80 crore poor people through the public distribution system (PDS) at subsidised rates of Rs. 2 a kg for wheat and Rs. 3 for rice.

However, for several years, the budgetary allocation for PDS has not been sufficient to cover FCI’s subsidy costs, forcing it to borrow from the NSSF at a rate of about 8%. Its outstanding loans are now well over Rs. 2 lakh crore.

Over the last year, the COVID-19 relief measure to provide additional free grains under the PDS for 8 months, plus free grains for migrants without ration cards, has only increased FCI’s borrowings.

This is a move to increase transparency, bringing a subsidy expenditure back on the government’s books. It’s an accounting adjustment that will help reflect the government’s debts and current financial state more accurately.

Outstanding claims

The economic cost of procuring and distributing wheat and rice will go down, because the interest burden will be lower. FCI will also be left in better financial shape to face future challenges. Subsidies to aid the sugar industry and cane farmers have also shot up for the coming year.

A Rs. 2,000 crore allocation has been made for a new scheme to encourage sugar exports by helping sugar mills meet the marketing costs. A scheme to maintain a buffer stock of 40 lakh metric tonnes has seen its budget allocation jump from Rs. 200 crore to Rs. 600 crore.

Another scheme to help sugar mills convert surplus sugar into ethanol has also been expanded from Rs. 50 crore to Rs. 300 crore in the coming year.

137% increase in health and well-being spend

Finance Minister Nirmala Sitharaman said in her Budget speech that the government expected to spend Rs. 2,23,846 crore in the coming year on “health and well being… a 137% increase (from last year).”

This includes a Rs. 60,030-crore outlay on drinking water and sanitation, a Rs. 2,700-crore outlay on nutrition — both of these are handled by separate Ministries — nearly Rs. 49,000 crore as Finance Commission grants and Rs. 35,000 crore toward vaccination.

The Health Ministry expects to spend Rs. 71,269 crore in 2021-22, an increase of roughly 9% from the budget estimates of last year. But this will be less than what the Ministry actually spent last year. The ‘revised estimates’ in the Budget documents show the Ministry spent Rs. 78,886 crore in the last financial year, about 20% up from the budgeted Rs. 65,012 crore.

Investment on health infrastructure in Budget 2021 has increased… the focus on strengthening three areas — preventive health, curative health and well-being… will be of immense help to the country at this critical juncture.

New scheme

Ms. Sitharaman also announced a new Centrally sponsored scheme, PM Atmanirbhar Swasth Bharat Yojana, that would be launched on an outlay of about Rs. 64,180 crore over 6 years to improve primary, secondary, and tertiary care health systems, strengthen national institutions, create new institutions to cater to detection and cure of new and emerging diseases.

This scheme aims to support 17,788 rural and 11,024 urban Health and Wellness Centres, establish integrated public health labs in all districts, strengthen the National Centre for Disease Control (NCDC), its five regional branches and 20 metropolitan health surveillance units, establish nine Bio-Safety Level III laboratories and four regional National Institutes of Virology.

“The Finance Minister’s emphasis on healthcare spending and immunisation, especially on COVID-19 and pneumococcal vaccines, will help India rapidly recover from the pandemic.

Rs. 50,000 cr. for National Research Foundation

Finance Minister Nirmala Sitharaman earmarked Rs. 50,000 crore over five years for the creation of a National Research Foundation (NRF) — an umbrella body that is expected to fund research across a range of disciplines, from science and technology to humanities.

Ms. Sitharaman had first announced such a foundation in her 2019 Budget speech after it was proposed in a draft of India’s New Education Policy (NEP). “It [NRF] will ensure that the overall research ecosystem in the country is strengthened with a focus on identified national priority thrust areas.”

Mentoring mechanism

The NRF will also seed and build research capacity at universities and colleges through a formal mechanism of mentoring. It will also catalyse research at universities and colleges that have until now not been big players in research. The NRF will also help build the capacity to do research through an institutionalised mentoring mechanism, involving expert researchers from premier institutions of the country.

The NRF would be an autonomous body and represented by all major research and education bodies, said Ashutosh Sharma, Secretary, Department of Science and Technology.

Cuts in allocation

The budget allocations for key science departments saw cuts, though most are expected to spend — until March — below what was apportioned last financial year.

For instance, the Ministry of Earth Sciences was given a budget Rs. 2,074 crore for 2020-21, but is expected to spend only Rs. 1,304 crore. This year it has been allotted Rs. 1,901 crore.

The Department of Science and Technology was given a budget of Rs. 6,313 crore last year, but will likely spend Rs. 5,012 crore. It has been allotted Rs. 6,071 crore this year.

The Department of Scientific and Industrial Research was given Rs. 5,385 crore but its expenses are likely to be Rs. 4,251 crore. It has been given Rs. 5,241 crore.

The Department of Biotechnology has seen a hike in allotment and been given Rs. 3,502 crore. Last year, it spent Rs. 2,300 crore and was budgeted Rs. 2,786 crore.

Water supply, Swachh Bharat 2.0 missions for urban areas

The government would launch a mission to provide universal water supply to areas under all the 4,378 urban local bodies and the next phase of the Swachh Bharat Mission focusing on management of sludge, waste water and construction and demolition waste in cities.

The World Health Organization has repeatedly stressed the importance of clean water, sanitation, and clean environment as a prerequisite to achieving universal health. The Jal Jeevan Mission (Urban) will be launched. It aims at universal water supply in all 4,378 Urban Local Bodies with 2.86 crore household tap connections, as well as liquid waste management in 500 AMRUT cities. This mission would be implemented over five years with an expenditure of Rs. 2.87 lakh crore.

Second round

The Swachh Bharat Mission (Urban), which is being implemented by the Housing and Urban Affairs Ministry. “For further swachhta [cleanliness] of urban India, we intend to focus on complete faecal sludge management and waste water treatment, source segregation of garbage, reduction in single-use plastic, reduction in air pollution by effectively managing waste from construction and demolition activities and bioremediation of all legacy dump sites.

The Swachh Bharat Mission (Urban) 2.0 would be implemented over five years — from 2021 to 2026 — on an outlay of Rs. 1.41 lakh crore

Rural India’s lifeline missing in Budget speech

The scheme that has been described as the lifeline of rural India during the COVID-19 pandemic and lockdown was completely missing from the Finance Minister’s Budget speech on Monday.

Unmentioned in the speech, the Budget documents showed that the allocations for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme stood at Rs. 73,000 crore in 2021-22, higher than the budget estimates for the previous year, but lower than the revised estimates. Activists supporting MGNREGA workers warned that rural distress provoked by the pandemic was still continuing, and would require additional funding for the rural jobs scheme.

The importance of MGNREGA this year can be seen from the fact that the revised expenditure estimates for the demand-driven scheme stand at Rs. 1.11 lakh crore in 2020-21, sharply higher than the budget estimates of just Rs. 61,500 crore.

Faced with a mass exodus of migrant workers from the cities back to their villages during the lockdown, the Centre added a substantial extra allocation as part of COVID-19 relief to ensure that some employment could be provided to this newly jobless population.

The 2021-22 allocation, however, returns MGNREGA funding to the levels of actual expenditure in 2019-20, indicating that the Centre feels the crisis is over.

The Budget was a good opportunity for the government to raise the number of days of employment through MGNREGS to 150 days.

This undermines the NREGA and shows utter disdain for one of the most important programmes that provided a modicum of protection to the rural poor. The government has shown neither commitment to nor an understanding of the situation of those who suffered most through the pandemic.

The budgetary allocations for pensions for senior citizens, widows and the disabled in the coming year have been held at the exact same level as the original budget estimates during 2020-21. The actual expenditure on these schemes was much higher owing to the additional pension amounts distributed as part of the COVID-19 relief package

Portal to collect data on gig workers: govt.

Finance Minister Nirmala Sitharaman on Monday announced the launch of a portal to collect information on gig, building and construction workers to formulate welfare schemes for migrant workers.

“We have launched the One Nation One Ration Card scheme, through which beneficiaries can claim their rations anywhere in the country. Migrant workers, in particular, benefit from this scheme — those staying away from their families can partially claim their rations where they are stationed, while their families in their native places can claim the rest.

The Minister said the scheme was being implemented by 32 States and Union Territories with 69 crore people, which is 86% of the beneficiaries. The remaining four States and UTs would implement the scheme in the next few months, she added.

I propose to launch a portal that will collect relevant information on gig, building, and construction workers, among others. This will help formulate health, housing, skill, insurance, credit and food schemes for migrant workers.

On the four labour codes passed by Parliament in 2019 and 2020, and expected to be implemented soon, she said the process that began 20 years ago would be concluded now. “For the first time globally, social security benefits will extend to gig and platform workers. 

Minimum wages will apply to all categories of workers and they will all be covered by the Employees State Insurance Corporation… At the same time, compliance burden on employers will be reduced with a single registration and licensing and online returns,” she said.

The Minister reiterated that employers who do not deposit the employees’ contribution towards the Employees Provident Fund (EPF) on time would not be allowed to show it as a deduction.

Budget for Women and Child Development shrinks

The Budget allocated for the Ministry of Women and Child Development shrank to 0.7% of the Budget announced. The Ministry received Rs. 24,430 crore for fiscal 2022, which was 0.7% of the Budget. In last year’s announcement, it received Rs. 30,007 crore, which was 0.98% of the Budget.

Several schemes under the Ministry have been re-grouped and renamed, such as Saksham Anganwadi and POSHAN 2.0 for nutrition programmes, Mission SHAKTI for schemes on women empowerment and Mission Vatsalya for schemes on protection of children.

Anganwadi services have been clubbed with other schemes under Saksham yet the Saksham budget in 2021-22 of Rs. 20,105 crore is less than the anganwadi budget in 2020-21 of Rs. 20,532 crore. 

Similarly, the Pradhan Mantri Matru Vandana Yojana (PMMVY) has now been clubbed with other schemes under Samarthya, yet the allocation in 2021-22 is similar to the allocation for PMMVY alone in 2020-21.

To strengthen nutritional content, delivery and outcome, we will merge the supplementary nutrition programme and the Poshan Abhiyaan and launch Mission POSHAN 2.0. We shall adopt an intensified strategy to improve nutritional outcomes in 112 aspirational dsitricts.” But the allocation for Poshan Abhiyan was slashed by 27%, which went from Rs. 3,700 crore last year to Rs. 2,700 crore this time.