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Explained: What top Budget 2021 proposals are trying to do

Budget 2021 explained: Finance Minister Nirmala Sitharaman proposed many new measures in the Budget 2021 to prop up the flagging economy amid the Covid-19 pandemic and boost spending across sectors.

Written by Anil Sasi , P Vaidyanathan Iyer , Sandeep Singh , Harish Damodaran | New Delhi |
Updated: February 3, 2021 10:26:02 am
Finance Minister Sitharaman holds a folder case containing the Union Budget 2021-22, at North Block in New Delhi (PTI)

Finance Minister Nirmala Sitharaman proposed many new measures in the Budget 2021 to prop up the flagging economy amid the Covid-19 pandemic and boost spending across sectors. Here is what the top proposals entail.

Production-linked incentive (PLI) scheme push

The government aims to spend Rs 1.97 lakh crore on various PLI schemes over the next five years, starting this fiscal. This is in addition to the Rs 40,951 crore announced for the PLI for electronic manufacturing schemes.

Why the move: It is likely to attract global players in the Indian manufacturing sector as the government is planning to offer plug-and-play infrastructure to the companies willing to come to India.

Health push

The government has announced a new central healthcare scheme to strengthen the country’s healthcare infrastructure over the next six years. The Pradhan Mantri Atma Nirbhar Swasthya Bharat Yojana, which will operate in addition to the existing National Health Mission, has been allocated around Rs 64,180 crore.

Why the move: This scheme is expected to be used to develop capacities of primary, secondary and tertiary healthcare systems as well as existing national institutions over a period of six years, according to Sitharaman.

In addition to this, it would be used towards creating new institutions to cater to the detection and cure of new and emerging diseases. During her budget speech, the minister said that investment on health in this budget has increased “substantially”, with a focus on strengthening preventive care, curative and well-being of the population.

Power push

The government has decided to create a framework to give consumers alternatives to choose from more than one power distribution company.

Why the move: It is aimed at offering competition at operator level and more choice to consumers. Targets better efficiency levels in the distribution sector

Divestment push and Bad bank proposal

Strategic disinvestment of companies, including BPCL, Air India, Pawan Hans, IDBI Bank, Container Corporation of India, to be completed in 2021-22. Government to ask Niti Aayog to start working on identifying the next list of companies for strategic sale.

Announcing its version of the bad bank proposal, the government will set up an Asset Reconstruction and Management Company for Stressed Assets to take over bad loans. Alongside, a Rs 20,000-crore equity infusion has been announced for public sector banks.

The FM said it will take up strategic sale of two public sector banks and one general insurance company along with completing the sale of BPCL, Concor, SCI, IDBI and BEML among others in 2021-22.

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budget 2021, budget, budget 2021 highlights, budget highlights, budget 2021 india, budget 2021 important points, budget 2021 highlights pdf, budget 2021-22, budget 2021 key highlights, budget 2021 announcement, budget 2021 announcements, union budget 2021 announcement, budget 2021 highlights pdf Finance Minister Nirmala Sitharaman with MoS for Finance Anurag Thakur leaves the Finance Ministry for the Parliament to announce the 2021-22 Union Budget in New Delhi

Why the move: These measures are expected to strengthen the state-owned banks and hasten the process of clean up of their balance sheet. The divestments will help raise revenue for the government and is expected to improve efficiency and provide momentum to privatisation.

It’s more about the principle of separating the good from the bad. It’s about not wasting more good money on bad assets. Former RBI Deputy Governor Viral Acharya has in the past stressed on the need to separate the ‘good’ from the ‘bad’, and to set up a bad bank.

The government has been toying for far too long with the idea of a National Asset Reconstruction Company that can hold the bad assets of all state-owned banks.  The proposal has gone around in circles between the Finance Ministry, the Niti Aayog and the Prime Minister’s Office. Spooked by Opposition politics earlier, Modi had shied away from being labelled as being pro-corporate. This proposal marks a departure. After almost 70 months since being in power, the BJP-led government has finally taken a call on setting up a Big Bad Bank. Finance Minister Nirmala Sitharaman has announced a new asset reconstruction company and an asset management company to take care of the bad assets of banks, and equip the banks to lend to productive sectors as the economy starts recovering.

Why it requires Govt involvement: There are many mechanisms to proceed with how to realise value from the NARC. Though India has over a dozen private ARCs, no state-owned banker in the current environment will be courageous enough to sell his bad assets to these at a discount, for fear of prosecution by state investigative agencies at a later date. And private ARCs will ask for a massive haircut from banks. It’s here that a national ARC can inspire confidence amongst banks.

People in Kolkata watching the Budget presentation

FDI limit hiked in insurance

The Finance Minister announced to hike the FDI limit in Insurance from 49% to 74%. She, however, said that majority directors on board and Key management personnels will be Indians.

Why the move: The move will help increase capital inflow in insurance companies and enhance their expansion and growth.

Development Financial Institution reborn

Given that there is a lack of finance for infrastructure and long gestation projects, Finance Minister Nirmala Sitharaman has announced the setting up of a Development Financial Institution (DFI). The DFI will have statutory backing and Rs 27,000 crore capital.

To differentiate it from DFIs that existed in the past, she said the DFI will be professionally managed.

What will be its focus?

The proposed DFI will be used to finance both social and economic infrastructure projects identified under the National Infrastructure Pipeline (NIP), according to finance ministry sources.

Scrapping policy

The government has introduced the scrapping policy to remove unfit vehicles on a voluntary basis. All private vehicles beyond 20 years and commercial vehicles older than 15 years old will have to undergo a fitness test.

Why the move: The proposal is expected to offer a boost to the auto sector, both for commercial and private vehicles. Auto shares surged after the announcement.

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Bad debt resolution

The government plans to further strengthen the NCLT framework and continue with the e-court system for faster resolution of bad debts. A separate framework for MSMEs will also be made by the government.

Why the move: With the government-imposed moratorium on admission of new cases likely to end by March 31, a number of MSMEs, which have not been able to earn enough during the fiscal are likely to be taken to insolvency by their creditors. The separate framework may help MSME owners avoid losing their company while continuing to pay the debt.

Gas transport

The government has announced an independent gas transport system operator for booking and coordination to ensure for unbiased allocation of natural gas transportation capacity.

Why the move: The government aims to address concerns of bias in the allocation of gas transportation capacity by players such as GAIL involved in both the supply and transportation of natural gas.

Ujjawala push

The government has announced the extension of benefits of the Ujjawala scheme to an additional 1 crore people.

Why the move: The scheme, which provides LPG connections with financial assistance from the central government and currently benefits 12 crore households, will be extended further to provide clean cheap cooking fuel.

Power sector push

The government has allocated close to Rs 3.60 lakh crore in the Budget towards launching a “revamped”, reforms-based, result-linked power distribution sector scheme.

A framework will also be put in place to give consumers alternatives to choose from more than one distribution company.

Why the move: This comes amid “serious” concerns over the viability of power distribution companies (discoms) in the country. The scheme is expected to provide assistance to discoms for infrastructure creation tied to financial improvements, including prepaid smart metering, feeder separation and upgradation of systems, said Finance Minister Nirmala Sitharaman.

Discoms across the country are monopolies, whether government or private, said the minister. There is a need to provide a choice to the consumer, she said.

The past six years have seen a “number” of reforms and achievements in the country’s power sector, including the addition of 139 GW of installed capacity, the connection of an additional 2.8 crore houses and addition of 1.41 lakh circuit kilometres of transmission lines.

Social security net for gig workers

Social security benefits will be extended to gig and platform workers, the finance minister said. Minimum wages will apply to all categories of workers and will be covered under ESIC.

This will impact around 15 million gig workers in India, in addition to online platform providers across sectors such as transportation (Uber and Ola), food delivery (Swiggy and Zomato), and the contract workers in IT and software firms.

Importance: The economic survey had noted that India has become one of the largest markets for flexi-staffing in the world due to the wider adoption of e-commerce and online retailing. It had also said that the increasing role of the gig economy was evident through the significant growth of online retail businesses during the lockdown caused by Covid-19 pandemic.

Fiscal deficit

India’s fiscal deficit is set to jump to 9.5 per cent of Gross Domestic Product (GDP) in 2020-21, according to the revised estimates presented by the finance minister today. This is sharply higher than 3.5 per cent of GDP that was projected in the budget estimates. Slump in government revenues amid the Covid-19 pandemic has led to sharp rise in deficit and market borrowing.

The government plans to borrow another Rs 80,000 crore to fund the deficit this year. Gross market borrowings for next year has been pegged at Rs 12 lakh crore. A new roadmap for fiscal consolidation has been announced in the budget.

Penion relief

The government has given relief measures for senior citizens by removing the need to file income tax returns for those aged over 75 years.

It has also announced a halving of the time frame for reopening of income-tax assessment cases from 6 years to 3 years. For reopening of serious tax evasion cases up to 10 years, the government has put in a monetary limit of cases involving over Rs 50 lakh in a year.

This is expected to reduce instances of tax harassment of income taxpayers.

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