By Rakesh Nangia, Sudin Sabnis
Chief Economic Advisor Dr Subramanium after unveiling the Economic Survey, 2021 commented that apropos cricket, timing is important in Finance too and the proposals to be introduced by the Finance Minister would have a mix of both Pujara and Pant’s style of batting. This proved to be a worthy precursor to the Budget proposals introduced by the Finance Minister. While this was a Budget of many firsts – first Budget of the decade, first after a global pandemic, first after a massive contraction of the economy etc. all eyes were on the Finance Minister to ascertain the steps which would be introduced to bring the economy back on track. Whether it would be a judicious mix of Pujara’s caution and Pant’s aggression or a prolonged spell of caution (given fiscal constraints) was a matter of debate in the run-up to the Budget. The Finance Minister, fortunately so, adopted the former.
Aatmanirbhar Bharat was a theme embraced by the government during the multiple packages announced during the Covid times. Aatmanirbhar Bharat not only requires infrastructure but also some other vital elements like skilled manpower, availability of ecosystem etc. Despite the fiscal deficit of 9.5% and revenue generation constraints, the Finance Minister has made sizeable allocations to infrastructure and nation-building projects. Railways, port privatizations, road and highway infrastructure (Bharatmala project), power and urban infrastructure etc. received priority from the Finance Minister. Along with the production linked incentives announced across more than 10 sectors, spending on such key infrastructure would help create a base for an ecosystem for Make in India program. Some highlights from the budget are captured as under:
Revamping Healthcare System – A strong realization especially during the pandemic was our over reliance on other countries for a host of products including on basic API’s in pharma products. As a focus for India to be self-reliant in healthcare and medical needs, the Budget has focused on strengthening capacities of primary, secondary and tertiary care health systems, strengthen existing national institutions and create new institutions to cater to detection and cure of new and emerging diseases.
Vehicle Scrappage Policy – Introduction of the vehicle scrappage policy was one of the long outstanding demands of the industry. The government has announced “Voluntary Vehicle Scrapping Policy” to phase out old and unfit vehicles. Vehicles would undergo a fitness test in automated fitness centers after 20 years in case of personal vehicles and after 15 years in case of commercial vehicles. This policy would encourage plying of fuel-efficient, environment-friendly vehicles, thereby reducing vehicular pollution and savings on foreign currency outgo further boosting auto industry.
Banking Sector – Introduction of an asset reconstruction company and asset management company in order to consolidate and take over existing stressed debt and manage and dispose of the assets to alternate investment funds and to tap on other potential investors for eventual value realization was a welcome addition. The Government has also felt the need of recapitalization of public sector banks in the coming fiscal.
Revenue Generation – Though, mopping up collection through tax measures has been a historical focal point of most governments, the finance minister has resisted from introduction of an additional cess (e.g. covid cess) or additional tax and has concentrated to revenue streams like disinvestments, setting up SPV’s for monetizing land parcels and increasing tax base. Also, rationalising customs duty in line with Make in India initiatives would also help the government bridge the gap to a certain extent. Despite these steps the government is staring at a shortfall of Rs. 80,000 crores for which it plans to approach the markets, which could have an impact on cost of capital.
Make in India – Skilled and employable manpower along with R&D are some of the key components required for Make in India campaign to be a success. Reinvigorating the human capital by revamping National Education Policy and realigning with National Apprenticeship Promotion Scheme (which includes providing post education apprenticeship, training of graduates and diploma holders in engineering etc.) would help boost availability of skilled manpower to industries and reduce unemployment. Allocation of Rs. 50,000 crores to National Research Foundation over five years is another welcome step. Though the main focus of this foundation appears to concentrate on research institutions, a private public partnership may be explored in future. The Finance Minister has also strategically rationalized custom duty rates on certain key components to further encourage Make in India.
Tax Proposals – The direct tax proposals focus on reduction of compliances to certain categories of taxpayers like senior citizens (filing of tax returns in certain cases), small taxpayers (tax audit eligibility threshold increased) and introduction of next step of faceless appeals to Tribunals. This could be revolutionary given the increase in reach of Tribunals to taxpayers as well as increase in transparency and possible reduction in litigation time owing to distribution of work-load amongst various benches of Tribunals. Introduction of alternate dispute resolution mechanism for small taxpayers and a revamp of advance ruling authority would also boost confidence in taxpayers to reduce litigations and achieve certainty. Tax holidays to affordable housing segments and Start-ups were extended by 1 year. Indirect tax proposals too focused on reduction of compliances like reducing the GST audit requirements but also strengthened the norms for availability of input tax credits.
While the Budget seems to have hit the right notes, what is now of paramount importance is the implementation of the various proposals, the direction though appears stable with the right concoction of Pujara and Pant.
(Rakesh Nangia is the Chairman and Sudin Sabnis is a Partner at Nangia Andersen LLP. The views expressed by the authors are their own.)