By Shailesh Haribhakti
Union Budget 2021: The economic survey projected 11% growth rate for the Indian economy in financial year 2021-22, the highest expansion in the country’s recorded history. The V-shaped recovery is fuelled by financial and legal forbearance and some cash in the hands of the poorest. These steps and the calibrated opening up strengthened the fisc, created a current account surplus and attracted FDI and FPI inflows, leading to an unprecedented level of foreign currency reserves at $586 billion. Clearly, the reforms and the simultaneous supply and demand side actions have done the trick.
Budget 2021 has signalled investment in healthcare, education, innovation, infrastructure, and digitisation as well as a recapitalisation of banks. All these steps make Nirmala Sitharaman’s budget the best in over 25 years as it creates the space for India to reclaim the position of the fastest growing economy in the world.
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A global leader
The Budget 2021 has made India a leader on several fronts in the global economy ravaged by the most severe healthcare crisis since the Spanish flu of 1918 and the worst economic crisis since the Great Depression of 1930s.
- Top leader in implementing the 17 sustainable development goals (SDGs) set by the United Nations in 2015.
- A leader in implementing the Environmental, social, and governance (ESG) framework.
- A leader in reporting on the six capitals of Integrated Reporting and thinking. The way Budget 2021 is built on the six pillars of the reporting framework is receiving global acclaim.
- A liberal trading nation with linkages with global supply chains.
Attractive foreign investment destination
The budget will also make India the most attractive FDI destination globally. the Rs 5.15 lakh crore government contribution towards capital expenditure for infrastructure will have a multiplier effect of 5X as completed infrastructure assets get into listed infrastructure investment trusts (InVITs). An infinite source for future disinvestment has been created as all surplus assets will get monetised at central and state levels.
These projects will be listed on bourses all over the world and will give retail and institutional investors an opportunity to invest. Ownership of Infra assets will be democratised and will create a virtuous cycle of public, PPP and private ownership that could attract at least $100 in billion FDI annually.
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Budget 2021 pushes the disinvestment envelop
Disinvestment is the centre piece of Budget 2021. The LIC initial public offer; sale in BPCL, Air India, Shipping Corporation, CCI, IDBI, BEL, Pawan Hans and NISL; allowing 75% foreign investment in insurance and the liberalisation under incentive frameworks at state level will break new ground in an unprecedented scale.
Strategic sales in public sector units will enjoy an unprecedented interest in the market. The disinvestment target of Rs 1.75 lakh crore will be easily achieved as the massive preparatory work has already been done by the government.
The reforms announced in the Budget will also attract massive foreign investment inflows in and out of the debt markets. As Indian entities access global low-cost funds leveraging the current account surplus as a natural hedge, the country will develop a robust market for debt.
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Tax reforms in Budget 2021
The finance minister has left the direct taxes unchanged in Budget 2021, just effecting changes needed in simplification, tax determination and reduction in litigation. Time limits on all regulatory processes, faceless ITAT proceedings and a threat to go after defaulters and evaders are the crux of changes this year. This will result in better tax compliance.
Digital payments, a far superior securities regulation, a liberalised decriminalisation of laws, a scrapping of unnecessary exemptions and a general approach of simplification for genuine tax payer friendliness will make taxation comparatively painless.
In indirect taxes, the GST will be streamlined to avoid inversion. Indications are clear that inclusion of more items, rationalisation of rates and other simplification measures will be taken up in the next GST council meeting. Customs duties have been strategically raised to protect Indian manufacturing and reduced wherever it benefits the consumer. This is the first signal of an astute global approach to interacting with the world on fair terms.
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Six pillars of resource allocation
In healthcare, the focus on prevention, detection and correction in a decentralised manner will work in a country like India. The focus on nutrition, clean water, construction waste limitation and clean air are appropriately selected. India will become one among the early countries that attain herd immunity against Vovid-19.
As India takes up digitisation of detection and prescription of immunity enhancing supplements, it will become a nation that believes in healthcare and not sick care. The 137% increase in allocation is fully justified.
Budget 2021 has prioritised 13 sectors chosen for PLI, monetisation of infrastructure assets, implementation of the national infrastructure plan, opening up to REITS and InVITs, airports, electricity transmission and roads. There is no other country that can absorb trillion of dollars in Infrastructure.
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The finance minister deserves praise for opening up all the taps to investment in infrastructure. This will create a large number of permanent, Gig and contract jobs. This will help achieve sustainable Development Goal 8. The Rs 20,000 crore development financial institution and thrust on public-private partnerships will pay rich dividends.
The non-performing assets (NPAs) will be cleaned through an asset reconstruction company and the public sector (PSU) banks will be privatised and recapitalised. Budget 2021 envisages the elevation the ship breaking industry to a new level, efficient management of ports and harnessing of hydrogen energy to make India the clean energy capital of the world. India will be the first nation to achieve 50% renewable energy landmark. NBFCs with a rural and infrastructure thrust will be empowered to recover more aggressively using SAREFASI to cater to last mile financing.
City gas distribution, a gas pipeline in J&K, better security regulation, vibrant debt market and liberal investment in insurance will usher in a new vibrancy of growth with clean environment.
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The start-ups, global innovators, MSMEs, NRIs and almost anybody interested in entrepreneurship will get a fillip through Budget 2021. No finance minister has so far thought of machine learning, artificial intelligence and big data in a big way as the current one. A great era of data-led lending, recovery and regulation is breaking out. As legal and regulatory processes become time-bound and conciliation driven, ease of doing business will improve.
Education has been given the due respect as a human capital builder. The Budget has earmarked funds for 15,000 schools, a central University in Leh and many other physical interventions to put every child into schools.
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Agriculture and labour will become reformed, market driven, well supported with integrity and institutional thrusts, leading to growth in productivity. A digital budget, digital courts, a digital census, a faceless tribunal, professional health workers, all signal better governance.
While the FRBM is getting reset, digitalisation is being embraced and innovation is being installed deep, it is important to realise that the onus is on Indians to become honest citizens. The Budget 2021 is leading Indians to this promised land.
(Shailesh Haribhakti is corporate leader based in Mumbai. He is a chartered and cost accountant, and writes regularly on the Indian economy and public policy.)
Shailesh Haribhakti is a Chartered and Cost Accountant, an internal auditor and a certified financial planner. He is a board chairman, audit committee chair and independent director at some of the country's most preeminent organisations. He is a thought leader on the Indian economy and public policy.