The Union Budget 2021 was one of the most awaited Indian budgets in the recent past. Finance Minister Nirmala Sitharaman presented the budget at a time when the Indian economy is reeling under the impact of the Covid-19 pandemic. While several indicators point towards a swift recovery, the economy is still not completely out of the woods. The minister had a tough task of balancing increased spending with fiscal discipline. The Union Budget 2021 has several proposals for different sectors with a focus on healthcare, infrastructure, financial capital and manufacturing.
With millions of people affected by the novel coronavirus, a focus on healthcare was the need of the hour. Sitharaman announced a new centrally-sponsored scheme--PM AtmaNirbhar Swasth Bharat Yojana--to augment healthcare facilities across the country. An amount of Rs 64,180 crore is proposed to be spent on the scheme in six years. The overall expenditure earmarked for the healthcare sector witnessed a rise of 137% on-year to Rs 2.23 lakh crore. The increased spending on healthcare may have a positive impact on private healthcare providers, however, the exact benefit will not be known till the fine print of the scheme is released. The finance minister also allocated Rs 35,000 crore for Covid-19 vaccination, which is likely to help vaccine manufacturers.
The finance minister had a slew of proposals for the banking and finance sector ranging from recapitalisation, divestment and change in FDI rules. The minister announced multiple proposals to tackle the growing problem of non-performing assets in the Indian banking system. The Covid-19 pandemic is expected to leave Indian banks, especially public sector banks, with significant bad loans. The government proposed to infuse Rs 20,000 crore into public sector banks in the current financial year. Additionally, the minister announced the formation of an asset reconstruction and management company to take care of non-performing assets. The minister also proposed a strategic divestment of two public sector banks and one insurance company to shore up government finances. Besides the slew announcements for the banking sector, the government increased the Foreign Direct Investment limit in the insurance sector to 74% from 49% earlier. The increased FDI limit is likely to help insurance companies raise funds and may also lead to consolidation in the sector.
The Indian automobile sector has been a major beneficiary of the Union Budget 2021. Some of the proposals have a direct impact on the sector while others may affect the sector indirectly. The announcement of a voluntary scrappage policy will act as a booster shot for the crucial automobile industry. Under the scrappage policy, vehicles will have to undergo a mandatory fitness test after a certain timeline. The timeline has been set at 20 years for personal vehicles and 15 years for commercial vehicles. The scrappage policy is likely to lead to higher sales for automobile companies. The minister’s proposal to improve the public transport system across the country by inducting more buses too is likely to help automobile manufacturers. An increased focus on infrastructure development will give a much-needed fillip to the sector. The Union Budget 2021 has an outlay of Rs 1.18 crore for the Ministry of Road Transport and Highways.
Startups and MSMEs
The Union Budget 2021 had major proposals for startups and micro, small and medium enterprises, which included announcements related to one-person companies and change in the definition of small companies. The minister proposed the incorporation of one-person companies without any restrictions on paid-up capital and turnover. The move is expected to benefit the startup ecosystem and make it easier for innovators to start companies. The government also proposed the revision of the definition of small companies by raising the capital base limit of small companies to Rs 2 crore from Rs 50 lakhs. The minister also extended the tax holiday provided to startups by one year.
The finance minister mentioned manufacturing as one of the focus areas of the Union Budget 2021. The production linked incentive scheme is the flagship scheme of the government aimed at boosting domestic manufacturing and helping Indian companies plug into the global supply chain. The government today announced an outlay of Rs 1.97 lakh crore, to be spent on various PLI schemes over the next five years. The amount does not include Rs 40,951 crore announced earlier for PLI in the electronic manufacturing sector. The government also proposed to set-up seven mega textile parks with integrated facilities in three years to make Indian exporters globally competitive.
The Union Budget 2021 focuses on the most important sectors that have the potential to generate higher returns for every rupee invested. The focus on the manufacturing, infrastructure and MSME sectors will help in employment generation, while the proposals for the BFSI sector will lead to the easy availability of capital for growth. Besides the proposals that will have a direct impact on certain sectors, the announcement of increased capital spending by the government will have a trickle-down effect on the entire economy.