More Borrowing & Disinvestments in India’s 2021 Union Budget

Summary

• India plans to borrow some Rs 12 trillion to meet the capital shortfall.
• The foreign direct investment limit in insurance has been increased to 74 percent from 46 percent.
• The government would divest in two public sector banks (PSUs) and its flagship Life Insurance Company (LIC).
• The moves are aimed at channelling foreign funds to India.
• Infrastructure, Health and Well Being, MSMEs see a significant budgetary boost.
• Additional emphasis on farm income, agri-infra, market reforms.

 

Canada and the US, which have a significant population of Indian origin, showed a keen interest in India’s annual budget presented in parliament on Monday by Finance Minister Nirmala Sitharaman.

The Indian budget has drawn keen interest not only at home but also abroad as people were anxious to know how India plans to address the challenges posed by the pandemic-induced slump. The budget reflects the key areas the government plans to focus on to jumpstart the economy.

Presenting the Union Budget 2021 in parliament, the finance minister underscored that the latest budgetary support would give a significant boost to key sectors of the economy.

Earmarking almost $500 billion in government spending, the document gives special emphasis on healthcare, infrastructure, and self-reliance, and Make in India projects aimed at reinforcing the COVID-hit sectors to deal with current and future challenges.

The government hopes that it will be able to raise a major part of the required capital from increased tax collection, higher imports levies, dividend income, as well as asset sale. It also plans to borrow some Rs 12 trillion to meet the shortfall.

Besides considerable support to infrastructure and self-reliance projects, a slew of measures has also been announced, including to keep interest rates and agriculture cess unchanged, and a plan to hike FDI limit in select areas. FDI in insurance has been increased to 74 per cent from the existing 49 per cent.

North American markets, including Canada and the US, which have a significant political and business interest in India, have closely watched Monday’s budget presentation, evidenced by the news trends in these countries on Ms. Sitharaman’s budget speech.

Infrastructure

A Development Financial Institution has been envisioned for lending around Rs 5 lakh crores over the next three years for infrastructure projects of companies, which had been plagued by rising bank debts.

It is hoped the government-backed Infrastructure Investment Trusts (InvITs) would enable speedy execution of projects for road, power, railways, airports, oil and gas, warehousing. Industry leaders have welcomed the measures saying it will supplement the government’s “Make in India” initiative.

A national plan for the railways up to 2030 and privatization of more airports will be rolled out this year. Furthermore, Rs 1,18,101 lakh crores have been allocated for roads and highways.

Health

A total of Rs 2,23,846 crore have been allocated for the health sector, which is an increase of 138 percent. Of the total, Rs 35,400 crore will go towards COVID vaccination and development. More funds will be made available if required in the future, Ms. Sitharaman added.

The government has also allocated Rs 64,180 crore for the “Aatmanirbhar Swastha Bharat Yojana” (Health and Wellbeing Program). She said two Covid vaccines have been approved so far and two more are expected soon, which will protect not only its citizens but also those in other countries.

Disinvestment & Reforms

Ms. Sitharaman said the government would divest in two public sector banks (PSUs) and its flagship Life Insurance Company (LIC). It will bring an IPO for LIC during 2021-22 fiscal, she added.

Furthermore, to boost the speedy resolution of company-related cases, changes will be made in the National Company Law Tribunal (NCLT), e-Courts will be strengthened, and alternate debt resolution mechanisms will be set up, she announced.

MSMEs and Industries

The finance minister has also announced a slew of measures for the recovery of various industries, including the micro, small and medium enterprises sector (MSMEs) hit by the COVID pandemic. The measures included collateral-free loans, a limit for global tenders, and special funds, among others.

Ms. Sitharaman said that the Aatmanirbhar Package, announced last year, saw a significant outlay, comparable to five mini budgets, but for 2021, it contains one additional pillar, which includes health & well-being, inclusive development, human capital, innovation, R&D, and minimum government and maximum governance.

The government has so far rolled out three Atmanirbhar Bharat package since the first in May 2021, amounting to a total of Rs27.1 lakh crores, Ms. Sitharaman added.

Presenting the Economic Survey 2020 report on Friday, the finance minister pegged the GDP growth at 11 percent in the 2022 fiscal year.

Agriculture

Assuaging farmers’ concerns, the finance minister said that the minimum support price (MSP) has been increased by nearly 1.5 percent for various agricultural procurements. A total of Rs75,060 crore was paid for wheat procurement during the 2020-21 period, she added.

Other provisions for farmers in the budget included low-interest credit, infrastructure fund, working capital, changes to the Essential Commodities Act, and market reforms.

India has been witnessing massive farmers’ protest in its national capital region against three farm acts.