Indian Union Budget 2021-22: Shortly after presenting the Budget, finance minister Nirmala Sitharaman addressed the press where she highlighted the government’s resolve to spend more on productive assets to bring a Covid-ravaged economy back on the high-growth path fast and create more jobs. She also highlighted the Centre’s commitment to undertaking key financial sector reforms and keeping its balance sheet more transparent than ever. Edited excerpts:
On key themes of Budget-2021-22
To start with, there are two important features: We chose to spend big in infrastructure, and thereby in sectors with high multiplier effect, and we attended to the requirement of the health sector in the aftermath of Covid-19. We have raised the overall capital expenditure target for FY22 to Rs 5.54 lakh crore, up 34.5% from the budget estimate for this fiscal. The spending on health and well-being is going to be raised by as much as 137% to Rs 2.24 lakh crore in FY22. While we have stepped up focus on infrastructure creation and capacity building in healthcare, we have also not ignored the critical agriculture sector and raised allocation for institutions like Nabard for boosting credit to farmers. We also brought in a cess to ensure that we have a dedicated amount for infrastructure creation in agriculture, without putting any extra burden on the end consumer. For instance, where the basic customs duty, say, was 12%, we brought it down to 7% and added only a 3% cess. So the consumer will end up paying less or an equivalent amount. (Separately, revenue secretary AB Pandey said the cess will be levied only on a few items and the total amount to be raised is estimated at Rs 30,000 crore).
On financial sector reforms
Equally important are the reforms we have proposed for the financial sector. Disinvestment will continue, LIC will have an IPO and the FDI limit in insurance will be raised to 74% from 49%. One major cry of banks is the non-performing assets, for which we have repeatedly undertaken capital infusion. To further clean up banks’ books, NPAs will be curled out, based on some formula, and they will go to a holding company-like structure. After necessary sprucing and weeding out of problems of a particular asset, the assets will attract asset reconstruction companies that can bid for them through a transparent process. After some haircuts, banks will recover some money on the bad assets for which they had the provisioning but didn’t have the wherewithal to dispose of legitimately. So we are giving that comfort to banks. For funding infrastructure projects, a development finance institution (DFI) has been brought in. All lessons learnt from the IDBI experience will be utilised. This DFI will use the initial (government) capital of Rs 20,000 crore to raise about Rs 5 lakh crore in about three years. When the law (through which DFI will be constituted) is passed, even private institutions will be allowed to set up DFIs. This is because one DFI won’t be enough to satiate the massive infrastructure funding requirement of the country.
On transparent govt balance sheet
We have made brave decisions to ensure that the government’s own books are cleaned up and made even more transparent. The Budget documents clearly detail all the extra budgetary resources in recent years. Entire food subsidy is from the budget. Budgetary allocation has now been made to clear FCI arrears, for which the money available with the National Small Savings Fund was earlier used.
On thrust on productive spending
We ensured that capex is not only driven up substantially but also implemented without delay. So we have spent, spent and spent. Otherwise, the fiscal deficit wouldn’t have gone up to 9.5% of GDP this year. The Finance Commission has suggested that we give a glide path for fiscal consolidation and we have given it (to bring the deficit down to 4.5% or less by FY26).
On impact of elevated fiscal deficit on the economy
The impact would be good because it (elevated deficit) means the government is spending and, that too, on productive assets. We have stepped up focus on qualitative spending, which will boost employment. And with creation of jobs, people will have more disposable income and demand will rise, which will create a virtuous cycle. If Rs 20k-cr recap for PSBs is enough Let them absorb it first, let’s see.
On Budget not sharing Economic Survey’s optimism on growth (Smiles) One may be a bit conservative because it’s finance ministry, the other may be flamboyant because it’s the chief economic adviser. (The Budget forecasts a nominal GDP expansion of 14.4% for FY22, while the Survey pegs it at 15.4%). On taxing EPFO returns
Up to Rs 2.5 lakh a year you can contribute, for which you will continue to get tax exemption and about 8% guaranteed return that is also tax-exempt. This fund is meant for the welfare of workers, and their interest is being protected because anybody who earns less than Rs 2 lakh per month will still be paying 12% without a hitch. (The proposed move) is aimed at only the big-ticket money, which comes into the EPFO because it has tax benefit and an attractive return. Some put in as much as Rs 1 crore per month, and we thought that’s probably not right. (Separately, expenditure secretary TV Somanathan said people who’ll be affected by the proposed move account for less than 1% of the number of EPFO contributors).
On defence expenditure
Over the last three years, a lot of power has been delegated to vice-chiefs who can take a call on revenue and certain capital accounts, as the situation demands. We have also agreed, in principle, to a suggestion by the Finance Commission to a non-lapsable fund for defence; of course, the formulation will be worked out by the ministry. (Expenditure secretary Somanathan said the defence capital expenditure is proposed to rise about 20% from the revised estimate of this fiscal to Rs 1.35 lakh crore in FY22).
On relief to tax payers
We have introduced faceless assessment and faceless appeal system. We now take further steps to simplify tax administration, ease compliance, and reduce litigation. We have proposed to reduce time-limit for re-opening of assessment. All these are aimed at putting less pressure on the tax payer.
On using agri cess and farm laws
We have announced a variety of schemes for agriculture where it can be used. Nabard’s fund will be doubled from Rs 10,000 crore. AMPC infrastructure will also be funded. Even under Atmanirbhar Bharat, Rs 1 lakh crore was announced to create farm infrastructure. Under, e-nam 1,000 markets are to be joined. So there are several ways to utilise the fund. Agriculture remains very important for us. As for the farm bills, the agriculture minister has said that he is willing to discuss the laws clause-by-clause with farmers. The PM himself has made it clear that the government offer (to stay the laws for 18 months) still stands. I think discussion is the only way forward. On the two banks and an insurer that will be privatised If I could tell you now, I could have said it in my Budget speech (smiles).