Finance Minister Nirmala Sitharaman on Monday proposed a sharp increase in expenditure on infrastructure, doubling of healthcare spending and raising the cap on foreign investment in insurance in her Budget for the next fiscal in a bid to pull the economy out of the pandemic-induced trough. The Budget for the fiscal year beginning April made no changes in personal or corporate tax rates but raised customs duties on certain auto parts, mobile phone components and solar panels in order to provide impetus to domestic manufacturing.
It also imposed an Agriculture Infrastructure and Development Cess (AIDC) on the import of certain items (like apples, peas, lentils, alcohol, chemicals, silver and cotton) to finance agricultural infrastructure and other development expenditure. But its impact on prices has been offset by an equivalent or more reduction in the import duty.
In her third budget and the Modi government's eighth, Sitharaman proposed a vehicle scrappage policy, Rs 20,000 crore recapitalisation of public sector banks, divestment of some state-owned lenders and sale of non-strategic PSUs with a view to bolstering an economy that plunged into its deepest recorded slump amid the pandemic outbreak. Stock market cheered the Budget announcements, with the biggest jump in indices on a budget day in over two decades while India Inc hailed Sitharaman as a reformist.
Prime Minister Narendra Modi said the Budget puts a lot of emphasis on strengthening the farm sector but opposition Congress termed it a "letdown like never before" and said it was a case of "wrong diagnosis and prescription". In the Budget for 2021-22, Sitharaman made interest on employee contributions to PF over Rs 2.5 lakh per annum taxable, effective April 1, 2021 In the previous 2020 Budget, the finance minister had capped the tax exemption on employers contribution to PF, NPS and superannuation funds at an aggregate of Rs 7.5 lakh per annum.
In a relief to senior citizens, those above 75 years of age with only pension and interest income would no longer have to file income tax returns, subject to certain conditions. She allocated Rs 5.54 lakh crore for capital creation in the infrastructure sector. This included Rs 1.18 lakh crore for the roads and highways sector and Rs 1.08 lakh crore for railways.
The allocation was 37 per cent more than last year. The increased spending is aimed at creating demand in the economy and support job creation.
With just 1 per cent of GDP being spent on health, she proposed raising the spending to Rs 2.2 lakh crore next fiscal to help improve health systems as well as fund the vaccination drive against coronavirus. "We decided to spend big on infrastructure in this Budget. We attended to the need of the health sector," she told a press conference after presenting the Budget for 2021-22 in Lok Sabha. "We decided to give greater impetus to the economy in this Budget." Additional resources required are targeted to be raised through divestment and monetisation.
While Rs 1.75 lakh crore is being targeted from the sale of non-strategic public sector companies, the government will get Rs 30,000 crore from the new agri cess. With government spending more to support the economy during the pandemic that hit revenue collections, the fiscal deficit -- the difference between revenue and expenditure -- for the current year was put at 9.5 per cent of the gross domestic product (GDP) as against a target of 3.5 per cent. For the next fiscal, the fiscal deficit was projected at 6.8 per cent.
"We have spent, we have spent and we have spent. That's why fiscal deficit has reached this number," she said. She also signalled that the fiscal policy support of the economy will continue for at least three years, with the deficit being brought under 4.5 per cent by FY2025-26.
Officials in her ministry at the press conference explained that the new limit for interest-free PF would hit less than 1 per cent of the total EPFO base. For the agriculture sector, she maintained the reform momentum such as the extension of farm credit provision to farmers, commodity expansion under 'Operation Green' and extension of Agriculture Infrastructure Fund (AIF) to APMCs.
In order to incentivise the purchase of affordable house, the finance minister proposed to extend the period for claiming an additional deduction for the interest of Rs 1.5 lakh paid for home loans by one year to March 31, 2022. To remove hardship faced by NRIs in respect of their income accrued on foreign retirement benefits account due to mismatch in taxation, new rules for alignment will be notified.
Foreign direct investment (FDI) limit in insurance was proposed to be raised to 74 per cent from the current 49 per cent. Also, a tax deducted at source (TDS) of 0.1 per cent will be levied on the purchase of goods exceeding Rs 50 lakh in a year. The responsibility of deduction shall lie only on persons whose turnover exceeds Rs 10 crore.
Reduction in customs duties on gold and silver should bring some relief to the consumers while the hike in import duty on certain iron and steel products may adversely affect the real estate and infrastructure sector. An agri cess of Rs 2.5 per litre on petrol and Rs 4 per litre on diesel was also slapped but this was offset by a reduction of an equivalent amount in the excise duty -- making it price neutral for consumers.
Tax filing simplification for investors through pre-filled capital gains and interest income and a reduction in the limit for tax assessment reopening from six to three years will improve taxpayer confidence. The policy on rationalisation of customs rates and procedures which started a few years back has been further moved ahead this year with a plan to review over 400 customs exemptions and a policy of having future exemptions with a validity period of two years.
The government capital expenditure as a proportion of GDP is set to pick up from 1.7 per cent in FY20 to 2.3 per cent in FY21 and further to 2.5 per cent in FY22, which will be a 17-year high figure and will enhance medium-term growth prospects. To address concerns around asset quality, credit loss and liquidity stress, this Budget proposed to infuse additional capital of Rs 20,000 crore into PSU banks for providing continued credit access to wholesale and retail borrowers.
On the new cess, Finance Secretary Ajay Bhushan Pandey said, "We have imposed agri cess on about 14-15 items. The total amount that we estimate (to get) is Rs 30,000 crore." Customs duty on cotton, silk, maize bran, certain gems and jewellery, specified auto parts, screws and nuts was hiked. To promote value addition in the electronics sector, the same was raised for printed circuit board assembly, wires and cables, solar inverters and solar lamps.
The import duty on naphtha, iron and steel melting scrap, aircraft components, gold and silver was reduced.