As Finance Minister Nirmala Sitharaman read through the direct taxation section of her Union Budget 2021-22 speech on Monday, markets breathed a collective sigh of relief. In a rare post-budget step, benchmark indices grew almost 5 percent higher with the understanding that the government preferred to extend borrowing rather than taxing super-rich and high-income individuals to boost spending in order to stimulate inflation.
On Monday, after the FM proposed to privatise two private banks without identifying the public lenders, the rally in PSU bank stocks was nothing short of spectacular. With SBI Bank earning 10.9 percent, Bank of Baroda up 8.9 percent, Canara Bank 8 percent, Bank of India 7.6 percent, Indian Bank 7.4 percent, and PNB 7.2 percent, the NSE PSU Bank index spiked 7.8 percent. Banks in the public sector will be recapitalized in FY22 at Rs 20,000 crore.
The government was also praised for accountability on the fiscal deficit front, which in the pandemic-hit financial year 2020-21 (FY21) the FM sees as ballooning to 9.5 percent of GDP and expects the same to fall to 6.8 percent in the coming FY22. Though gross investment is seen at Rs 34.5 lakh crore, FM Sitharaman said the capital expenditure in FY21 is projected to be Rs 4.39 lakh crore.
As the pandemic laid bare India’s gross neglect of its last-mile public healthcare delivery system, the FM rose to the occasion by giving a 137% flip to public spending on healthcare. FM announced Rs 2,23,846 crore outlay for health and wellbeing in Budgetary Estimate (BE) 2021-22 as against Rs 94,452 crore in BE 2020-21. Out of this, Rs 35,000 crore was allocated for COVID-19 vaccination drive in BE 2021-22. The FM also proposed Rs 64,180 crore outlay over 6 years for PM AatmaNirbhar Swasth Bharat Yojana – a new centrally sponsored scheme to be launched. The FM also made an outlay of Rs 2,217 crore to tackle air pollution, for 42 urban centres with a million-plus population.
The FM introduced the ‘Voluntary vehicle scrapping policy to phase out old and unfit vehicles after fitness tests for private vehicles after 20 years and commercial vehicles after 15 years, meeting a long-standing demand of the automotive industry, which also aims to take old polluting vehicles off the Indian roads. Import duty on some car parts, however, has been raised to a general rate of 15 percent
Senior citizens above the age of 75 years whose only income source is pension and interest income are now exempt from filing income tax returns.
The real estate sector was given a boost with a focus on affordable housing as the FM extended the benefit of additional Rs 1.5 lakh tax deduction on home loan interest, until March 31, 2022. It will act as a further impetus to the residential property sector.
To fund the ambitious Rs 111 lakh crore national infrastructure pipeline, the government will also build a Rs 20,000 crore Development Finance Institution (DFI). In her Budget 2021 address, FM Sitharaman said a professionally run DFI will allow and catalyze financing for infrastructure. In order to provide a lending portfolio, the FM suggested Rs 20,000 crore to capitalize the institution.
In the backdrop of a raging farmer protest, FM also raised farm credit target to Rs 16.5 lakh crore from Rs 15 lakh crore in FY21.
Refrigerators, air conditioners, LED lights and cell phones would become more costly due to higher customs duties on imported parts. Owing to a rise in raw material prices, this does not bode well for producers in the segment. Gold and silver, however, would become cheaper as FM lowers import duty from 12.5 percent on precious metals to 7.5 percent.
