Central The Budget 2021-22 presented in Parliament by Finance Minister Nirmala Sitharamana is historic as it gives a new vision and roadmap to take physical and financial infrastructure to greater heights. We can also call it ‘Infrastructure Budget’. Expanding the role of the central government, Rs 5.54 lakh crore will be made available in the budget proposals by an increase of 34.5 per cent compared to the capital expenditure of 2020-2021. This will give impetus to increase demand.
Self-reliant India’s cause has been given prominence
Budget announcements aim to give greater prominence to AtamNirbhar Bharat, including doubling farmers’ income, strong infrastructure, healthy India, good governance, opportunities for youth, education for all , Women empowerment, and inclusive development. In recent times, due to the spread of Coronavirus Pandemic and the impact on a large number of people, full attention has been paid to the health sector. In this connection, the Prime Minister’s Self-Reliant Healthy India Scheme has been launched. Good News! NPAs of banks reduced to Rs. 10.36 crore in 2018, know how much is left
Attention has been given to the issue of infrastructure financing.
The central government has mobilized resources for the construction of infrastructure such as roads under the Bharatmala Project, National Rail Scheme for India -2030, Metro Rail in Tier-1 and Tier-2 cities and operational management of major ports on PPP basis. Attention has been given to the viability of distribution companies, which they also need. Issues related to infrastructure financing have also been given due attention. The way for foreign participation has been opened through loan components, assets monetization, and invites and REITs. In order to provide funds in terms of infrastructure, it is proposed to issue ‘Zero Coupon Bonds’ issued by the notified IDF in the direction of Tax Benefits.
34% increase in capital expenditure
For the financing of infrastructure, a step has been taken to form a National Development Financial Institution to overcome the problem of debt. Along with giving more importance to infrastructure, Rs 5.54 lakh crore will be made available in the budget proposals by an increase of 34.5 per cent compared to the capital expenditure of 2020-2021. In terms of financial infrastructure, the proposal of the Securities Markets Code is a good move, replacing the many functions that govern the segments of the financial market.
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NPA to be consolidated through ARC-AMC
The role of equity capital in the financial sector has been recognized in the budget. According to this, the FDI limit in insurance companies has been increased from 49 percent to 74 percent tax (FDI Limit Increased). There will be a capital infusion of Rs 20,000 crore in public sector banks (PSBs). Asset Reconstruction Company Limited (ARC) and Asset Management Company (AMC) will be set up to consolidate existing stressed debts (NPAs). Also, this will prevent capital loss in future. These steps will ensure healthy competition, fair prices and cash collection.
Rating agencies will also like some steps
The fiscal deficit is projected to be 6.8 per cent of GDP in FY 2021-2022, under the assumption of 14.4 per cent growth in the country’s GDP. The gross borrowing from the market for the next year will be around Rs 12 lakh crore. In principle, the budget has rationalized off-balance sheet borrowings and fiscal deficits, which the market and rating agencies will also like. The tax has been retained at an earlier level with spending announcements in the budget. This situation will definitely affect the sentiments of the market.
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The path of balanced demand promotion seen in the budget
The fiscal deficit level is projected to reach below 4.5 per cent of gross domestic product (GDP) by the fiscal year 2025-2026. Measures such as better compliance and demonetisation of government property will increase tax revenue. This includes public sector undertakings (PSUs), land and strategic disinvestment. Overall, it can be said that given the backdrop of the corona virus epidemic, Budget 2021-22 has found a balanced demand stimulus path to improve the output gap.
(Disclaimer: The author Dinesh Kumar Khara is the chairman of the country’s largest government lender State Bank of India. The articles are his personal views.)