Budget 2021  – Opportunity to put economy on growth track missed

Budget 2021  – Opportunity to put economy on growth track missed

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Though the Budget accorded importance to a number of long-term positives, which would improve our capabilities on a number of fronts, short concerns on the growth front were completely ignored. These include measures on harnessing solar power, mitigating water distress, developing logistics to support agriculture and industry, extend the ambit of Ayushman Bharat health insurance scheme, boost export credit disbursement via NIRVIK scheme, enhanced interest subsidy for short term credit to farmers, among others

The Finance Minister, Nirmala Sitharaman presented her second and decade’s first budget on Saturday amid high expectations from the Government to tackle the ongoing growth stress. However, the FM opted to relegate immediate growth concerns to the background, with little focus on lifting stresses, the immediate reaction to which was evident in 1,000 points fall in BSE Sensex. In a nutshell, the Budget 2020 somehow missed the opportunity to give any counter cyclical measures to revive consumption and boost the ailing economy.

While dispensations for sectors like agriculture, infrastructure, rural development, etc. were modestly increased, some gains from income tax rate rationalization could benefit consumption on the margin.

Though the Budget accorded importance to a number of long-term positives, which would improve our capabilities on a number of fronts, short concerns on the growth front were completely ignored. These include measures on harnessing solar power, mitigating water distress, developing logistics to support agriculture and industry, extend the ambit of Ayushman Bharat health insurance scheme, boost export credit disbursement via NIRVIK scheme, enhanced interest subsidy for short term credit to farmers, among others. The setting up of the Investment Clearance Cell is also a key positive as it will help to improve our “ease of doing business” by providing a common platform for addressing all issues regarding investment. The focus on digitization to facilitate governance was underscored in this Budget as well, with a substantial increase in outlay for the IT and telecom sector.

However, the Budget was a disappointment because not much of other boost to near term growth was provided, which is the need of the hour. Specifically, stresses for real estate, construction and manufacturing sectors were not addressed meaningfully, since this could have been an opportunity to provide an impetus to short-term growth.

Real estate sector ignored again

In case of real estate, the Budget provides a disincentive through withdrawal of IT deductions for individual tax payer.

While the FM has extended the date for availing the deduction of Rs 1,50,000 on loan taken to purchase an affordable house, announced in last budget, by one more year she has also tried to lure the tax payers not to avail any deductions provided in the Act by opting for lower income tax rate. Thus, the benefit of Rs 2 lakh interest deduction under section 80EEA & Rs 1.5 lakh principal deduction under Sec 80 C can be no longer availed under new regime. Also, the benefit of tax reductions on HRA will end. This will have some impact on already beleaguered HFCs & Real Estate companies. Also, the FM has not heeded to the industry request to enhance the threshold limit of affordable houses from the current level of Rs 45 lakhs to Rs 75 lakhs. As a result, almost all the houses in the Mumbai region and most of the houses in NCR and other metros will continue to remain outside the purview of affordable housing tag.

On the other hand, in order to promote the affordable housing projects the FM has proposed to extend the date of approval of affordable housing projects for availing this tax holiday by one more year. As per the earlier rule the project should have been approved by 31st March 2020 to avail the benefit. Apart from this extension, there is hardly anything for the real estate sector which is crying for help to come out of the slowdown.

Proposed new policy may give boost to data centres

According to Nirmal Sitharaman, the government is planning to bring out soon a policy to enable private sector to build Data Centre parks throughout the country.  This will enable the firms (mainly in private sector) to skilfully incorporate data in every step of their value chains. “It is now a cliché – “data is the new oil” and it is true that Analytics, Fintech and Internet of Things (IOT) are changing the way we deal with our live,” the FM said in her budget speech.

Most of the PSU banks have already announced their intentions to set up data centres. A favourable policy may provide architects a new professional avenue in designing in the coming years.

Five new smart cities planned

The government in its latest Budget has proposed to develop five new smart cities in collaboration with States in PPP (Public Private Partnership) mode.  The government has not yet identified the location for these smart cities and it has said that sites would be chosen that offer the best choices in terms of maximising the benefits of three separately developing economic activities. These 3 new activities are:  (1) the upcoming economic corridors; (2) revitalisation of manufacturing activities; and (3) Technology and the demands of aspirational classes.

Good news for heritage conservationists

The government has decided to set up Indian Institute of Heritage and Conservation under Ministry of Culture which will have the status of a deemed University to start with. An announcement to this effect was made in the latest budget by the Finance Minister, Nirmala Sitharaman. This will help Acquisition of knowledge in disciplines such as museology and archaeology as the country is currently facing lack of trained man-power in both these fields.

Hike in customs Duty

The Budget has also increased Customs duty on certain items to promote ‘Make in India’ programme and protect local industries. Some of the items on which duty has been hiked are:

CategorySpecific itemsRate of duty
FromTo
Household goods and appliancesTableware and kitchenware of porcelain or china, ceramic, clay, iron, steel, copper and aluminium, glassware, padlocks, brooms, hand-sieves, combs, vacuum flasks, etc.10%20%
Electrical AppliancesFans, food grinders/mixers, shavers and hair removing appliances, water heaters, hair/hand drying apparatus, ovens, cookers, toasters, coffee/ tea makers, insect repellents, heaters, irons, etc.10%20%
Furniture GoodsSeats, articles of bedding including mattresses, lamps, lighting, illuminated signs, and other articles of furniture20%25%
MachineryCompressors of refrigerators and air conditioners10%12.5%
Other miscellaneous itemsa. Glass beads b. Artificial flowers c. Bells, gongs, statuettes, trophies and like, statuettes, ornaments, photograph, frames, mirrors etc. of base metal.10%20%

 

On the whole, the FM seems to have picked up wrong priorities while announcing the Budget thus giving a wrong signal that the government doesn’t share growth concerns which is affecting the industry and the common man alike. Not that the FM can never correct the path adopted but she missed a golden opportunity.