“I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.”
– Maya Angelou
The above quote by Angelou captures the essence of Prime Minister Narendra Modi’s inspirational leadership, underpinned by compassion and empathy, more so at a time when the world is just about crawling back to normalcy in the aftermath of the worst global pandemic in over 102 years. India under PM Modi has become the fastest nation in the world to vaccinate citizens—over 6 million beneficiaries country-wide in just 24 days. In comparison, the US has taken 26 days to reach this mark, whereas the UK achieved this in 46 days.
The historic Union Budget for the financial year 2021-22 has Modi’s ambitious and visionary stamp all over it. The Modi government loosened the exchequer’s purse strings and presented a Budget focused on growth, growth and more growth, driven by spending, spending and more spending! The decision to reduce the fiscal deficit from an estimated 9.5% of the GDP in FY21 to 6.8% in FY22, without ostensibly raising the tax burden on the tax-paying class, reflects the Modi government’s people-centric approach in managing government finances, despite running a very tight ship. Setting aside Rs 35,000 crore for the Covid vaccination program, with the overall Budget outlay for ‘Health and Well Being’ at a healthy Rs 2.23 lakh crore, marked a solid 137% rise in FY22, from FY21, endorsing the government’s philosophy that, indeed, “health is wealth”. The Pradhan Mantri Atmanirbhar Swasth Bharat Yojana, which will operate in addition to the existing National Health Mission, has been allocated a healthy sun of Rs 64,180 crore as well.
Moreover, the foreign direct investment limit in the insurance sector has been raised from 49% to 74%, showcasing how pushing ahead with structural reforms continues unhindered on the Modi government’s agenda. A new development finance institution (DFI) is being set up to fund infrastructure projects under the National Infrastructure Pipeline (NIP), while an asset reconstruction firm or ‘bad bank’ will be tasked with taking over bad loans in public sector banks, to cope with rising non-performing assets (NPAs). Rs 20,000 crore have been earmarked for the recapitalisation of banks. Proposing a capital expenditure of Rs 5.54 lakh crore in FY22, which is 34.5% higher than in FY21, the government has targeted a fiscal deficit of 6.8% of the GDP in FY22, with gross market borrowings of Rs 12 lakh crore in 2021-22. Coming to the other top proposals of Budget 2021, the Modi government also aims to spend Rs 1.97 lakh crore on various production linked incentive (PLI) schemes over the next five years, in addition to the Rs 40,951 crore announced for the PLI scheme for electronic manufacturing last year.
The Budget’s fiscal arithmetic is fully transparent with hardly any unaccounted and off balance sheet items, making it the most credible one in recent years, based on a realistic disinvestment target of Rs 1.75 lakh crore and a reasonable rise in non-tax revenue receipts. The government plans to continue with its path of fiscal consolidation and intends to reach a fiscal deficit level below 4.5% of GDP by 2025-2026, with a fairly steady decline over this period.
The allocation of Rs Rs 2.24 lakh crore for health, Rs 1.18 lakh crore for road infrastructure, Rs 1.10 lakh crore for railways and an outlay of Rs 3.6 lakh crore for the power sector are among the defining highlights.
Exemption from income tax filing for those over 75 years of age and have only pension and interest income is a big relief for senior citizens. Reopening tax assessment will happen only for three years, against the earlier limit of six years, which is a very forward-looking step, from the tax terrorism that was witnessed during the erstwhile inept Congress-led dispensation. For the reopening of serious tax evasion cases up to 10 years, the government has put in a monetary limit of cases involving over Rs 50 lakh in a year. This is expected to reduce instances of tax harassment of honest income tax payers.
The government is betting on the fiscal multiplier effect of infrastructure projects, estimated at x2.5, to achieve its objectives of driving consumption and investment-led growth, via selling surplus land and non-core assets, aimed at accelerating resource mobilisation.
The government’s focus on rural India also continues with an agricultural credit outlay of a massive amount of Rs 16.5 lakh crore, enhanced allocation to the Rural Infrastructure Development Fund (RIDF), from Rs 30,000 crore to Rs 40,000 crore, and doubling of the outlay under Micro Irrigation Fund, from Rs 5,000 crore to Rs 10,000 crore. Further, the scope of the Operation Green Scheme, presently applicable to tomatoes, onions and potatoes (TOP), has been enlarged to include 22 more perishable products.
A few years back, it had been difficult to imagine a Digital India, Start-up India or Aatmanirbhar Bharat, but Prime Minister Narendra Modi’s courage of conviction and excellent execution skills have made these a proud reality. Keeping the middle class at the forefront of its agenda, the Modi government has also decided to give a fillip to the buyers of affordable houses. Budget 2021 extended the time period of taking loans to buy affordable houses by one year, i.e., from March 31, 2021 to March 31, 2022, to avail additional tax benefits of Rs 1.5 lakh u/s 80-EEA of the Income Tax Act,1961. Section 80-EEA provides tax benefits up to Rs 1.5 lakh on the interest paid on loans taken for residential house property for affordable housing. The benefit is over and above the tax benefit of Rs 2 lakh available u/s 24(B) of the Income Tax Act, on the interest on housing loans on both self-occupied and rented properties. So, effectively, by buying an affordable house, a taxpayer may avail tax benefits up to Rs 3.5 lakh on the interest paid on home loans taken to buy such houses. The value of house property should not exceed Rs 45 lakh.
The Finance Minister also stated that the Jal Jeevan Mission (Urban) will be launched. It aims at universal water supply in all 4,378 urban local bodies, with 2.86 crore household tap connections as well as liquid waste management in 500 AMRUT cities. It will be implemented over five years, with an outlay of Rs 2.87 lakh crore.
A lesser discussed but extremely important measure is the decision to create a framework to give consumers alternatives to choose from when it comes to power distribution companies. In other words, just like how number portability exists with respect to telecom service providers, customers will now have the freedom to choose which power distribution company they wish to engage with. The government has allocated close to Rs 3.60 lakh crore in the Budget towards launching a “revamped”, reforms-based, result-linked power distribution sector scheme. This comes amidst “serious” concerns over the viability of power distribution companies (discoms) in the country. The scheme is expected to provide assistance to discoms for infrastructure creation, tied to financial improvements, including prepaid smart metering, feeder separation and upgradation of systems. The past six years have seen a “number” of reforms and achievements in the country’s power sector, including the addition of 139 GW of installed capacity, the connection of an additional 2.8 crore houses and addition of 1.41 lakh circuit kilometres of transmission lines. Discoms across the country are monopolies, whether government or private and there is a need to provide a choice to the consumer.The freedom to choose their distribution company will bring competition at the operator level and more choice to consumers. It will also lead to better efficiency levels within the power distribution sector.
The strategic disinvestment of companies, including BPCL, Air India, Pawan Hans, IDBI Bank and Container Corporation of India, to be completed in 2021-22, also showcases the Modi government’s determination to extract value and not only shore up revenues, but also to get out of businesses where it has no business being. Announcing its version of the “bad bank” proposal, the Modi government will set up a National Asset Reconstruction and Management Company (NARC) for stressed assets to take over bad loans. Alongside, a Rs 20,000-crore equity infusion has been announced for public sector banks (PSBs) to recapitalise the banking sector. The FM said that the government will take up strategic sale of two public sector banks and one general insurance company, along with completing the sale of BPCL, Concor, SCI, IDBI and BEML among others, in 2021-22. These measures are expected to strengthen state-owned banks and hasten the process of cleaning up their balance sheets. The divestments will also help raise revenues for the government and are expected to improve efficiency and provide momentum to privatisation.
The government also plans to further strengthen the NCLT framework and continue with the e-court system for faster resolution of bad debts. A separate framework for MSMEs will also be made by the government, besides doubling the allocation for MSMEs to Rs 15,700 crore. With the government-imposed moratorium on admission of new cases likely to end by March 31, a number of MSMEs, which have not been able to earn enough during the current fiscal year, are likely to be taken to insolvency by their creditors. The separate framework will therefore help MSME owners avoid losing their companies while continuing to pay their debts.
The decision to hike the FDI limit in insurance from 49% to 74% will help increase capital inflows in insurance companies and enhance their expansion and growth. However, the majority of directors on board and key management personnel will be Indians. Given that there is a lack of finance for infrastructure and long gestation projects, the announcement of setting up a professionally managed Development Financial Institution (DFI), with a statutory backing and initial capital of Rs 20,000 crore, is great news, as this DFI will have a loan portfolio of Rs 5 lakh crore going forward. The proposed DFI will be used to finance both social and economic infrastructure projects identified under the National Infrastructure Pipeline (NIP).
The government also introduced a scrapping policy to remove unfit vehicles on a voluntary basis. All private vehicles which have been in use for over 20 years and commercial vehicles older than 15 years old will have to undergo a fitness test. The vehicle scrapping proposal is expected to offer a boost to the auto sector, both for commercial and private vehicles.
A number of regulatory measures were announced as well. The government has announced an independent gas transport system operator for booking and coordination to ensure unbiased allocation of natural gas transportation capacity. The government aims to address concerns of bias in the allocation of gas transportation capacity by players such as GAIL, who are involved in both the supply and transportation of natural gas. Setting up of a National Hydrogen Mission to boost “Green Energy”, a Rs 1,000 crore allocation for solar power and an additional Rs 1,500 crore for renewable also endorse the Modi government’s commitment towards environment-friendly growth.
Budget 2021 has also announced the extension of benefits of the Ujjwala scheme to an additional 1 crore people in 100 more districts, underlining the government’s compassionate approach which cares for those who are still at the lower end of the income pyramid. The scheme, which provides LPG connections with financial assistance from the central government and currently benefits 12 crore households, will be extended further to provide clean and cheap cooking fuel.
A big benefit but relatively less discussed measure in Budget 2021 is the proposal to amend the definition of a “small company” under Section 2(85) of the CA, 2013. As per the new definition, a “small company” will mean a company that has paid-up share capital of not more than Rs 2 crore. Earlier, this paid-up capital was capped at Rs 50 lakh. The threshold of annual turnover has also been raised from Rs 2 crore to Rs 20 crore. This is a big move that will benefit over 2 lakh companies and incentivise companies to grow and expand, because small may not be necessarily beautiful.
Furthermore, the Budget allows NRIs to form a “One Person Company” (OPC). Earlier, only resident individual persons could start an OPC in India and NRIs were exempted from forming a “One Person Company”. However, they were allowed to become directors of an Indian company. This new proposal would undoubtedly benefit many NRIs.
The Modi government has also empowered MSMEs which account for over 30% of our GDP and over 40% of our exports, by sanctioning over 71% of its ambitious Rs 3 lakh crore Emergency Credit Line Guarantee Scheme (ECLGS) outlay. Under ECLGS, around 12 public sector banks, 23 private sector banks and 31 non-banking financial companies (NBFCs) sanctioned a loan amount of over Rs 2.14 lakh crore to 90.57 lakh borrowers, out of which Rs 1.66 lakh crore was disbursed to 42.47 lakh borrowers.
Launched on June 1, 2020, the SVANidhi scheme, which caters to poor people like hawkers and street vendors, received over 33.22 lakh applications, as of January 28, 2020, out of which more than 18.21 lakh applications, involving Rs 1,817 crore, were sanctioned. Out of the sanctioned applications, close to Rs 1,344 crore, for nearly 13.63 lakh applications, have been disbursed. This vindicates Prime Minister Narendra Modi’s clarion call for last mile delivery.
Significant changes in the area of corporate laws have also been proposed. Changes have been proposed to decriminalize the Limited Liability Act, 2008 (LLP Act), 2008 and the introduction of an updated version of the MCA has been announced too. The motive behind the same is to de-clog the courts or the NCLTs, thereby reducing their burden from non-serious matters. The Budget has also proposed to consolidate the provisions of the SEBI Act 1992, Depositories Act 1996, Securities Contracts (Regulation) Act 1956, and Government Securities Act, 2007 into a rationalized single Code to be termed as the Securities Market Code. The Finance Bill has also proposed to insert a new section, 8-G, in the Indian Stamp Act, 1899, with respect to stamp duty exemption in case of strategic sale, disinvestment, sale of an immovable property, demerger, asset transfers between government entities, etc.
Speaking of finances, the Modi government plans to borrow Rs 80,000 crore to fund the deficit in FY21. Gross market borrowings for the next year have been pegged at Rs 12 lakh crore. A new roadmap for fiscal consolidation has been announced in the Budget, with suitable amendments to be made to the FRBM Act. For every rupee in the government coffers, 53 paise will come from direct and indirect taxes, 36 paise from borrowings and other liabilities, 6 paise from non-tax revenue such as disinvestment and 5 paise from non-debt capital receipts. The goods and services tax (GST) will contribute 15 paise to every rupee of revenue, while corporate tax will contribute 13 paise to each rupee earned. The Modi government is also looking to earn 8 paise for every rupee from union excise duty and 3 paise from customs duty. Meanwhile income tax will make up for 14 paise in every rupee collected. On the expenditure side, the biggest outlay component is interest payments at 20 paise for every rupee, followed by the states’ share of taxes and duties at 16 paise. The allocation for defence stands at 8 paise per rupee, expenditure on Central sector schemes will be 14 paise, while the allocation for Centre-sponsored schemes will be 9 paise. The expenditure on the Finance Commission and other transfers is pegged at 10 paise. Subsidies and pension would account for 8 paise and 5 paise, respectively, in each rupee spent. The government will spend 10 paise in every rupee on other expenditures.
To cut to the chase, Budget 2021 is historic in more ways than one. This Budget proposes a significantly enhanced capital expenditure, at a massive amount of Rs 5.54 lakh crore, besides creating institutional structures and giving a big thrust to monetizing assets, to achieve the goals of the National Infrastructure Pipeline (NIP). The NIP, which was launched with 6,835 projects, has now been expanded to 7,400 projects and around 217 projects worth Rs 1.10 lakh crore have been completed. A focus on more growth through more spending, with inclusivity as its hallmark, is the defining paradigm of this Budget.
It would be apt to conclude by saying that, “If leadership is about inspiring others to dream more, learn more, do more and become more”, then Prime Minister Narendra Modi has set an extraordinary example that will be tough to replicate. A famous aphorism goes, “Leaders are made, they are not born”. In the case of PM Modi, his leadership is empathetic, bold, progressive and modern, as highlighted in Budget 2021, and combines the essence of everything that the greatest leaders valiantly stand for and unflinchingly live by.
The writer is an economist, national spokesperson for the BJP and the bestselling author of ‘Truth & Dare: The Modi Dynamic’. The views expressed are personal.