Budget 2021: Seeking Growth

BUDGET 2021: SEEKING GROWTH. FM ON SPENDING MODE.

India’s GDP fell from USD 2.86 Trillion in 2019 to USD 2.59 in 2020. This was due to the double whammy of Corona Lockdown and Lockdown led low revenue inflows. FM now had a real task at hand this time to bring the butchered economy back on track and go rolling.

In a Nutshell: Budget 2021 outlays a massive spending program that will be backed by domestic and international borrowing. Contrary to popular belief, High Debt levels can be sustained if it helps in attaining high growth levels. This was much needed if indeed India has to become ATMANIRBHAR and squeeze china as a global manufacturing hub.

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For Better understanding:

Fiscal Deficit: Broadly difference between all govt. revenue receipts + Tax+ Other income (dividends, divestments, etc) and Govt. expenditure. It is always expressed as a percent of overall GDP. For Example, A fiscal deficit of 5% means, 5% of Current GDP ($2.59 Trillion) i.e $129 Billion).

Revenue Deficit: Excess revenue expenditure over revenue receipts.

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Key Aspects:

  • The original fiscal deficit target for 2020-21 was 3.5%. However, in reality, the deficit shot up to a high of 9.5% of GDP.
  • In 2021-22, the government proposes to spend a total of ₹34.83 lakh crore, higher than the budget estimate of ₹30.42 lakh crore in the previous year, as well as the actual expenditure of ₹34.5 lakh crore. The coming year’s spending plan includes ₹5.54 lakh crore as capital expenditure, an increase of 34.5% over the current year’s budget estimates.
  • DEFENCE BUDGET: Increased to 4.78 lakh cr for FY21-22 which includes capital expenditure worth Rs 1.35 lakh crore. It is a nearly 19% increase in Defence capital expenditure. This is the highest ever increase in capital outlay for defense in 15yrs

 Impact Areas: Stressed Asset Resolution

  • Asset Reconstruction Company and Asset Management Company to be set up. This will help banks cleanse up their Toxic Assets.
  • Recapitalization of PSBs: 20,000 crores in 2021-22 to further consolidate the financial capacity of PSBs.
  • Innovation and R&D: 50,000 crores, outlay over 5 years. Though minuscule when compared with other developed economies. Take this: Samsung Electronics spent USD 14.3 Billion or Rs 105,000 Crore in the first 9 months of 2020. India needs to become the den of innovation to become a superpower.
  • Increase in FDI limits in the insurance sector from 49% to 74%.

Common Man:  Just a few.

  • Salaried people are disappointed with no change in tax rates nor any benefits provided to them.
  • Senior Citizens who are 75 years and above are exempted from filing income tax returns if they have only pension income and interest income.
  • If banks fail/go bankrupt, there would be a fast release of Rs 5 Lakh deposit insurance per bank and per account.
  • Interest on provident fund contributions above Rs 2.5 Lakhs a year would be taxed at normal rates. This is applicable only for the employee share of the provident fund. This would hit HNI or high-income earners.
  • Income tax exemption u/s 10 (10d) for premiums paid for more than Rs 2.5 Lakhs per year under ULIP is removed now.

Further Higher Govt. spending shall spur economic activities, which should lead to higher inflation and firming interest rates.

Desperate Times Call for Desperate Measures, such massive moves would not have been undertaken unless the economy was shaken up by this Black swan event. Three decades back in 1991, when India was on the verge of Bankruptcy, then FM (Shri Manmohan Singh) made bold moves to pull India out of a worst-ever economic crisis and reshaped it into a Global Power.

Download the PDF – Budget 2021_SNMA

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