Another year and another budget! On February 1, Finance Minister Nirmala Sitharaman presented the budget for the Union Government of India, her third budget presentation or let’s say three and a half, as the COVID-19 relief package which spread over five press conferences, should be counted as one half.
Thankfully, this year’s budget speech wasn’t another record-breaking 150-minute speech, as the finance minister wrapped up her speech in 110 minutes, her fastest presentation amongst the three and a half! There’s a decline over there, just like the GDP, growth rate, fiscal deficit and any other statistical number, except for imports which have improved, thanks to the Chinese Government. It was heartful to listen to Nirmala Sitharaman when she mentioned the Great Gabba saga (Cricket), quote from ‘Thirukkural’ as every year, and a ‘Pranaam’ to Senior Citizens before speaking on income tax amendments! Besides, the Finance Minister also reminded us about all the states where legislative assembly elections are to be held this year by announcing highway projects for each such states. There were enough statistics and content in the budget to gain the attention of the protesting farmers, however, it seemed the business end of the budget proposals was restricted to the rich business houses. However, as fellow citizens, we can ignore the above stuff and look at the budget with an analytical mind, to extract how we can benefit ourselves and our businesses.
Government Receipts and Payments
This time expectations surrounding the budget were high, following the pandemic and the dire state of the economy, however, no major announcements were made, apart from the routine ones. To the surprise of many, there were no changes in the income tax rates, although most experts believe enough changes have been already made in the previous budget.
No new mechanisms of raising additional taxes were introduced, as Government is already sitting on top of GST ITC rules amended several times over last few years to make sure it suits the Government and TDS/TCS on sale or purchase of goods which is hinting towards a new era of collecting direct taxes (jump to tax amendment paragraph for details). Thus, the money required for running the Government projects is being generated elsewhere which didn’t require much digging! Presenting ‘Asset monetisation and disinvestment’ – sell the public assets and use the proceeds. We have some stalwarts on sale this year which includes company’s shares or assets of LIC India, Air India, GAIL, BPCL, Pawan Hans, PGCIL, IOC, HPCL, SCI, CCI, BEML, NINL, IDBI, Airports, Ports, Roads, Railway assets, Warehouses, and even Sports Stadiums!
These are all public assets which were created by funds collected from the taxpayers’ money and once upon a time, there was a huge debacle on selling these assets, however, today being sold off, with pride. As many experts highlight, usually when such assets are sold, the proceeds are used for specific purpose, let’s say building another new asset. However, there were no such announcements in the budget speech and we will probably have to wait and watch.
Looking at the budget statements, it’s great to see that the allocation for health and public welfare has been doubled and the Government plans to develop primary, secondary and tertiary healthcare centres – this was long due and it seems pandemic made it possible. Happy to see 35,000 crore allocation for Covid-19 vaccine which means the vaccine may be free, or at least subsidized and therefore, people can freely cast their votes in elections, without worrying about who will pay for the vaccine. Interestingly, this is probably the first time when Defence didn’t get even a mention in their budget speech. This is new for India, as the budget allocations have remained same as prior year without any addition. While it’s a great news to hear according to few, as India is taking a step back from global defence and weapons race, there are others who believe that India has diverted its focus from the enemies on the borders.
The Government has also announced new projects and extension of old projects such as Swastha Bharat scheme, Mission Poshan 2.0, Jaljeevan mission, Urban Swacch Bharat Mission, and few others which are all flagship programmes of the Government and a commendable effort towards improving basic facilities for the citizens. The hydrogen energy mission, vehicle scrapping policy and deep ocean mission are all good steps towards preserving environment. The schemes on the education front seems weak while the allocations have remained same. It’s saddening how the most important aspect of the nation doesn’t get enough allocation in the budget every year – this is just another similar year.
A striking feature of all announcements is that the outlay has been mentioned for 3-5 years duration and not next one year. Thus, while projects may seem huge and great projects, we will have to see how they are implemented and when they get completed. This is because when one goes through the financial statements of the Government, there’s a huge budget estimate of INR 4,39,856 crore for Economic services in 2021. However, as per revised estimates, based on 10 months activity, the expenditure shall be INR 2,41,946 crore. There’s a difference of 1,97,000 crores here and while the pandemic may have affected the development projects, the difference in ‘announcing’ and ‘spending’ is huge which we must note as a lesson for future announcements.
Aatma Nirbhar Bharat
The Finance Minister termed the Budget as ‘Aatma Nirbhar Bharat ka Budget’ – the continued focus of the Government on the making India ‘Self-Reliant’. The terminology is great and the vision too, however, there aren’t any creative proposals to support the same. Of course, the Government has increased the customs duty on almost everything and has banned anything that remotely appears Chinese, the steps don’t seem enough compared to the vision projected. Even after 70 years of Republic India, we still do not have the capacity to manufacture major technological parts and equipment and surely for another 10 years, as this is not a one day work. This budget doesn’t make any announcement in that direction but only makes import expensive.
Most of the Government’s actions such as legislative changes, sanitation missions, projects and schemes, initiatives such as ‘Make in India’ are towards the betterment of the current citizens and not the future country. We don’t see any new LIC or BCPL in making, because the Government isn’t working towards it. In the choice between building an asset for future and expending it on current living, the Government has mostly chosen the latter and therefore, the vision of Aatma Nirbhar Bharat attracts many, the policies under it, as on date, don’t seem to attract a progressive future.
Most of the current Government’s policies are aimed at playing the role of a service provider to the citizens and not the leader of the economy who leads by example. When Government leads, the private players join the party in the same direction, as the Government spends huge money with no expectations of profits, thus, the private players have a lot of opportunities to grab. However, on the other hand, when Government doesn’t take the initiative, private players (the big players) move freely in direction of their choice, and the country becomes profit-oriented, not goal-oriented – take the news media companies, as an example that doesn’t need to be elaborated.
However, this year’s budget showcases a diversion from the Government’s policy so far – there’s a sharp increase in the capital expenditure this year. From 4.39 lakh crore in previous year’s budget, Government is now planning to spend 5.54 lakh crore on capital expenditure – 34.5% more than last year. This means more Government expenditure, more money in the economy, more job opportunities and better everything. The announcements concerning capital expenditure is impressive. However, to wait and celebrate tomorrow when implemented is a better preference than celebrating today while planning. Amongst noteworthy infrastructure developments this year, Government has launched MITRA for textiles industry whereby 7 mega textile parks are to be made. Production linked incentives (PLI) scheme have received huge allocations and domestic manufacturers would be eyeing on the release of details of the scheme. Bharatmala Pariyojana for road network development and Metro infrastructure on a low-cost model are also being extended while Government has shown interest in developing Public Bus Transportation in cities under PPP model.
Legal and tax reforms
There aren’t too many changes on the front desk, however, there are a lot of changes on the back doors. All kinds of assessments are now going faceless and online, Income Tax Appellate Tribunal being the latest addition. Similarly, National Company Law Tribunal is also going to be revamped as e-Courts. To the surprise of many, the timings for all assessment proceedings are now being reduced. Government is leveraging technology and therefore, the tax and compliance departments are going to become efficient. We have seen GST common portal, a similar Customs Common Portal is on the way and so is MCA21 Version 3. The striking commonality in all these announcements is that the Government is now going to use Artificial Intelligence, Machine Based Learning, Data Analytics, Deep Data Analytics and a lot of other new technology jargon. Is this seriously happening?
As a professional from legal and tax world, we find it hard to believe. While the aforementioned technologies may be implemented by the Government, as it has allocated 1,500 crores for digital initiatives, it’s hard to believe that the technology can trace evaders and highlight each one of them – the Government is going to ambitious on the technology-based compliance system. As of now, it feels new kinds of troubles are heading towards taxpayers, including honest taxpayers because data analytics won’t always give the right results, especially when the tax laws in India are not straightforward. We are already facing issues in a comparatively simpler and new law like Goods and Services Tax, it’s uncertain how Customs, Company Affairs and especially Income Tax is going to fit on e-portals. We are officially stepping into a big grey area, and expect quick and frequent changes in laws as we experienced (and still experiencing) under GST laws.
In company law, Government has paved the way for everyone to switch to limited liability corporations, the focus seems to be on MSMEs when we put all amendments in income tax and corporates laws over past few years together. As of now, we are not seeing a huge spur in the number of companies, however, let’s see what more the Government would do to lure MSMEs into the corporate structure.
In the financial world, firstly, there’s consolidation – of securities market laws like the labour laws and education policy, and then of the debts of the bank into a bad bank i.e. reconstruction company – did you see how happy the banking stocks were after the budget? SEBI is being appointed as the Gold Exchange Regulator and we will see a lot on this front in the year ahead. The Government will now be distributing property cards to all property owners across the country and the progress of this initiative is important for the country to become fully digital.
Budgets are estimates through which Governments announce the direction they are heading to. However, as happens with all living beings, things don’t always go as per plans. There are economic changes, political changes, global political events, environmental changes, rumours and even pandemics these days – enough natural, man-made and beyond control things that can affect this budget. It’s important to monitor the progress, for the Government as well as for the citizens.
There’s too little to conclude and too much, to begin with. The editors’ note ends here and budget analysis begins with. Spot the details and highlight the areas that affect your business – there’s a lot to read between the lines here and to strategize your business accordingly.