Budget 2021 explained: Finance Minister Nirmala Sitharaman proposed many new measures in the Budget 2021 to prop up the flagging economy amid the Covid-19 pandemic and boost spending across sectors.
Finance Minister Nirmala Sitharaman proposed many new measures in the Budget 2021 to prop up the flagging economy amid the Covid-19 pandemic and boost spending across sectors. Here is what the top proposals entail.
Production-linked incentive (PLI) scheme push
The government aims to spend Rs 1.97 lakh crore on various PLI schemes over the next five years, starting this fiscal. This is in addition to the Rs 40,951 crore announced for the PLI for electronic manufacturing schemes.
Why the move: It is likely to attract global players in the Indian manufacturing sector as the government is planning to offer plug-and-play infrastructure to the companies willing to come to India.
The government has announced a new central healthcare scheme to strengthen the country’s healthcare infrastructure over the next six years. The Pradhan Mantri Atma Nirbhar Swasthya Bharat Yojana, which will operate in addition to the existing National Health Mission, has been allocated around Rs 64,180 crore.
Why the move: This scheme is expected to be used to develop capacities of primary, secondary and tertiary healthcare systems as well as existing national institutions over a period of six years, according to Sitharaman.
In addition to this, it would be used towards creating new institutions to cater to the detection and cure of new and emerging diseases. During her budget speech, the minister said that investment on health in this budget has increased “substantially”, with a focus on strengthening preventive care, curative and well-being of the population.https://www.youtube.com/embed/Q9wNIyLdZLo
The government has decided to create a framework to give consumers alternatives to choose from more than one power distribution company.
Why the move: It is aimed at offering competition at operator level and more choice to consumers. Targets better efficiency levels in the distribution sector
Divestment push and Bad bank proposal
Strategic disinvestment of companies, including BPCL, Air India, Pawan Hans, IDBI Bank, Container Corporation of India, to be completed in 2021-22. Government to ask Niti Aayog to start working on identifying the next list of companies for strategic sale.
Announcing its version of the bad bank proposal, the government will set up an Asset Reconstruction and Management Company for Stressed Assets to take over bad loans. Alongside, a Rs 20,000-crore equity infusion has been announced for public sector banks.
The FM said it 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.📣 JOIN NOW 📣: The Express Explained Telegram ChannelFinance Minister Nirmala Sitharaman with MoS for Finance Anurag Thakur leaves the Finance Ministry for the Parliament to announce the 2021-22 Union Budget in New Delhi
Why the move: These measures are expected to strengthen the state-owned banks and hasten the process of clean up of their balance sheet. The divestments will help raise revenue for the government and is expected to improve efficiency and provide momentum to privatisation.
It’s more about the principle of separating the good from the bad. It’s about not wasting more good money on bad assets. Former RBI Deputy Governor Viral Acharya has in the past stressed on the need to separate the ‘good’ from the ‘bad’, and to set up a bad bank.
The government has been toying for far too long with the idea of a National Asset Reconstruction Company that can hold the bad assets of all state-owned banks. The proposal has gone around in circles between the Finance Ministry, the Niti Aayog and the Prime Minister’s Office. Spooked by Opposition politics earlier, Modi had shied away from being labelled as being pro-corporate. This proposal marks a departure. After almost 70 months since being in power, the BJP-led government has finally taken a call on setting up a Big Bad Bank. Finance Minister Nirmala Sitharaman has announced a new asset reconstruction company and an asset management company to take care of the bad assets of banks, and equip the banks to lend to productive sectors as the economy starts recovering.
Why it requires Govt involvement: There are many mechanisms to proceed with how to realise value from the NARC. Though India has over a dozen private ARCs, no state-owned banker in the current environment will be courageous enough to sell his bad assets to these at a discount, for fear of prosecution by state investigative agencies at a later date. And private ARCs will ask for a massive haircut from banks. It’s here that a national ARC can inspire confidence amongst banks.People in Kolkata watching the Budget presentation
FDI limit hiked in insurance
The Finance Minister announced to hike the FDI limit in Insurance from 49% to 74%. She, however, said that majority directors on board and Key management personnels will be Indians.
Why the move: The move will help increase capital inflow in insurance companies and enhance their expansion and growth.
Development Financial Institution reborn
Given that there is a lack of finance for infrastructure and long gestation projects, Finance Minister Nirmala Sitharaman has announced the setting up of a Development Financial Institution (DFI). The DFI will have statutory backing and Rs 27,000 crore capital.
To differentiate it from DFIs that existed in the past, she said the DFI will be professionally managed.
What will be its focus?
The proposed DFI will be used to finance both social and economic infrastructure projects identified under the National Infrastructure Pipeline (NIP), according to finance ministry sources.
The government has introduced the scrapping policy to remove unfit vehicles on a voluntary basis. All private vehicles beyond 20 years and commercial vehicles older than 15 years old will have to undergo a fitness test.
Why the move: The proposal is expected to offer a boost to the auto sector, both for commercial and private vehicles. Auto shares surged after the announcement.FM Nirmala Sitharaman and President Kovind (Image: Twitter/@Rashtapatibhvn)
Bad debt resolution
The government 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.
Why the move: 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 fiscal are likely to be taken to insolvency by their creditors. The separate framework may help MSME owners avoid losing their company while continuing to pay the debt.
The government has announced an independent gas transport system operator for booking and coordination to ensure for unbiased allocation of natural gas transportation capacity.
Why the move: The government aims to address concerns of bias in the allocation of gas transportation capacity by players such as GAIL involved in both the supply and transportation of natural gas.
The government has announced the extension of benefits of the Ujjawala scheme to an additional 1 crore people.
Why the move: 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 cheap cooking fuel.