Budget 2021: Towards an inclusive economic recovery
15 February 2021
While there is an expansion in fiscal deficit in the near term, the Budget does well to outline a path to fiscal consolidation once normalcy in economic activity is restored.
Budget 2021 is designed to give an impetus to the Covid-19-hit economy. The proposals rest and revolve around six key pillars, all of which are prudent and progressive. Stability on the tax regime and continuity of the tax policy incentive regime for targeted sectors, clarifications to eliminate inconsistencies, and removal of ambiguities are welcome measures.
Along with a higher allocation to healthcare, enhanced FDI for the insurance sector will attract foreign capital that is needed for growth and increased penetration. The mega textile parks and fishing hubs will create investment and employment opportunities and make the sector more competitive on a global scale. A continued thrust on roads and highway development, rural infrastructure, privatisation of airports and ports, and outlays to augment urban infrastructure such as metro networks and public buses will ensure that the quality of expenditure is on creating capital that has a larger and more sustainable multiplier on economic growth. The outlay for the agriculture and MSME sectors will boost the backbone sectors for the Indian economy and job creation.
Consolidation of security laws under a single code, simplified regime for small companies and one-person companies, stronger NCLT framework, and the creation of a national research foundation will further ease doing business. Decriminalisation of offences under the LLP Act on the lines of the Companies Act facilitates the creation of a business-friendly environment.
The fine print has several rationalisation provisions on income-tax and indirect taxes, noteworthy being high tax audit limits for select taxpayers, e-tax tribunal creation, the time limit to reopen assessment limited to three years and tax holidays for startups, along with measures for tax-neutral restructuring of public sector enterprises to unlock value and facilitate divestment.
The government will shore up its resources to meet the Budget outlays by pursuing a strategic divestment in a timebound and structured manner without crowing out the market. Revenue is also planned through an asset monetisation pipeline for railways, public sector warehousing, and pipeline infrastructure assets. While there is an expansion in fiscal deficit in the near term, the Budget does well to outline a path to fiscal consolidation once normalcy in economic activity is restored. Thus, given the present time, this is a utilitarian approach to build on the recovery sentiment and accelerate an inclusive economic growth for Bharat.
Views are personal. The author is Partner-Transaction Tax, BDO India.