With covid pandemic in mind, Finance Minister Nirmala Sitharaman announced a plethora of allocations and tax incentives in the annual budget to expedite the economic recovery process. The Union Budget 2021-2022 definitely cheered investors and propelled the benchmark stock index (SENSEX) by 2,000 points, the largest in 10 months.
The budget made substantially higher allocations for agriculture and infrastructure as well as providing duty relief on inputs for steel-making and concessions for manufacturing, while keeping personal taxes unchanged.
The government also earmarked substantially higher funds to not only establish a better healthcare infrastructure in the country, but also improve nutritional content in food. It allocated as much as 640 billion rupees for the healthcare sector, while noting that India has witnessed one of the lowest death rates and active covid cases currently.
Finance Minister Sitharaman announced a total of 16.5 trillion rupees for the agriculture sector, out of which provisions for a rural infrastructure fund will be increased to 400 billion rupees from 300 billion rupees.
She was also at pains to outline that the minimum support prices on a number of agricultural commodities had been pegged at 1.5 times the cost of production. Government payments under MSP had been increased to 750 billion rupees for wheat-growing farmers from 330 billion rupees in 2013-14, while the amount for rice procurement has been increased to 1.72 trillion rupees from 630 billion rupees in 2013-14.
She also announced that 1,000 additional wholesale agriculture markets will be integrated into a national electronic market that aims to provide a single market to agriculture producers. The government also plans to give special focus to sectors such as dairy, fisheries, animal husbandry and allied activities.
Towards that end, the government plans to develop five major fishing harbours in the country, as well as promote seaweed farming, for which a park will be established in the southern state of Tamil Nadu. Simultaneously, the government plans to embark on prospecting the deep seas through a survey to exploit the ocean wealth.
Major ports in the country will also gradually transition towards management by private operators, Sitharaman said.
Besides, seven new textile parks will be established which together with Production Linked Incentive (PLI) scheme will boost the apparel sector. India is one of the largest producers of cotton, but has lagged behind rivals like China, Bangladesh and even Southeast Asian nations like Vietnam in many respects in apparels.
Sitharaman said that the government will rationalise a 12.5% import duty on gold and silver to 7.5%, as the price of the precious metal has shot up over the past few months. India is one of the largest importers of gold and the rise in prices have dampened consumption, affecting thousands of gold retailers.
The government also fixed the customs duty on intermediate inputs for steel-making — semi-flat and non alloy steel– at 7.5% following a sharp rise in domestic prices. Steel prices have increased by around 55% in the past one year, tracking global prices as well as a sharp increase in cost of inputs like iron ore.
The budget also removed import duty on steel scrap to provide further relief to steel manufacturers. The rise in steel prices are weighing on India’s plans to emerge as a global manufacturing hub as the metal is universally needed for manufacture of most products.
Simultaneously, the government introduced a long-pending vehicle scrappage policy that is expected to increase the availability of raw materials for the steel industry. As a part of the policy, personal vehicles that are 20-years-old and commercial vehicles that are 15-years-old will have to undergo a fitness test, Sitharaman said.
Besides, the government announced an extension in tax holidays for affordable housing, REITs and InvITs that are expected to boost investment and construction of housing and infrastructure. These measures in turn are expected to boost consumption of steel and other metals.
The finance minister also said that it would move to monetise assets like oil pipelines, warehouses as well as speedily move towards divestment of state-run companies.
It also plans to consolidate financial markets by consolidating provisions under the SEBI Act, Depositories Act, Securities Contracts Regulation Act and the Government Securities Act. The market regulator SEBI will also be empowered to oversee the functioning of a Gold Exchange in India including assaying and vaulting facilities, the minister said.