IMPACT OF BUDGET 2021 ON INDIAN ECONOMY
The Budget 2021 has received a huge response and welcome from the country for its practical base and systematic approach at a time when the state has struggled with the pandemic within the last year. It could be safely said that the Union Budget 2021 was not a budget like earlier times, especially after the Covid-19 pandemic, as it stresses revival on every sector possible in the Indian economy whether it is infrastructure, rural development, farmer welfare, hospitality, aviation, or service sector. The Finance Minister announced the Budget 2021 via Tablet device, which is symbolic in the sense that it was paperless "Made in India" and simultaneously promoting the Atma Nirbhar Bharat.
Accordingly, the Budget 2021 is themed as a self-reliant country that holds a vision to become self-sustainable and eliminating its dependence on other countries by reducing imports and converting India into a technology fulfilled digitalized economy.The whole of 2021-22 Union Budget rested on following six pillars-
1. Health and Well-being of the Nation
2. Physical, financial capital and infrastructure,
3. Inclusive development for aspirational India,
4. Strengthening Human Capital,
5. Innovation and R&D and
6. Minimum government and Maximum governance.
Each of the pillars above-mentioned is intended to strengthen the economy by making a contribution towards each of the sectors and ensuring holistic development of the nation. Let’s examine these budget propositions and their impact on the economy in detail-
1. Impact on Small Companies, LLPs and OPCs-
The Budget Proposal 2021-22 is expected to directly benefit nearly 200,000 companies in India, which will have lesser compliance procedures, fee payments and penalties after the changes proposed to be made in the criteria for the definition of “Small Companies” as announced in the Union Budget 2021-22.
Redefining the criteria of recognition for a “Small Company”
The Budget 2021-22 proposes to elevate the threshold of paid-up capital for the criteria of “Small Companies”from Rs 50 lakh to Rs 2 crore and turnover from Rs 2 crore to Rs 20 crore. As a consequence of such companies –
i. Shall no longer be required to prepare cash flows as part of their financial statements and would only require to hold only two board meetings mandatorily in a year.
ii. While it is mandatory for other companies to provide the details of remuneration paid to directors and key managerial personnel, small companies would only be required to provide only aggregate details of remuneration drawn by directors in their annual returns.
iii. Such Companies shall also be exempted from the requirement of mandatory rotation of auditors.
iv. Such companies will also have the advantage to sign documents like the annual return of such company by a single authorized director in the absence of the company secretary.
Proposals made for LLPs
i. The Union Budget 2021-22 has also proposed to create a class of LLP called as “Small LLP”, offering same benefits and reduced compliance burdens as “Small Companies”. Such lower costs of compliance would incentivise unincorporated micro and small partnerships to transform into the organised structure of an LLP and derive its benefits,” the senior official said.
ii. Decriminalisation of as many as 12 offences and one provision under section 73 under the Companies Act 2013are proposed to be decriminalized involving criminal liability are proposed to be eliminated. Such offences would be subject to internal adjudication mechanism to aid in reducing the burden of the criminal courts from routine cases.
iii.LLPs have also been proposed to be allowed to raise capital through issue of fully secured Non-Convertible Debentures (NCDs) as asubstitute to equity participation from investors who are regulated by either SEBI or RBI. This will aid in the expansion of the Debt Market and will furtherboost the capitalization of LLPs.
Ease of compliances for OPCs to be carried by Non-Resident Indians (NRIs)-
For the purpose of incentivizing the business operations of the incorporation of one-person companies (OPC), the budget has made proposals to pull out any restrictions on paid-up capital and turnover, allowing the conversion of OPCs into any other type of company at any time and further reducing the requirement of residency limit for an Indian citizen to set up an OPC from 182 days to 120 days.
This move on the part of the Government, is expected to benefit start-ups and innovators in the country, especially those who are supplying products and services on e-commerce platforms, and in order to usher in more unincorporated businesses into the organized corporate sector.
2. Stronger Reforms Including Market Demand & Supply
The latest economic survey has positively indicated towards steady growth despite the severe and continuous lock-downs happened last year, better than any other country in the world. The V-shaped recovery is fed by an initial severe lockdown, during a similar way relief, financial and legal forbearance and a couple of cash in the hands of the poorest. This was followed by a calibrated opening up, extending the fiscal, leading to an accounting surplus, led to FDI and FPI flows and an unprecedented foreign currency reserve of US$ 586billion.
Therefore, stronger reforms and simultaneous supply and demand side actions are required in the economy. Investment in health, education, innovation, infrastructure, digitization, and recapitalization of state-owned banks are all signaled.
The Union Finance Minister has announced FDI in insurance sector to be raised from 49% to 74% for the financial year 2020-21.This step is going to have a large impact on the Indian economy and is being hugely appreciated on the part of the Government. The same was being requested for many years now, and has the potential to attract huge foreign investments and fortify the insurance sector.
Further, the Government has planned disinvestment in strategic sectors making a way for innovation through privatization. The Union Finance Minister has proposed disinvestment in Air India, BPCL, CONCOR, Pawan Hans, BEL, IDBI, Shipping Corporation etc. and finally an IPO in LIC which will be completed along with disinvestment by the end of the year 2022 with a target of Rs 1.75 lakh crore for FY22..
The policies related to the disinvestment/strategic disinvestment policy, are expected to minimize the presence of central public sector enterprises, including financial institutions and creating new investment space for private sector.
3. Infrastructure Building including Rural Infrastructure-
For those unknown, the Union Budget 2021-22 has reiterated Infrastructure development as one of the six pillars for the strengthening and growth of the Indian economy as part of her budget. Accordingly, the Budget proposes to expand and extend the National infrastructure Pipeline Programme from 6,835 projects to 7,400 projects.
Such investment in the infrastructure sector including construction of new roads, rail links and other social and economic infrastructure has the further purpose of inviting foreign investments and contributing in the development of the economy. The National Infrastructure Pipeline has the objective to invest in various projects including energy, social and commercial infrastructure, communication, water and sanitation.
The same will necessarily require more funding from the Government as well as the financial sector and for ensuring the same , the following three steps have been proposed to be undertaken-
i. Creation of anorganised structure
ii. More Emphasis on Asset Monetisation
iii. Augmenting Capital expenditure percentage in central and state budgets respectively.
Further, the Government has also laid emphasis on the funding requirements of such crucial infrastructure projects to be fulfilled through the National Bank for Financing Infrastructure and Development with a lending target of Rs 5 lakh crore for upcoming three years.
Against an expected budgetary outlay of 10% on infrastructure which was Rs. 4.39 lakh crore in 2020-21, the Government commitment of Rs.5.54 lakhs in 2021-22 has shown more emphasis on the infrastructure development projects and their continued commitment towards the same has been welcomed thoroughly by the Government with more focus on infrastructure as a key enabler for GDP growth going forward.
4. Impact on Senior Citizen, NRIs and Salaried Class
Union Minister Nirmala Sitharaman introduced her third Union Budget in Parliament, which lays on six columns of strength for Indian economy – wellbeing and prosperity, physical, monetary capital and framework, comprehensive advancement for optimistic India, reviving human resources, development and R&D and least government and greatest administration. This Budget has declared a complete spend of around Rs 2 trillion on medical care and super public expressway projects in political race bound conditions of Tamil Nadu, West Bengal, Assam and Kerala.
The Government has proposed that the Senior citizen of the country (who are either 75 in age or above), and who are not in receipt of any income apart from pension and interest on deposits would not be required to file and submit any ITR. Though, any income received by way of interest onPF above the limit of Rs 2.5 lakh will be charged to income-tax.
Considering the hardships & difficulties faced by the Non-Residents with their foreign incomes on retirement due to taxation data mismatches, the Union FM suggested to notify rules to the taxation incomes and eliminate such hardships. Though, the interest income on PF has been brought under the purview of taxation, but the Government has decided to extended benefits on House purchase schemes with no change in rate of taxation for the normal salaried class .These steps are again expected to have a positive impact on the overall economy.
5. Encouraging and Promotion of Women Workforce in the Economy-
Likewise, it should be remembered that the COVID-19 pandemic has worst affected women workforce employment forcing them to exit the labour force. India's ladies' workforce interest, as per the Centre for Monitoring Indian Economy, is at an untouched low of 21 percent from 25 percent, because of the expansion in the quantity of positions lost by ladies.
On the event of the Union Budget 2021 having been introduced in the parliament by Nirmala Sitharaman, Minister of Finance, and Government of India proposed to allow women to work all shifts to encourage their employment and participation in the workforce.With the formation of two antibodies in India which, will guarantee a getting back to typical financial movement, the plans reported are carefully conceived and seem comprehensive particularly when the IMF has anticipated twofold digit development for India. This move is expected to an increment of between 1-2 percent in the participation of women workforce in the economy.
6. Impact of Changes proposed to Income-Tax Provisions and a Digitalized Economy
According to the Union Finance Minister of India, our country needs a tax system that would place a minimum amount of burden on the Indian masses. A faceless dispute redressal mechanism is proposed to be launched, through a Faceless Income Tax Appellate Tribunal Centre making the system more transparent through electronic communication and without any prescribed limits of jurisdiction and the same to be facilitated through reduction of time-lines for income tax proceedings proposed. For which the FM has announced the case assessment to be reduced to 3 years from the previous limit of six years.
Reconsidering the Government's previous decision to abrogate the payment of Dividend Distribution Tax (DDT), from the hand of companies and making it payable from the pockets of investors, presently, the FM has proposed to make dividend payments in the hands of Real Estate Investment Trusts (REITs) and Infrastructure Investments Trusts (InviTs) absolved from the payment of TDS to promote boost investments. Also, Foreign Portfolio Investors or the FPIs allowed tax deductions on dividend income at lower treaty rate.
The Government of India has proposed to establish a dispute resolution mechanism for individual taxpayers having a total tax liability up to 50lakhs and a disputed income up to 10 lakhs, to be resolved through a Dispute Resolution Committee, which will have the purpose to discourage lengthy litigation procedures and to encourage dispute resolution in a speedy but in a transparent manner.
Finally, to encourage a digital economy and reduce compliances, the limit of tax audits has been raised from 5 Crores to 10 crores, such individuals undertaking 95% of their total transactions digitally.
Conclusion
The Union Budget of 2021-22 has arrived with its bag full of surprises and encouragement from the Government to look forward towards a brighter, stronger, and self-reliant economy. Major steps like FDI changes and changes in the taxation policies with no change in tax slabs and economic development initiatives this year are worth appreciation and do seem to have a far-fetching impact on the economy.
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