Union Budget 2021 pushes health, infra spends; no change in personal income tax slabs; no Covid-19 cess

Her Budget proposals were based on 'Six Pillars' and included health, physical and financial capital

Finance Minister Nirmala Sitharaman on Monday unveiled a Budget designed to help the country to its feet after a bruising Covid-19 pandemic by spending heavily on healthcare and infrastructure but gave little for taxpayers to be cheerful about.

The Budget speech pegged ‘health and wellness’ expenditure at a huge Rs 2.23 lakh crore but the fine print showed that health expenditure was up less than 10% to just over Rs 71,000 crore and the rest was made up by clubbing drinking water and sanitation with it, as well as Rs 35,000 crore for the Covid vaccination programme.

But the increase in allocation for infrastructure was substantial, perhaps given its potential to create new jobs. The Budget proposed to hike capital expenditure by more than a third to Rs 5.54 lakh crore in 2021-22. The finance minister also won plaudits for reforms that included privatisation of two public sector banks, the proposed sale of one state-owned general insurance company and an increase in the foreign direct investment limit in insurance to 74% from 49%.

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The Budget also proposed an allocation of Rs 1.97 lakh crore for the manufacturing sector over a period of five years starting 2021-22. Sitharaman said this was a must to achieve the dream of making India a $5 trillion economy.

The country’s fiscal deficit is likely to balloon to 9.5% of the size of its economy in the current financial year to March and stay at a high 6.8% next year, falling below its targeted 4.6% only in 2025-26. Sitharaman hopes to fund the government’s programmes by borrowing heavily from the markets, selling assets and disposing of shares in government-owned companies. India will sell stakes in toll roads, oil and gas pipelines, airports in second and third-rung cities and some railway infrastructure, among others.

A bold budget in many senses. The central intent has been to use expansionary fiscal policy to support growth, sidestepping concerns over debt sustainability and sovereign rating,” said HDFC chief economist Abheek Barua, noting, however, that the Budget did not adequately address questions over inequitable growth.

Sitharaman also unveiled a plan to set up asset management and an asset reconstruction company to take over the bad loans of public sector banks and reduce the burden on their balance sheets, a problem that has held back lending to companies wanting to expand.

A ‘no harm done’ Union Budget 2021, on balance

Though her Budget did not give relief to income taxpayers, Sitharaman made the lives of people above 75 somewhat easier by removing the need for them to file returns if their income was solely from pension and bank interest. A new rule for the removal of double taxation for NRI s was also introduced.

A Covid tax on the rich that had been speculated about failed to materialise, and the finance minister said that an agriculture cess on a range of products would not affect the end consumer.

Read more: Union Budget 2021 commits bad bank, recap and PSB divestment

The Budget also announced a vehicle scrappage policy, aimed at phasing out at least one crore private and commercial vehicles that are 15-20 years old, a major boost to the automobile industry.

In a gift for gold-obsessed Indians, import duties on the yellow metal, and silver, were cut to 7.5% from 12.5% at present. This will give a much-required boost to the jewellery sector, ravaged by the pandemic, and also cut smuggling.

The finance minister’s speech clearly set out big infrastructure allocations for states going to the polls in the coming months, including West Bengal and Tamil Nadu, where the BJP is desperate to make an impact.

Sitharaman promised to extend social security benefits to gig and platform workers, and for migrant workers, the worst hit during the pandemic, the government will soon launch a portal to collect data, she said.

Her 110-minute-long Budget speech enthused financial markets, gifting the Sensex its highest percentage gains on any Budget day in nearly a quarter of a century.