📰 Union Budget 2021 | Automotive sector welcomes vehicle scrappage policy
Industry leaders expect it to boost demand for new vehicles, help environment
•Leading players in the Indian automotive sector have welcomed the Centre’s move to separately announce a voluntary vehicle scrapping policy to phase out old and unfit vehicles.
•While tabling the Union Budget for 2021-22, Finance Minister Nirmala Sitharaman said that the policy would help in encouraging fuel-efficient, environment-friendly vehicles, thereby reducing vehicular pollution and the oil import bill.
•Vehicles would undergo fitness tests after 20 years in automated fitness centres in the case of personal vehicles (PV), and after 15 years in the case of commercial vehicles (CV). Details of the scheme will be shared separately by the Ministry.
•Kenichi Ayukawa, president, Society of Indian Automobile Manufacturers (SIAM), described the Budget as “visionary”. “The government has adopted an expansionary stance with a thrust on infrastructure building with measures for efficiency improvement and increasing competitiveness. Good macroeconomic growth will translate to good auto sector demand. Specifically, the vehicle scrappage scheme has a good intent and the auto industry would be keen to work with the government on suggestions for maximising benefits to environment and society,” he said.
•Welcoming the voluntary vehicle scrapping policy, Federation of Automobile Dealers Associations president Vinkesh Gulati said, “If we take 1990 as base year, there are approximately 37 lakh commercial vehicles (CV) and 52 lakh passenger vehicles (PV) eligible for voluntarily scrappage. As an estimate, 10% of CV and 5% of PV may still be plying on the road.”
•Vipin Sondhi, MD & CEO, Ashok Leyland Limited, said that the implementation of a voluntary scrappage policy is good for the environment and good for setting in motion a circular economy. However, we await further details of the policy as the industry had requested an incentive-based scrappage policy for it to be effective, he said.
•Guenter Butschek, CEO & MD, Tata Motors said: “For the automobile sector, which is a significant contributor to India’s GDP, there are multiple welcome announcements, including a voluntary vehicle scrapping policy to phase out old and unfit vehicles; augmenting public transport system in urban areas; continuing focus on adoption of cleaner fuels; enhancing outlays for developing road infrastructure and expanding the Swachh Bharat Mission.”
•Warren Harris, CEO & MD, Tata Technologies, said that the Centre had finally set the tone for the recovery of the auto sector, which has been significantly impacted by the pandemic. This would not only help boost the demand for the production of commercial vehicles but also support the entire transportation ecosystem, he said.
•Vinay Raghunath, partner and automotive sector leader, EY India said: “The scrappage policy is a much awaited development where, apart from boosting demand in the sector, it will simultaneously help reduce pollution and fossil fuel consumption while also enabling re-use of steel/aluminium. An extension of this policy to other aspects such as tyre scrappage may help boost demand in related sectors while also helping India become more atmanirbhar (self-reliant).”
•Deven Choksey, MD, KR Choksey Shares and Securities, called it a big game changer for the auto and auto ancillaries sector. According to him, between 2001 and 2005, as many as 7 million passenger vehicles and 11 million commercial vehicles were registered and at least twice these numbers constitute the potential number of vehicles that could be scrapped.
•Arun Firodia, chairman, Kinetic Group, felt that it would be a better idea to levy a green tax on vehicles that are more than 15 years old, instead of a voluntary scappage policy.
•Nagesh Basavanhalli, group CEO & MD, Greaves Cotton Limited, said, “While the auto sector would have liked to see more direct measures in the Budget, however, the scrappage policy is a step in the right direction for both ecology and economy. The focus on rural and agri credit growth will also have a cascading effect on the auto sector.”
•Martin Schwenk, managing director and CEO, Mercedes-Benz India, said, “The decision to spend more on infrastructure despite of the high fiscal deficit will boost overall economic revival and we should see positive impact on the PV market. However, the increase in auto component duties is unexpected in such a revival period, and it will increase the production cost, leading to higher cost for consumers. There could have been a further push towards e-mobility by lowering import duties on EV (electric vehicles).”
•Tarun Mehta, co-founder and CEO, Ather Energy, said, “The voluntary vehicle scrappage policy announced to phase out old and unfit vehicles will encourage the sales of new vehicles. It is good to see that the government is looking at addressing the concerns regarding GST (goods and services tax) inverted duty structure. We look forward to more details on the inverted duty structure and the production-linked incentive (PLI) scheme announced by the Finance Minister.”
•Sohinder Gill, director general, Society of Manufacturers of Electric Vehicles, thanked the FM for announcing the scrappage policy, and said that it would help in encouraging the adoption of greener vehicles.
•“Finally, the much awaited scrappage policy has been announced, which is a welcome step. This will increase sale of new vehicles and in turn boost tyre demand,” said Dr. Raghupati Singhania, vice-president, JK Organisation, and CMD of JK Tyre and Industries Limited.
It helps in formulating health, housing, skill, insurance, credit and food schemes for migrant workers, says Minister
•Finance Minister Nirmala Sitharaman on Monday announced the launch of a portal to collect information on gig, building and construction workers, among others, to formulate welfare schemes for migrant workers, as a part of her Budget 2021-2022 speech.
•“We have launched the One Nation One Ration Card scheme through which beneficiaries can claim their rations anywhere in the country. Migrant workers in particular benefit from this scheme — those staying away from their families can partially claim their ration where they are stationed, while their family, in their native places, can claim the rest,” she said.
•She said the scheme was being implemented by 32 States and Union Territories with 69 crore people, which is 86% of the beneficiaries. The remaining four States and UTs would implement the scheme in the next few months, she said.
•“To further extend our efforts towards the unorganised labour force migrant workers particularly, I propose to launch a portal that will collect relevant information on gig, building, and construction-workers among others. This will help formulate health, housing, skill, insurance, credit and food schemes for migrant workers,” she said.
•On the four labour codes passed by Parliament in 2019 and 2020 and expected to be implemented soon, the Minister said the process that began 20 years ago would be concluded now.
•“For the first time globally, social security benefits will extend to gig and platform workers. Minimum wages will apply to all categories of workers and they will all be covered by the Employees State Insurance Corporation. Women will be allowed to work in all categories and also in the night shifts with adequate protection. At the same time, compliance burden on employers will be reduced with single registration and licensing and online returns,” she said.
•She reiterated that employers who do not deposit the employees’ contribution towards Employees Provident Fund (EPF) on time would not be allowed to show it as a deduction.
•“We have noticed that some employers deduct the contribution of employees towards provident funds, superannuation funds and other social security funds but do not deposit these contributions within the specified time. For the employees, this means a loss of interest or income. In cases where an employer later becomes financially unviable, non-deposit results in a permanent loss for the employees.”
📰 Govt. agrees to maintain States’ share in the divisible pool of taxes
12.5% weightage for demographic performance of southern States in tax-transfer calculations
•The government has accepted the Fifteenth Finance Commission’s recommendation to maintain the States’ share in the divisible pool of taxes to 41% for the five-year period starting 2021-22, and given an ‘in-principle’ nod to the panel’s suggestion to set up a separate non-lapsable fund for defence and internal security modernisation.
•The Fourteenth Finance Commission had raised States’ share to 42% of divisible revenues, but the Fifteenth Finance panel had reduced the share to 41% in its interim report for 2020-21, citing the conversion of Jammu, Kashmir and Ladakh into Union Territories.
•The Commission’s report, which was submitted to the President in November but tabled in Parliament on Monday with the government’s action taken report on its suggestions, has recommended additional revenue deficit grants of ₹2.94 lakh crore for 17 States over the next five years. The government has accepted this recommendation as well as the panel’s suggestion to enhance State’s borrowing ceilings in 2021-22.
•“I have provided, on the Commission’s recommendation, ₹1,18,452 crore as Revenue Deficit Grant to 17 States in 2021-2022, as against ₹74,340 crore to 14 States in 2020-2021,” Finance Minister Nirmala Sitharaman said in her Budget speech for 2021-22, terming the government’s acceptance of the 41% vertical share for States recommended by the Commission as a sign of its commitment to fiscal federalism.
•“In accordance with the views of the 15th Finance Commission, we are allowing a normal ceiling of net borrowing for the States at 4% of Gross State Domestic Product (GSDP) for the year 2021-2022. A portion of this ceiling will be earmarked to be spent on incremental capital expenditure,” she added.
•An additional borrowing ceiling of 0.5% of GSDP will also be provided based on meeting specified reforms in the power sector. States are expected to reach a fiscal deficit of 3% of GSDP by 2023-24, and maintain that level till 2025-26, as per the Commission’s report. The Centre has accepted ‘in-principle’ this quantum of net borrowing ceilings for the States, as per the action taken report.
•While the Commission has suggested the additional ceiling for power sector reforms be offered up to 2024-25, the government has said it will examine recommendations related to States’ fiscal road map separately. Similarly, the Commission’s recommendation to overhaul the Fiscal Responsibility and Budget Management law to ensure legislations are in sync with fiscal sustainability frameworks, will be examined separately, the government said.
•The Commission, headed by N.K. Singh, has recommended creating a separate non-lapsable fund for modernisation of defence and internal security, a term of reference the Centre had sought its views on. To bridge the gap between defence budget allocations and the projected budgetary requirements, the panel has mooted a fund of ₹2.38 lakh crore for the coming five-year period. It has recommended that ₹1.54 lakh crore of this fund be transferred from the Consolidated Fund of India, partially using receipts from the disinvestment of defence public sector enterprises and land monetisation. The government has said the modalities and sources of funding will be examined in due course.
•The Commission has sought to assuage the fears of southern States about losing some share in tax transfers due to the reliance on the 2011 Census data instead of the 1971 census, which could penalise States that did better on managing demographics. It has done so by giving a 12.5% weightage for demographic performance in its tax-transfer calculations.
•“The revenue deficit grants proposed for Andhra Pradesh and Kerala are far higher than the previous Commission’s period, while Tamil Nadu has also been earmarked for marginally higher grant on this front,” an official said.
📰 States allowed 4% extra borrowing of GSDP
States’ share of taxes to stay at 41% as per Finance panel advice
•The government has accepted the Fifteenth Finance Commission’s recommendation to maintain the States’ share in the divisible pool of taxes to 41% for the five-year period starting 2021-22, and given an ‘in-principle’ nod to create a separate non-lapsable fund for defence and internal security modernisation.
•States have been granted additional borrowing room of upto 4% of Gross State Domestic Product (GSDP) for 2021-22, with an additional 0.5% limit for those undertaking critical power sector reforms.
•Terming the government’s acceptance of the 41% vertical share for States recommended by the Commission as a sign of its commitment to fiscal federalism, Finance Minister Nirmala Sitharaman announced revenue deficit grants for 17 States amounting to ₹1.18 lakh crore in 2021-22.
•The Commission’s report, submitted to the President in November, was tabled in Parliament on Monday with the government’s action taken report. It has recommended additional revenue deficit grants of ₹2.94 lakh crore for 17 States over the next five years.
📰 Budget 2021 | Water supply, Swachh Bharat 2.0 missions for urban areas
Nirmala announces extension of Metro networks in Kochi, Chennai, Bengaluru, Nagpur and Nashik
•The Union government would launch a mission to provide universal water supply to areas under all 4,378 urban local bodies and the next phase of the Swachh Bharat Mission focusing on management of sludge, waste water and construction and demolition waste in cities, Finance Minister Nirmala Sitharaman announced in her Budget speech.
•“The World Health Organisation has repeatedly stressed the importance of clean water, sanitation, and clean environment, as a prerequisite to achieving universal health. The Jal Jeevan Mission [Urban], will be launched. It aims at universal water supply in all 4,378 Urban Local Bodies with 2.86 crore household tap connections, as well as liquid waste management in 500 AMRUT cities,” she said.
•This mission would be implemented over five years with an expenditure of ₹2.87 lakh crore.
•The Swachh Bharat Mission (Urban), which was being implemented by the Housing and Urban Affairs Ministry, would get a second round.
•“For further swachhta [cleanliness] of urban India, we intend to focus on complete faecal sludge management and waste water treatment, source segregation of garbage, reduction in single-use plastic, reduction in air pollution by effectively managing waste from construction-and-demolition activities and bio-remediation of all legacy dump sites,” she stated.
•The Swachh Bharat Mission (Urban) 2.0 would be implemented over five years – 2021 till 2026 – with an outlay of ₹1.41 lakh crore.
Boost to urban transport
•In a boost to urban transport, the Minister announced a new scheme for public buses and extension of the Metro networks in Kochi, Chennai, Bengaluru, Nagpur and Nashik.
•“We will work towards raising the share of public transport in urban areas through expansion of metro rail network and augmentation of city bus service. A new scheme will be launched at a cost of ₹18,000 crore to support augmentation of public bus transport services. The scheme will facilitate deployment of innovative PPP models to enable private sector players to finance, acquire, operate and maintain over 20,000 buses,” she said.
•A total of 702 km of conventional Metro lines were in operation and 1,016 km of Metro and Regional Rapid Transit System lines were under construction in 27 cities.
•Two new Metro technologies, MetroLite and MetroNeo, would be used in the tier-2 cities and peripheral parts of the tier-1 cities to provide Metro connectivity at a lower cost compared to conventional Metro systems. The Centre would provide counterpart funding for the Kochi Metro Phase-II at a cost of ₹1,957.05 crore, the Chennai Metro Phase-II at a cost of ₹63,246 crore, the Bengaluru Metro Phase 2A and 2B at a cost of ₹ 14,788 crore, the Nagpur Metro Phase-II at a cost of ₹5,975 crore and the Nashik Metro at a cost of ₹2,092 crore.
📰 Union Budget 2021 | ₹50,000 crore for National Research Foundation
It will fund research across disciplines
•Finance Minister Nirmala Sitharaman earmarked ₹50,000 crore over five years for the creation of a National Research Foundation (NRF) — an umbrella body that is expected to fund research across a range of disciplines, from science and technology to humanities.
•Ms. Sitharaman had first announced such a foundation in her 2019 Budget speech after it was proposed in a draft of India’s New Education Policy (NEP). “It [NRF] will ensure that the overall research ecosystem in the country is strengthened with a focus on identified national priority thrust areas.”
Mentoring
•The NRF will also seed and build research capacity at universities and colleges through a formal mechanism of mentoring. It will also catalyse research at universities and colleges that have until now not been big players in research. The NRF will also help build the capacity to do research through an institutionalised mentoring mechanism, involving expert researchers from premier institutions of the country, the NEP document notes.
•The NRF would be an autonomous body and represented by all major research and education bodies, said Ashutosh Sharma, Secretary, Department of Science and Technology.
•“This would be cross-disciplinary and also ensure that research — already being funded by Science Ministries, for instance — wouldn’t be duplicated,” he told The Hindu.
Cuts in allocation
•The budget allocations for key science departments saw cuts, though most are expected to spend — until March — below what was apportioned last financial year.
•For instance, the Ministry of Earth Sciences was budgeted ₹2,074 crore for 2020-21, but is expected to spend only ₹1,304 crore. This year it has been allotted ₹1,901 crore.
•The Department of Science and Technology was budgeted ₹6,313 crore last year, but will likely spend ₹5,012 crore. It has been allotted ₹6,071 crore this year.
•The Department of Scientific and Industrial Research was given ₹5,385 crore but its expenses are likely to be ₹4,251 crore. It has been given ₹5,241 crore.
•The Department of Biotechnology has seen a hike in allotment and been given ₹3,502 crore. Last year, it spent ₹2,300 crore and was budgeted ₹2,786 crore.
📰 Union Budget 2021 | Govt. budgets ₹1.75 lakh cr. from stake sale
Four sectors to be strategic sectors
•The government on Monday budgeted ₹1.75 lakh crore from stake sale in public sector companies and financial institutions, including two PSU banks and one general insurance company, in the next fiscal year beginning April 1.
•The amount is lower than the record ₹2.10 lakh crore which was budgeted to be raised from CPSE disinvestment in the current fiscal year.
•However, the COVID-19 pandemic impacted the government’s CPSE stake sale programme, and the target has been lowered to ₹32,000 crore in the Revised Estimates.
•So far this fiscal year, the government has mopped up ₹19,499 crore from CPSE stake sale and share buyback.
•For fiscal year 2021-22, out of the total ₹1.75 lakh crore, ₹1 lakh crore is to come from selling government stake in public sector banks and financial institutions. About ₹75,000 crore would come as CPSE disinvestment receipts.
•Unveiling the Disinvestment/Strategic Disinvestment Policy, Finance Minister Nirmala Sitharaman said four sectors — Atomic energy, Space and Defence; Transport and Telecommunications; Power, Petroleum, Coal and other minerals; and Banking, Insurance and financial services — would be strategic sectors.
•In strategic sectors, there will be bare minimum presence of the public sector enterprises. The remaining CPSEs in the strategic sectors will be privatised or merged or subsidiarised with other CPSEs or closed. In non-strategic sectors, CPSEs will be privatised, otherwise shall be closed.
•In her 2021-22 Budget speech, she said strategic disinvestment of BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam Ltd, among others would be completed in 2021-22.
•“Other than IDBI Bank, we propose to take up the privatisation of two public sector banks and one general insurance company in the year 2021-22. This would require legislative amendments and I propose to introduce the amendments in this session itself,” she said.
•Also the legislative amendments required for launching IPO of LIC would be brought in the ongoing session of Parliament.
•To fast-track the disinvestment policy, NITI Aayog would work out on the next list of central public sector companies that would be taken up for strategic disinvestment.
•Also to similarly incentivise States to start disinvestment of their public sector companies, the government will work out an incentive package of Central funds for States.
•Besides, to ensure timely completion of closure of sick or loss making CPSEs, a revised mechanism would be brought in, she said.
•“Idle assets will not contribute to Aatmanirbhar Bharat. The non-core assets largely consist of surplus land with government Ministries/Departments and Public Sector Enterprises.
•“Monetising of land can either be by way of direct sale or concession or by similar means. This requires special abilities and for this purpose, I propose to use a Special Purpose Vehicle in the form of a company that would carry out this activity,” Ms. Sitharaman added.
•Unveiling the disinvestment/strategic disinvestment policy, she said the policy was aimed at minimising the presence of Central public sector enterprises, including financial institutions and creating new investment space for private sector.
•“Post disinvestment, economic growth of Central Public Sector Enterprises (CPSEs)/ financial institutions will be through infusion of private capital, technology and best management practices. This will contribute to economic growth and new jobs,” the budget said.
📰 Union Budget 2021 | Centre to amalgamate market laws into single code
‘Move to improve ease of doing business, remove friction between stakeholders’
•The Centre on Monday announced setting up of a Single Security Market Code by consolidating the provisions of SEBI Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1956 and Government Securities Act, 2007.
•This was announced by Union Minister for Finance and Corporate Affairs Nirmala Sitharaman, while presenting the Union Budget 2021-22 in Parliament.
•According to analysts, this move will improve ease of doing business in the country’s financial markets, cut down compliances, reduce cost and do away with friction between various stakeholders.
•In order to instil confidence among participants in the corporate bond market during times of stress and to generally enhance secondary market liquidity, the Budget has proposed to create a permanent institutional framework.
•The proposed body would purchase investment grade debt securities both in stressed and normal times and help in the development of the bond market, the Finance Minister said.
•“While further details on the modus operandi for such a framework is awaited, it will clearly help to deepen the corporate bond market which continues to face liquidity challenges,” Suman Chowdhury, chief analytical officer, Acuité Ratings & Research said.
•“In our opinion, this will be fairly positive for debt mutual funds particularly credit funds which had witnessed significant outflows last year due to poor liquidity in certain corporate papers,” he added.
•“This will also help to reduce the volatility in secondary market yields of relatively lower rated bonds in the AA and A category,” Mr. Chowdhury said.
•The government also announced establishing a system of regulated gold exchanges in the country.
•For this purpose, SEBI will be notified as the regulator and the Warehousing Development and Regulatory Authority will be strengthened to set up a commodity market ecosystem with arrangements including vaulting, assaying and logistics in addition to warehousing.
•To provide protection to investors, the Finance Minister has proposed to introduce an investor charter as a right of all financial investors across all financial products.
•“A significant change, the impact of which would be felt across industries, is the proposed introduction of the securities market code. Also an important proposal, on expected lines, has been the introduction of certain dispute resolution mechanisms – reduction of the limitation period to 3 years should help in bringing certainty to taxpayers,” said Rajeev Dimri, partner and head of Tax, KPMG India.
📰 Union Budget 2021 | Start-ups to get tax holiday till March 2022
Budget proposes to incentivise One Person Companies by removing curbs on paid-up capital, turnover
•The Union Budget proposes to extend tax holiday for start-ups until the end of March next year. It also proposes to extend the capital gains exemption for investment in start-ups by another year, to encourage funding in the sector.
•“I propose to extend the eligibility for claiming tax holiday for start-ups by one more year. Further, to incentivise funding of the start-ups, the budget proposes to extend the capital gains exemption for investment in start-ups by one more year,” said Finance Minister Nirmala Sitaraman while presenting the Union Budget on Monday.
•The budget also proposes to incentivise One Person Companies (OPCs) by allowing them to grow without any restrictions on paid-up capital and turnover. OPCs will also be allowed to change the ‘type’ of the company at any time. Also, the residency limit has been brought down to 120 days from 182 days, making investments in India more convenient to NRIs.
•Ashish Aggarwal, senior director and head, policy advocacy at Nasscom, said most of these start-up announcements were only incremental and not inclusive in nature.
•“For example, the proposed one-year tax holiday will be available only to some 400 start-ups in the country, that are recognised as well as certified by the Department for Promotion of Industry and Internal Trade [DPIIT]. However, we have over 40,000 start-ups which are recognised but not certified and therefore won’t benefit from this tax relief,” he explained.
•The apex body had, in fact, recommended the Finance Ministry to include DPIIT certified companies under this benefit, but the budget doesn’t reflect that.
•Increasing the paid up capital limit from ₹50 lakh to ₹2 crore and turnover from ₹2 crore to ₹20 crore would certainly help start-ups in terms of easing pressure on reporting compliance, Mr. Aggarwal added.
•Rajesh Nambiar, Chairman and Managing Director-India, Cognizant, said reducing the time limit for reopening of assessment to three years, setting up a faceless income tax appellate tribunal, and strengthening the NCLT with e-courts and a conciliation mechanism for contractual disputes would increase investor confidence in the country.
📰 5 fishing harbours to be modernised
Finance Minister also announces measures to promote seaweed cultivation
•Five major fishing harbours will see substantial investments for modernisation and development, according to Finance Minister Nirmala Sitharaman’s budget speech on Monday.
•“To start with, five major fishing harbours — Kochi, Chennai, Visakhapatnam, Paradip and Petuaghat — will be developed as hubs of economic activity,” she said. “We will also develop inland fishing harbours and fish-landing centres along the banks of rivers and waterways,” she added.
Emerging sector
•Ms. Sitharaman announced measures to promote seaweed cultivation. “Seaweed farming is an emerging sector with potential to transform the lives of coastal communities. It will provide large scale employment and additional incomes,” she said. “To promote seaweed cultivation, I propose a Multipurpose Seaweed Park to be established in Tamil Nadu,” she added.
•Overall, the Fisheries department saw an increase in budget allocations from ₹825 crore in 2020-21 to ₹1,220 crore in 2021-22. The Blue Revolution centrally sponsored schemes saw their budget allocation double, with the new Pradhan Mantri Matsya Samada Yojana alone getting a ₹1,000 crore allocation.
📰 News Analysis | With Myanmar’s military coup, the tightrope between idealism and realpolitik returns for New Delhi
India has deep security relationship with Myanmar military.
•For India, the return to military rule by Myanmar’s Tatmadaw (Army) and the arrest of Aung San Suu Kyi and the political leadership of the National League of Democracy (NLD), are a repeat of events thirty years ago, but the Modi government’s reaction, is likely to be starkly different to India’s strong public criticism of the Junta’s actions in 1989-90.
•“India does care about democracy in Myanmar, but that’s a luxury it knows it will not be able to afford for the time being. The only option will be to engage, building on its outreach in recent years via the security and defence establishment,” said Constantino Xavier, an analyst of India’s neighbourhood policy at the Centre for Social and Economic Progress, when asked about India’s statement of “deep concern” over developments in Myanmar.
•One important reason for the change is that India’s security relationship with the Myanmar military has become extremely close, and it would be difficult to “burn bridges” with them given their assistance in securing the North East frontiers from insurgent groups. In a joint visit to Naypyidaw in October 2020, Foreign Secretary Harsh Shringla and Army Chief General Naravane met with both State Councillor Suu Kyi and General Min Aung Hlaing, making it clear that New Delhi saw both relationships at par. Another reason for the change is Ms. Suu Kyi herself, whose image as a democracy icon and Nobel peace laureate has been damaged by her time in office, where she failed to push back the military, and even defended the army’s pogrom against Rohingyas in Rakhine State in 2015.
•Officials also say a harsh reaction from India, on the lines of that from the United States which has threatened action against those responsible for the “coup” unless they revoke the military’s takeover, would only benefit China. Apart from strategic concerns, India has cultivated several infrastructure and development projects with Myanmar, which it sees as the “gateway to the East” and ASEAN countries. These include the India-Myanmar-Thailand Trilateral highway and the Kaladan Multi-modal transit transport network, as well as a plan for a Special Economic Zone at the Sittwe deep-water port. Finally, India still hopes to help resolve the issue of Rohingya refugees that fled to Bangladesh, while some still live in India, and will want to continue to engage the Myanmar government on that.
•Another reason for the shift is the change within India, say diplomats.
•“In 1989 there was a public clamour for India to take a strong stand against the military’s actions and to stand up for Aung San Suu Kyi. I don’t see a loud pro-democracy discourse going out from India this time around,” says former Ambassador to Myanmar Gautam Mukhopadhyaya, referring to street protests and fierce speeches in parliament that took place in India at the time, that called on then Prime Minister Rajiv Gandhi, who had visited Myanmar in 1987, to deal strictly with the Junta. In 1989, after the SPDC military government arrested Suu Kyi, then External Affairs Minister Narasimha Rao had reportedly told a parliamentary panel that not only would the government provide financial support to the democracy movement, no Burmese (Myanmarese) refugees seeking shelter in India would be turned away. Subsequently however, the government took a more pragmatic approach, engaging the military, while pushing for more freedoms in Myanmar.
•In the past decade, the balance between engaging Myanmar’s civil and military establishment became easier, once Ms. Suu Kyi was released and the NLD was allowed to form the government in 2015.
•“The arrangement between them suited India, as our approach was to smoothen the relationship on both sides. With Monday’s developments, our capacity to play both sides in now diminished,” explained a former senior official who dealt with the bilateral ties. “The choice between India’s democratic ideals, that it has expressed in Nepal and Maldives recently, and ‘Realpolitik’, to keep its hold in Myanmar and avoid ceding space to China, will be the challenge ahead.”
📰 Despite some hits, the Budget has crucial misses
That there is no targeted employment programme to alleviate the immediate crisis is a matter of concern
•The Budget, at its simplest, is the government’s tentative income and expenditure statement. Like all financial statements, the devil lies in the fine print. At its broadest, the Budget is a pious statement of the government’s policy and ideological intentions. It is also the government’s statement of how it seeks to tackle the immediate political (electoral) and economic challenges. Hence, any quick assessment of the Budget has to be preliminary. So how is the Budget likely to affect the lives of citizens immediately, and economic aggregates such as investment, output, employment and income distribution in the medium term?
India’s meagre response
•Domestic output or GDP, net of inflation, is expected to decline by 7.7% in the current financial year (FY2020-21), compared to the previous year (FY2019-20). The decline in per capita income is by 8.7%. The contraction is one of the worst among the world’s major countries. The novel coronavirus pandemic and the resultant lockdown led to massive job and livelihood losses. Unlike most advanced countries and emerging market economies, India’s response to address the distress of the masses has been meagre. The government’s additional public spending to cope with the unprecedented crisis has been a little over 1% of GDP. As is widely known, the output (GDP) contraction in 2020-21 has come on top of a slowdown in GDP growth over much of the previous decade (the 2010s), fall in employment, the decline in real wages, rise in the number of people in poverty, and, hence, an expected rise in the proportion of undernourished children. Much of the decline in the growth rate is on account of an unprecedented fall in fixed investment rate as a ratio of GDP, especially in infrastructure sectors.
Capital expenditure proposal
•Given the context, the present Budget’s focus on stepping up public investment by 34.5% in the coming fiscal year (compared to the current year) is a welcome sign. The Finance Minister’s speech said the government will borrow an additional ₹80,000 crore for the purpose in the next two months. The estimated fiscal deficit for FY2021-22 is 6.8% of GDP for the central government. And States are allowed a higher fiscal deficit, if the expenditure is on capital investment.
•These figures certainly look impressive. Realisation of these investments would crucially depend on tax revenue realisations, disinvestment proceeds, sale of rail and road assets and the government’s ability to raise resources from the market, without raising interest rates for the private sector. There is no mention of the government’s recourse to debt monetisation. While the investment intentions are evident, its financing efforts seem to have too many loose ends.
•The proposed Development Finance Institution (DFI) is also welcome. One of the reasons for poor industrial and infrastructure investment during the last decade was a lack of long-term credit for infrastructure, which by definition yields low rates of return spread over a long period of time. Commercial banks, whose deposits are for short to medium term, find it difficult to lend for long term (more than five years) for the fear of maturity mismatch. Moreover, as banks were laden with rising non-performing assets on account of poor corporate sector performance during the last decade, their ability to make fresh loans was adversely affected. Further, contemporary experience shows that most successful industrialising economies have relied on DFIs for providing long-term credit (https://bit.ly/3j5cqVs).
•While the renewal of the idea of DFI is welcome, many caveats are in order. Its Achilles heel is in securing stable long-term, low cost sources of finance. The Finance Minister’s speech mentioned that the proposed DFI will be financed by foreign portfolio investments (FPI), which is a cause for concern. By definition, FPI represents short term inflows with exchange rate risks, while infrastructure investment is for long term whose revenues will be mostly in rupees. Such an investment will inevitably lead to currency and maturity miss-match, raising cost of capital. Hence, there is a need to consider alternative long-term sources, preferably from domestic sources, or international development agencies.
Health and employment
•The first of the “6 pillars” that the Finance Minister described in her speech deals with health infrastructure — rightly so. If the announcement made represents a substantial annual fixed investment in improving urban sanitation, drinking water and sewage facilities, it is indeed a welcome step. There are lessons to be learnt from rural Swachh Bharat Abhiyan, however. As the recent National Family Health Survey data for 2019-20 for select States showed, just constructing toilets in household premises is of little use without adequate access to water and sewage facilities, which are public goods in nature (best provided by local governments). Unless these complementary facilities are constructed in a coordinated manner, the effectiveness of such investments would be minimal.
•The Budget has very little to say about employment. Surely, the proposed step-up in infrastructure would create labour demand. It bears repetition that the 2010s were a decade of job loss growth, as in official National Sample survey estimates. The pandemic has rubbed salt into the country’s wound, leading to the migration crisis, which is still with us (as the report cited above shows). Unfortunately, there is very little acknowledgement and response to the crisis in the Budget.
Inequality glossed over
•There is no mention of the stupendous rise in economic inequality during just the last year. While the poor lost their jobs and livelihoods in 2020, corporate India’s profits zoomed. The rank of the richest Indian is at the 12th spot on the Bloomberg Billionaires Index. Why could not the Budget consider a special tax on the super-rich — as many countries are now mooting? The Budget does not seem to reckon with such a rise in inequality, let alone seek to redress it.
•In summary, if the capital expenditure plan outlined in the Budget speech is credible, and implemented with assured financial backing, it could revive the investment cycle. The proposed development bank for term lending for infrastructure is welcome, provided its sources of finance are cheap, long term and mostly domestic. Investments in urban public health infrastructure — sanitation, water supply and sewage — are in the right direction if implemented in a coordinated manner.
•That there is no targeted employment programme to alleviate the immediate crisis is a matter of concern. Government apathy towards those who lost jobs and livelihoods due to the health and economic shocks last year seems galling.
📰 A Budget that fails to address the hunger pandemic
In a year of economic slowdown and growing inequality, we have been presented with a stingy Budget that fails to ensure the bare necessities for all
•While the country continues to grapple with the health and economic crisis as a result of COVID-19, widespread hunger and food insecurity is a silent emergency that has not been getting sufficient attention. Unfortunately, the Union Budget also does not include any significant measures to address this.
•The partial National Family Health Survey-5 results released recently showed that child malnutrition levels in 2019 were higher than in 2016 in most States. The fall in incomes witnessed by most poor and working-class households in the last one year would have made this situation even worse. Recent field surveys conducted by Hunger Watch and the Azim Premji University between October 2020 and December 2020 found that for two-thirds of the respondents, food intake was still not back to pre-lockdown levels. Malnutrition has multiple determinants with access to food, health and care being the immediate. A global pandemic and an economic slowdown, which has come on the back of years of jobless growth and stagnant rural wages, has hit household food security hard. Data show that even before COVID-19, nutritious diets for most Indians were unaffordable.
No greater allocation
•In this context, direct nutrition programmes such as the anganwadi programme and school mid-day meals make a crucial contribution to the diets of children and pregnant and lactating women. The 2020-21 revised estimates for anganwadi services is ₹17,252.3 crore, compared to a Budget estimate of ₹20,532.4 crore, which was itself less than the projected demand of ₹24,810 crore. This shows that the anganwadi services have been badly affected by the closure of anganwadi centres. There are large gaps in delivery of supplementary nutrition. It is not clear whether the revised estimates reflect a true picture, because data of the Controller General of Accounts show that the expenditure of the entire Ministry of Women and Child Development (which implements anganwadi services among other things) up to December 2020 was only ₹14,607.1 crore (49% of Budget estimates).
•In the current Budget, different schemes have been clubbed together and anganwadi services are now part of something called ‘Saksham Anganwadi and Poshan 2.0’ which has an allocated budget of ₹20,105 crore. The total budget allocation of the schemes that were included in Saksham in 2020 was higher at ₹24,557.4 crore.
•Two other important nutrition-related interventions of the Ministry of Women and Child Development also saw major underspending with the revised estimates for the national nutrition mission (Poshan) for 2020-21 being only ₹600 crore compared to a Budget estimate of ₹3,700 crore. For maternity benefits under the Pradhan Mantri Matru Vandana Yojana (a cash transfer of ₹5,000 for pregnant women), the revised estimate is ₹1,300 core compared to the Budget estimate of ₹2,500 crore. This scheme is now part of Samarthya, along with other schemes such as Beti Bachao Beti Padhao and Mahila Shakti Kendra. These schemes have also seen a reduced allocation compared to last year (₹2,522 crore vis-à-vis ₹2,828 crore). The allocation for the mid-day meal scheme for 2021-22 is ₹11,500 crore which is lower than the revised estimate of ₹12,900 crore for 2020-21. Nutrition schemes, which have been suffering from poor budgetary support for many years now, therefore do not see greater allocations despite the increasing prevalence of malnutrition.
•Other social protection programmes such as old age, widow and disability pensions, which could also contribute to better nutrition, also do not see any increase compared to last year. Even for migrant workers, other than setting up a portal, there is no announcement of any special measures. The One Nation, One Ration scheme has not taken off and is mired in complications.
Food subsidy
•While the food subsidy seems to have increased by more than three times, it must be understood that this does not reflect higher distribution of subsidised grains. This only reflects a correction in the Budget books, where the government is paying back Food Corporation of India (FCI) arrears rather than forcing the FCI to take loans. The total FCI debt as on December 31, 2020 was ₹3.7 lakh crore (accumulated over the last few years because adequate amounts were not allocated for food subsidy), and the additional amount being shown in the revised estimate over last year’s Budget estimate is ₹3.1 lakh crore which matches the debt that FCI has with the National Social Security Fund. The food subsidy allocation for 2021-22 (₹2.4 lakh crore), while much higher than last year’s Budget estimate, is more realistic in terms of what is required to meet the National Food Security Act entitlements. But it is clear that there is no provision for an expanded or universal PDS which many have been recommending.
•In fact, it is shocking that even the health budget has not been increased, with the allocation for health this year being lower than the revised estimate for 2020-21 (₹74,602 crore versus ₹82,445 crore). The only increase here seems to be in the allocation for the COVID-19 vaccine which is a one-time expenditure and does not contribute to strengthening the health system.
Missing the mark
•Overall, from the point of view of addressing hunger or providing a demand stimulus, this Budget misses the mark. The total expenditure of ₹34,83,236 crore is only ₹32,931 crore above last year’s revised estimates. While it is ₹4,00,000 crore more than previous year’s budgetary allocation, much of this difference is because of the correction in the food subsidy numbers. What we have been presented with in a year of economic slowdown and growing inequality is a stingy budget that fails to ensure the ‘bare necessities’ for all.
📰 The Finance Minister has delivered, but the road ahead is long: on Union Budget 2021
This Budget scores very high marks on credibility and on its potential to create domestic output and jobs, but much more remains to be done
•The National Statistical Office estimates that our COVID-19-impacted economy will contract by 7.7% in the current fiscal year 2020-21 (FY21). While severe, this estimate likely does not incorporate the significantly higher distress amongst many of our micro, small and medium enterprises.
•Thankfully, there are silver linings. We have avoided a second wave of COVID-19, and the worst is hopefully well behind us. Economic activity is rebounding – witness the encouraging GST collections of a record ₹1.2 lakh crore for January 2021. But our economy, which was structurally weak even before COVID-19 hit us and has since suffered a body blow, needs to be nursed back to full health.
•Against this backdrop, the 2021 Budget can be evaluated on three parameters. First, on the credibility of the Budget math. Second, on its potential to deliver what India ultimately needs — adequate domestic output and jobs. And third, on how the Budget raises resources, and its impact on the economic recovery.
The credibility of the math
•This Budget scores very high marks on credibility. For too long now, our Budgets have resorted to accounting smokescreens that masked the true extent of our fiscal imbalance. Thus, revised estimates of revenue receipts would invariably be unrealistically high, only to be brought down sharply later when the books were finalised. Likewise, under the cash accounting that our governments follow, expenditure would be brought down by simply not releasing payments. Instead, entities such as the Food Corporation of India would be ‘encouraged’ to borrow from elsewhere, in lieu of dues from the government.
•As a result, against the FY20 revised fiscal deficit estimate of 3.8% of the GDP presented in last year’s Budget, shorn of accounting jugglery, the true deficit is estimated at 5.4% of GDP. Adding borrowings of other central public sector enterprises, the Central Public Sector Borrowing Requirement stood at 7.2% of GDP, nearly twice the official headline central fiscal deficit.
•This year, the Finance Minister has largely come clean on the budget math. She has declared much higher than expected fiscal deficit numbers of 9.5% of the GDP and 6.8% of the GDP for FY21 and FY22, respectively. In doing so, she has put out realistic estimates of revenue receipts, and recognised ‘off balance sheet’ expenditures. She has also likely released pending government dues to both the public and private sectors.
•This truth augurs well on several fronts. First, with realistic revenue budgets, the pressure on tax authorities to engage in tax terrorism should subside. Second, the government can now release its payments and refunds on time, easing a financial bottleneck that has dogged us for a while. Third, a focus on the ‘real’ numbers should allow for a better-informed debate on ways to improve our fiscal balance.
•Hopefully, our State governments will also follow this example of providing credible budget math. The ‘true’ Centre and State combined fiscal deficit is likely around 15% of GDP, far higher than we have ever seen before.
Domestic output and jobs
•There is one path for us to pay down this accumulating public debt, achieve durable growth, keep inflation in check, and ensure stable external balance – and that is by creating adequate domestic output and jobs.
•The Budget scores well on its potential to create domestic output and jobs.
•While expenditure for FY22 has been maintained at the elevated levels of FY21, there is a shift away from revenue expenditure – the regular payments towards items such as administration, interest, and subsidies, that are arguably less productive – and towards productive investments. Capital expenditure in FY22 is budgeted to increase by 26% over FY21, with focus on areas such as infrastructure, roads, and textile parks.
•Alongside a promise to deliver more on health, education, nutrition and urban infrastructure, these complement ongoing efforts to foster domestic jobs and output, including reform of labour laws, corporate tax rate cuts and production-linked incentives.
•There are also efforts to revive our stressed financial services ecosystem. The Finance Minister announced the creation of a government Asset Reconstruction Company, or ‘bad bank’, to warehouse some of the large non-performing assets that permeate the industry. She also announced the creation of a new development financial institution to facilitate and fund infrastructure investments. While in principle these are welcome ideas, much depends on how the modalities are structured and on their execution. We await clarity on this score.
•The Budget focuses on raising funds via disinvestment and asset sales, rather than via additional taxes. Again, I commend this choice – while the wealthy can perhaps pay more to fund our deficit, we should avoid endangering our fragile economic recovery from COVID-19 with any additional tax burdens.
The long road ahead
•While the Budget has delivered on truth and held out some potential for the creation of domestic output and jobs, there is still much more to be done.
•Several sectors of the economy are still reeling under chronic stresses – including pockets of financial services, power, real estate, telecom, airlines and shipping, contact-based services and micro, small and medium enterprises. Any path to a recovery in domestic output and jobs will have to solve for many of these stresses.
•Likewise, it would be a mistake to assume that a revival in consumption and government spending would automatically result in durable growth. After the global financial crisis in 2008, we saw a strong revival in consumption, government spending and investments. However, we failed to deliver adequate growth in domestic output and jobs. The result was any central bank’s worst nightmare – high inflation, high imports and external imbalance, inadequate real growth, inequity and fiscal imbalance. All this finally culminated in financial instability, when the Federal Reserve taper tantrum hit us in mid-2013.
•The onus is now on the real economy and the government to avoid a repeat of history, to focus on execution, and to deliver on adequate domestic output and jobs. The road ahead will be long and hard, but for now at least, the Finance Minister has delivered.
📰 Carrying over fiscal conservatism: on Union Budget 2021
A lenient tax regime that favours private capital and restrained debt-financed spending are quite evident
•Bruised by the COVID-19 pandemic, Indians, like their counterparts elsewhere in the world, are looking for renewal. So, even granting that an annual budget is not a corrective for all ills, evidence of a change in course was expected in Budget 2021. Change also seemed possible. With the worst of COVID-19 and the lockdown-triggered contraction behind it, the government could intensify efforts to not just accelerate recovery but also turn its attention to the neglected health sector and redress the damage inflicted on the poor by the novel coronavirus pandemic.
Conflicting signals
•Official signals were, however, conflicting. Coming at the end of a year of the pandemic, Finance Minister Nirmala Sitharaman claimed that the Budget would be one “like never before”. But experience did not give cause for confidence. Additional expenditure by the Centre incorporated in multiple packages over the last year have been estimated as amounting to only around 1.5% of GDP. Yet, there were statements to the effect that much had already been done before the Budget. The multiple stimulus packages were identified as several mini-Budget-like interventions, and the Budget, it was argued, had to be seen as just one more event in that series.
•Overall, the Budget seems to carry over the fiscal conservatism witnessed during 2020-21. In that fiscal year, when the crisis called for hugely enhanced spending, total central government expenditure increased by just 13.4%, relative to what had been originally budgeted, when the pandemic had not been factored in. Since expenditure on the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) programme and on food subsidies had to be increased as minimal support measures in the context of the economic disruption, spending elsewhere had clearly been reduced. Despite the extraordinary crisis, falling revenues had led to the government holding back on its aggregate spending to rein in the fiscal deficit and its debt.
Revenue base erosion
•Tax concessions, such as the sharp reduction in corporate tax rates in September 2019, and the misconceived Goods and Services Tax regime, underlie the erosion of the revenue base. Though presented before the COVID-19 pandemic was officially acknowledged, the Budget for 2020-21 had projected only a modest increase in the revenue receipts of the Centre, from ₹16.8-lakh crore in 2019-20 to ₹20.2-lakh crore. The revised estimates suggest that revenue receipts actually fell to ₹15.6-lakh crore.
•Moreover, the government’s ambitious disinvestment agenda that was expected to pull in ₹2.1-lakh crore of non-debt capital receipts seems to have been completely derailed. The sum garnered was just ₹32,000 crore. In the event, if spending had to be hiked significantly, deficit concerns had to be dropped. The government was clearly not willing to go in that direction, keeping expenditure growth low relative to requirement. That conservatism seems to persist. Total expenditure is projected to rise by just 0.95% in 2021-22 relative to revised estimates for 2020-21, even if 14.5% relative to the Budget estimate for 2020-21.
Unwinding support measures
•With fiscal conservatism persisting, the government is set to wind down even the limited support it afforded to those hit hard by the pandemic. During the current fiscal, expenditure on the MGNREGA programme touched an estimated ₹1,11,500 crore (RE) as compared with a budgeted ₹61,500 crore and an actual expenditure of ₹71,687 crore in 2019-20. Many deprived of jobs and livelihoods were supported by the programme. There is no reason to believe that all of them can now return to their erstwhile occupations, since the economy is still performing poorly.
•Yet, allocations for the MGNREGA programme are, going by Budget figures, to be drastically curtailed, from the ₹1,11,500 crore spent in 2020-21 to ₹73,300 crore in 2021-22. The picture is the same with food subsidies, which are to be reduced from as much as ₹4,22,618 crore in 2020-21 to ₹2,42,836 crore in 2021-22. Clearly, in the government’s perception, the case for support is over, and the time has come to unwind even the limited support measures that the pandemic forced it to undertake.
•What then makes the Finance Minister declare this Budget as being one “like never before”? Amid the multiple claims made in Part A of the Budget speech, two claims seem to be specially geared to creating the image of a never before Budget.
•One is a declaration that the Budget incorporates a package for “health and well being” that would take spending on its constituent items from a budgeted ₹94,452 crore in 2020-21 to ₹2,23,846 crore in 2021-22. An increase in health spending, of 137%, is presumably influenced by the lessons from the pandemic.
•The other is a multi-faceted infrastructural investment thrust supported with a claimed 35% increase in capital spending, from ₹4.12-lakh crore budgeted in 2020-21 to ₹5.54-lakh crore in the Budget for 2021-22.
Explaining health spending
•However, these claims lose force when subjected to scrutiny. To generate the huge increase in health spending, the Budget speech resorts to a rather expansive definition of what can be considered health. In fact, allocations for the Department of Health and Family Welfare do not reveal any significant increase. Budget 2020 provided for around ₹65,000 crore for the Department of Health. Compared to that figure, the Budget estimate for 2021, of ₹71,269 crore, points to a not-too-spectacular 9.6% increase.
•What is more, the Budget estimate for 2021-22 is 9.6% lower than the revised estimate of expenditure of the Department of Health and Family Welfare in 2020-21, of ₹78,866 crore. To generate the impressive increase in the allocation to “health and well being”, the Budget speech includes in the figure expenditure on the Jal Jeevan Mission aimed at providing safe and adequate drinking water through individual household tap connections. That component of the “health and well being” Budget rises from ₹10,905.50 crore in the revised estimate for 2020-21 to ₹49,757.75 crore in the Budget estimate for 2021-22, being favoured by a ₹50,000 crore allocation from the cess-financed Central Road and Infrastructure Fund originally created to finance roads and highways. Drinking water matters and must be provided but cannot be a substitute for core health facilities.
Wishful thinking
•In the case of the infrastructural push described in the speech, the budgetary funding provided hardly seems adequate. What emerges is that the intention is to experiment with diverting resources garnered from the sale of existing assets of the public sector to part finance new investments in infrastructure. Besides disinvestment of equity, strategic sale, and privatisation of the public financial sector, expected to yield ₹1.75-lakh crore in 2021-22, there is much stress on “monetising idle assets”, especially land, available with public agencies.
•As the failed experiment with an overambitious disinvestment agenda included in Budget 2021 suggests, this effort to strip public units of their assets to support private-led infrastructural expansion may be more in the nature of wishful thinking.
•The pandemic notwithstanding, Budget 2021-22 suggests that there is no change in the neoliberal fiscal stance of the current government. A lenient tax regime that favours private capital, restrained debt-financed spending, and excessive reliance on disposing of public assets to finance limited expenditures remain the principal elements of that stance. The pandemic may have forced increased spending in a couple of areas. But even before it recedes, the government seems bent on restoring the old normal.
