Anil Advani and Shreya Bhatnagar-
India’s first paperless Union Budget 2021, or the e-Budget, presented by Finance Minister Nirmala Sitharaman, laid emphasis on six key pillars: Health and wellbeing; Physical & Financial Capital, and Infrastructure; Inclusive Development; Development of human capital; R&D; and Minimum government – maximum governance.
Within the scope of the ‘AatmaNirbhar Bharat’ agenda, there have been major announcements towards education, infrastructure, labor reforms for migrant/gig-workers, and strategic divestment of certain public sector undertakings. The Budget also offered much-needed support for healthcare, digital payments as well as the start-up ecosystem, by introducing several measures that boost consumer demand, employment potential as well as investments into India.
The focus of the Union Cabinet has evidently been on investment in long term projects, in order to catalyze economic activity and generation of employment and disposable incomes leading to increased demand and spending. This is expected to drive economic recovery to its desired track. The revision of definition for small companies under the Companies Act, Rs 15,700 crore boost for MSMEs, and Rs 50,000 crore boost to strengthen the R&D sector are some of the key takeaways from this Budget.
- One of the biggest winners from this budget was the country’s growing digital payments industry, which saw an allotment of 1,500 crore for a new fund to further accelerate growth and incentivize businesses to offer digital payments.
- The finance minister further added that a ‘world-class’ fintech hub at GIFT City (Gujarat International Finance Tec-City) — located on the banks of the Sabarmati River — will be set up to encourage and develop innovative financial technology services and products. The hub is expected to generate around 1.5 lakh jobs.
- Further, Rs. 3,768 crore has been allocated for the first digital census in the history of India.
- To ensure faster resolution of cases, NCLT framework to be strengthened, e-Courts system to be implemented and alternate methods of debt resolution and special framework for MSMEs to be introduced.
- The Finance Minister also proposed to launch an artificial intelligence (AI), machine learning, and data analytics driven MCA-21 Version 3.0, for making regulatory filings easier for start-ups and businesses in a revamp of the official portal of the Ministry of Corporate Affairs (MCA). This Version 3.0 will have additional modules for e-scrutiny, e-Adjudication, e-Consultation and Compliance Management.
- Notably, MCA-21 3.0 is likely to have a range of features like e-adjudication, online compliance monitoring, ease of doing business, and single source of truth, among others. This is crucial, especially for start-ups, as MCA-21 shares crucial information to stakeholders like investors, regulators, and companies.
- The Finance Minister announced a Rs. 64,180 crore outlay over 6 years for PM Aatma Nirbhar Swasth Bharat Yojana – a new centrally sponsored scheme that is to be launched.
- One of the key highlights of the scheme is the proposed expansion of the ‘Integrated Health Information Portal’ to all States/UTs to connect all public health labs.
SME’s and MSME’s
- Rs 15,700 crore has been earmarked for MSME sector.
- The Finance Minister also proposed a bill to set up “Development Financial Institutions”, to act as a provider, enabler and catalyst for infrastructure financing. The DFI has been allocated Rs 20,000 crore in a bid to boost loan access for SMEs and MSMEs, and businesses working in the manufacturing and infrastructure sectors.
- This will help address the gaps in financing facilities for long-term infrastructure projects. The DFI will also have statutory backing and a capital of Rs 27,000 crore. It will aim to have a loan portfolio of Rs 5 lakh crore over the next three years and will be professionally managed.
- Another key proposal is extending social security benefits to gig and platform workers, which the Finance Minister claimed is a global first. The government plans to launch a website that will collect information on gig and construction workers among others, and help formulate health, housing, skill, insurance, credit, and food schemes for them.
- Other key developments proposed in the budget are:
- Launch of a portal to collect data on migrant workers.
- Social security benefits to be extended to platform and gig workers
- Minimum wages to apply to all categories of workers.
START UP FRIENDLY
Homegrown start-ups have played a significant role in creating employment, ensuring supplementary flow of investments and creating an alternate effective supply chain for essential services through the course of the Global Pandemic. The Government focused heavily on strengthening the start-up ecosystem by introducing the following initiatives for start-ups:
- Tax Benefits:
- Eligibility of tax holiday claim for start-ups will be extended by 1 more year to March, 2022.
- Capital gains exemption for investments in start-ups will be extended by one more year, until March, 2022.
- Incorporation of One Person Company (OPC) will be incentivized with no restriction on paid up capital and turnover. The residency limit for an Indian citizen to set up OPC’s has been decreased from 182 days to 120 days. OPC’s are allowed to convert into any other type of company at any time. Non-resident Indians are now permitted to incorporate OPC’s in India.
- The Finance Minister proposed to revise the definition of “Small Companies” under the Companies Act, 2013, by increasing their capitalization threshold for paid-up capital from “not exceeding 50 Lakhs” to “not exceeding 2 Crores” and turnover from “not exceeding 2 Crores” to “not exceeding 20 Crores”. This will help more than 200,000 companies in easing their compliance requirements. For instance, a “Small Company” needs to hold only two board meetings in a year, unlike other companies that are required to hold four such meetings in the same period. Small Companies are not required to maintain their cash flow statement and their annual returns could simply be signed by a company secretary or a single director. These companies are also not required to change their auditor under Section 139(2) which is mandatory for other companies. In case of regulatory violations, the penalties levied are also comparatively low.
- Innovation & R&D will get a boost by allocating to the National Research Foundation (NRF) a sum of Rs. 50000 crore.
- Announcement of Non-Auditing of Income Tax until Rs. 10 Crore and allowing start-ups to claim IT Exemption and Capital Gains for 1 more year will ease the compliance burden of start-ups and help in raising more funds.
- Finance Bill: Tax holiday applicable to start-ups with IMB certificate. Only 329 start-ups have received such a Certificate from an inter-ministerial board so far.
ED-TECH AND EDUCATION
Backed by the Government’s National Education Policy (NEP) 2020, the Indian ed-tech sector benefited the most during the pandemic, with behemoth task of catering to the second-largest school-going population in the world.
With the intention of integrating technology with the country’s educational ecosystem, NEP 2020 proposed the creation of an autonomous body called the National Educational Technology Forum (NETF). NEFT will have the aim to facilitate decision-making on the induction, deployment and use of technology so that leadership teams in educational institutions, the central and state governments, and other stakeholders can leverage the knowledge and research data to develop and share best practices.
In another significant move, the government plans to increase the foreign direct investment (FDI) limit for the insurance sector from 49% to 74%.
To facilitate the onshoring of offshore funds into India, the finance minister announced a “warehousing” mechanism through tax incentives for units under the International Financial Services Centre (IFSC). This will allow international funds to relocate to India and avail tax exemption, experts said. Tax incentives to IFSC in GIFT City:
- Tax holiday for capital gains from incomes of aircraft leasing companies;
- Tax exemptions for aircraft lease rentals paid to foreign lessors;
- Tax incentive for relocating foreign funds in the IFSC; and
- Tax exemption to investment division of foreign banks located in IFSC.
This will help ensure that the gateway to Indian equities will be in India and the need to have a foreign launchpad in order to invest into Indian equities is mitigated.
Most economic experts are giving this budget a big thumbs up, and calling it the Modi government’s best yet. The stock market reacted with a 5% jump, which is always a good sign as investors welcome the absence of tax hikes. One of the more remarkable features of this budget is the sheer volume of data and documents presented by the Finance Ministry on their website, indicating transparent governance, which will go a long way not only towards a more consistent economic policy framework but also towards assuring global investors that India is open for business, thereby lowering the risk perception.