February , 2021
10:06 am

Dr. H. P. Kanoria

Dear Readers,

Celebrating Republic Day on January 26 and the birthday of Subhash Chandra Bose on January 23, We, Bharatwasis have to work hard to ensure freedom from hunger for all and to provide shelter to all. Both the central and state governments must not fritter away scarce resources on monuments, statues, inaugurations, ceremonies, events, and other activities which yield very little long term benefits to the economy. Due to the pandemic Covid-19, tax collection has fallen sharply. Gross deficits will increase immensely.

The economy had started slowing down even in the pre-Covid-19 period. It has worsened during the Covid-19 period. Businesses have suffered huge losses. Adverse economic circumstances have been forcing business to restructure their finances. There are a few large corporates which are in a relatively better shape. Central and state governments have to take practical views and actions thereto. Several countries such as Australia, Canada and Germany have taken practical actions, not being caged by rules and regulations only. More clarity in the law is needed to ensure fewer disputes and easy compliances. Due to non-compliance of arbitration awards, many borrowers could not pay to the lenders. Similarly delay in payments by government agencies and bigger corporates is also creating cash flow problems from the small and medium scale service providers.

Finance: The Reserve Bank of India (RBI) plans to devise a four-layer regulatory framework for NBFCs (Non-Banking Finance Companies). Upper layer 25–30 companies will be regulated as strictly as banks.

The RBI kept its repo rate unchanged at 4% maintaining an “accommodative stance”. The reserve repo rate was kept unchanged at 3.35%. It has projected a GDP growth of above 10.5% for FY22. Retail inflation for the current quarter is projected at 5.2% within the tolerance band of the bank. Retail investors can now open gilt accounts with the RBI. They can now access the primary and secondary government bond market. Resident individuals will be able to make remittances to international financial services centres (IFSCs) established here under the liberalized remittance scheme (LRS). It believes that the rural demand and urban demand will gain momentum. The targeted long term repo operation scheme will now be available to NBFCs. Government investment will increase while private investment remains sluggish.

It is estimated that the government borrowing will be `12.05 lakh crore from the market in 2021-22, lower than the ` 12.80 lakh crore estimated for the current financial year. There is provision for CRR relief for banks on fresh MSME loans.

Government is to make Apprenticeship Act employer-friendly. Start-up entrepreneurs will be benefited by the budget’s proposals.

CSR: Government’s recent amendments for corporate social responsibility (CSR) for spending needs have mandated registration of agencies implementing CSR activities on behalf of the companies. It will further retard the social activities being rendered by secured organisation / foundation in rural and semi-urban areas, slums and shanties in towns. It will also increase administrative cost. To promote social activities and to meet the critical situation of hunger and unemployment, all kinds of donation, CSR expenses and other social expenses should be considered as not taxable from income. Corpus donation in charitable trusts and institutions but not invested in specified modes, would be considered as income. It will retard social activities. Trusts/ Foundations do spend the interest earning on corpus. It is no guarantee that there will be regular inflow of fund for social activities, if corpus fund is spent at a time.

Union Budget 2021-22: The Finance Minister has presented the Union Budget 2021-22 to boost the economy. While considering the extraordinary circumstances, this budget is set to be good for growth. It has balanced the government expenditure to stimulate the economy without the introduction of any additional tax.The budget has rightly focused on key sectors like infrastructure, urban transport, water supply, new roads, wastes management, healthcare, re-capitalisation of PSU banks and promoting a digitally strong India.

The Finance Minister increased Agri-Credit target for 2021-22 to ` 16.5 lakh crore, a hike of 10% over the last year. Against a budget fiscal deficit of 3.5% of GDP for 2019-20, the same for the current fiscal is projected at 9.5%, 6.8% in 2021-22 and the government is aiming for 4.5% by 2025-26, still much higher than the 3% figure outlined originally in the FRBM Act.

The idea of a single bad bank mooted in the budget is not enough to will not accelerate the growth of

economy. Some 24 Asset Reconstruction Companies (ARCs) already exist and their function is pretty much the same as a bad bank, although they are not government backed. Government backing will facilitate public sector banks to park their NPAs in the bad bank without future of future investigation. However, the bad bank concept needs to be further fine-tuned by reviewing the tax implications, the funding of capital of the bank, talent recruitment and other nitty-gritty. Without this, its fate may be similar to that of many unsuccessful PSU undertakings. It is better to support with funding by Asset Reconstruction Companies in private sectors and also to set up more such companies and also Reconstruction Development Bank.

Infrastructure needs long-term debt financing. A professionally managed Development Financial Institution (DFI) is necessary to act as a provider, enabler and catalyst for infrastructure financing. The Finance Minister has announced to set up a DFI for infrastructure projects with a capital of ` 20,000 crore aiming to have a lending portfolio of at least ` 5 lakh crores in three years. Few more DFIs should be promoted, both in the public and private sectors.

Infrastructure debt funds will be allowed to issue zero coupon bonds after necessary amendments in the act.

Quick project approvals along with reduction in the number of approvals, easy land procurement and

on-time payments will be needed to meet the growth. According to CEA K V Subramanian, the budget outlay of 2.5% of GDP in infrastructure alone can give a 6.25% growth out of projected 11% of GDP.

Multiple structural changes have been proposed for the custom duties, which will be rationalised. Reduction in custom duty on gold and silver will certainly ease the burden on Indians who use these as investments and for traditional ceremonies.

Pradhan Mantri Atmanirbhar Swasth Bharat Yojana is proposed in the budget with an outlay of about `64,180 crore over the next six years. This will develop capacities of primary, secondary and tertiary healthcare system, strengthen existing national institutions and create new institutions.

To promote the start-up business 100% of the profits and gains for three consecutive years out of the 10 years at the option of the assessee will be allowed.

No new tax has been imposed except for the increase in cess on fuel prices. Although it was announced that a reduction in excise duty will neutralise that cess, in the days after the budget the excise duty has been raised and fuel prices have started rising again. The resultant increase in transportation cost is bound to impact inflation. Hope of the middle class is belied as no relief in taxation has been given. The liquidity with them will remain prune. It is expected that the country will march forward and the resultant growth will generate new employment, mitigate hunger and make access to health services universal.

Online commerce: Online commerce is poised for exceptional growth. Large corporates are entering e-commerce, and retail business can witness a likely displacement of the small retailers. India needs rationalisation of compliance, simplification of compliance and simplification of taxation.

All sectors that are affected by several reasons should be supported instead of suspicion of diversion of funds and others.

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