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    Budget 2021: A clear message valuing growth and stability

    Budget 2021: A clear message valuing growth and stability

    Budget 2021: A clear message valuing growth and stability
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    By Haigreve Khaitan   IST (Published)

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    One criticism could be that the government failed to meet the expectations of the salaried class on some relief in the form of a tax cut or direct stimulus payments.

    From 36 all-out to breaching the fortress at the Gabba, the Indian cricket squad featuring many young and inexperienced players inspired the whole nation with their display of grit and determination at the recent Border-Gavaskar trophy series in Australia.
    The Finance Minister, in her budget speech on Monday, not only mentioned the incredible sporting feat, but also appeared to take a cue from the spirit of the victory—taking a hit during the tough overs so that the team’s chances to win remain alive.
    Through her budget speech, the Finance Minister told us that after the tough year we had, marked by a global pandemic and unprecedented economic and social challenges, the government, indicating a clear shift in political economy, is willing to take a few hits so that the economy can gain some growth momentum.
    “We spent, we spent, and we spent,” she said in a press conference post the Budget speech. Indeed, the fiscal deficit target for FY22 is at nearly 7 percent (6.8 percent to be precise); last year’s deficit stood at 9.8 percent. These figures, when read together with the 34.5 percent increase in capital expenditure for the year, a 137 percent rise in health outlay and a massive infrastructure push without any significant changes to tax structures, paint a picture of readiness to spend and restraint all at once.
    For foreign investors, this budget sends out a clear signal—the government will provide support, is looking to be consistent and ensure improved ease of doing business. The move to increase FDI limit in the insurance sector to 74 percent is one such step in this direction. Moreover, foreign ownership and control in this sector have now been permitted, subject to safeguards. Further clarity on this front will surely spark a flurry of investment activity in this space.
    Another step driving home the message of being business friendly is the decriminalisation of offences under the LLP Act, 2008, thereby insulating them from any possible risks arising out of procedural lapses. The move to allow NRIs to set up one-person companies and the increase in threshold of small companies to a turnover of Rs 20 crores are good news for the startup and MSME spaces.
    Other announcements that were well-received are the setting up of a much-awaited Asset Reconstruction and Management Company for distressed assets, allowing sale of distressed assets to AIFs, allowing FPIs to debt-finance REITs and InVITs, setting up a Development Finance Institution (DFI) and indicating that there is room for private DFIs to come in as well.
    Much needed clarifications and more importantly, ‘prospective’ changes, in taxation of slump exchanges and goodwill now being specifically considered a non-depreciable asset have also put to rest longstanding ambiguity around these concepts and should reduce anxiety and uncertainty around how many transactions are going to be structured going forward.
    The rationalisation of customs duty structure by removing outdated exemptions, strengthening of the NCLT framework, PLIs across 13 sectors with Rs 1.97 lakh crore committed over five years and tax concessions for setting up units in GIFT City IFSC are also welcome steps.
    Perhaps one of the main aspects of this budget that was viewed favourably across the board, was the absence of any tinkering to tax rates. Be it income tax, wealth tax, long-term capital gains tax or super rich tax—no changes were announced and no new tax or cess was introduced (except an agriculture and infrastructure cess which the FM has assured, will not impact the importer or end consumer on account of customs duty cuts). This is a much-needed signal from the Indian government to the business world that it wants to offer a stable tax environment—one where the rates do not change every now and then.
    All of the above reforms, along with other major reforms and laws such as the Personal Data Protection Bill, Labour law reforms, GST rate rationalisation etc. are steps in the right direction with a long-term view of creating a stable citizen and business friendly economy.
    One criticism could be that the government failed to meet the expectations of the salaried class on some relief in the form of a tax cut or direct stimulus payments. However, the promise is that the infrastructure push will create enough jobs and ultimately benefit the middle class. We will have to wait and watch how well this plays out.
    The Finance Minister seemed quietly confident with the contents of her speech and succeeded in delivering a measured yet distinctly forward looking budget. Overall, this year’s budget is a renewal of commitment to growth and an indication that when the going gets tough, the government may be willing to play the role of a Cheteshwar Pujara to meet the country’s larger objectives.
    —Haigreve Khaitan is a Senior Partner at Khaitan & Co and heads the Firm’s Corporate, M&A and Private Equity practice. Views are personal
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