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On 1st February 2021 Finance Minister of India, Nirmala Sitharaman presented Budget 2021. It offers a direction for growth with strong intent for reforms. The budget majorly focuses on the seven pillars for reviving the economy which include Health and Wellbeing, Inclusive Development for Aspirational India, Physical and Financial Capital and Infrastructure, Innovation and R&D, Reinvigorating Human Capital and Minimum Government Maximum Governance.
Besides, it is interesting to note that this time India is presenting the first-ever paperless budget. In this article, we will discuss on reforms relating to foreign direct investments, import, export, manufacturing set-up, economic growth, special package by government. Above all we will also focus on industry-wise impact of the budget. Read on to find out how budget 2021 will impact doing business in India.
1.Budget 2021: FDI in India in the Insurance sector hiked to 74%
The Finance Minister proposes to enhance the foreign direct investment (FDI) limit in the insurance sector of India from 49% to 74%. Owing to this, there will be an amendment in the Insurance Act 1938 and it will allow foreign ownership and control with safeguards. A more liberal FDI policy in insurance will attract foreign investors. It will offer foreign promoters an opportunity to buy out their cash-strapped Indian partners, if necessary.
To know more, click here – https://www.outlookindia.com/outlookmoney/investment/fdi-in-insurance-hiked-to-74-lic-ipo-in-2022-6015
2.Budget 2021: Customs duty cut on steel imports unlikely to affect steel companies in India
The Finance Minister proposes to reduce customs duty from 12.5% to 7.5% on imports of semi-flat steel which is used to make bridges, ships, line pipes and other equipment. Furthermore, there is also a reduction in customs duty on longs which is used to make rails and wire rods from 10% to 7.5%. However, this move is unlikely to impact the domestic steel industry. Industry experts believe this because of two main reasons – firstly, lower domestic prices compared to international rates. Secondly, India imports majorly from countries like Japan and South Korea with whom India has a free trade agreement.
3.Budget 2021: Customs duty hike to make electronics items in India more expensive
The Finance Minister levied higher import duty rates on a large number of commonly used items including refrigerators, air conditioners, power banks, LED lights and mobile phones. Therefore, this move will make electronics items more expensive by 2.5% in the short term because the customs duty on its key component compressors has been increased to 15%.
4.Budget 2021: Indian Government cuts basic import duty on edible oils
The basic import duty on crude palm oil is reduced to 15% from 27.5% earlier. Furthermore, the basic customs duty on soybean oil and sunflower oil is reduced to 15% from 35% earlier. India is the world’s biggest importer of vegetable oils. Keeping this in mind, the budget proposes a 17.5% cess on crude palm oil and 20% cess on crude soybean and sunflower oil. Alternatively, this move could reduce shipments.
5.Budget 2021: Indian Government supports MSMEs making ‘import substitute’ products
The government brought many incentives coupled with reforms to encourage growth in the MSME sector in India. In budget 2021, the Finance Minister offered 1.8 Million Euro for the Ministry of Micro, Small and Medium Enterprises. Furthermore, the government made several changes in the MSME definition, increased funding through banks, equity funding, and offered many other fiscal concessions. On the other hand, the government is all set to reduce margin money requirements from 25% to 15% for start-ups. The increased support from the government will boost the MSME sector and bring new opportunities for businesses.
6.Government offers to set up 7 mega textile parks in Budget 2021 giving a boost to the textile industry in India
With the aim to position India’s textile sector as a globally competitive manufacturing and export hub, the government announces to set up 7 mega textile parks over a period of 3 years under the scheme of mega investment textile parks. The parks will be set up in over 1,000 acres of land with state-of-the-art infrastructure, common utilities, plug-and-play facilities and Research and Development (R&D) lab. This will be in addition to the 1.3 Million Euro production linked incentive scheme for technical textiles and manmade fiber.
7.Budget 2021: India is set to launch Hydrogen Energy Mission
The Finance Minister will launch a Hydrogen Energy Mission for generating hydrogen from green power sources in near future. The step from the government will help in reducing the carbon footprint in India. Furthermore, experts believe that the demand for hydrogen from industry sectors such as road transport, shipping, aviation, fertilizers and refineries will also increase from the present 6 metric tonnes per annum to around 28 metric tonnes by 2050.
8.Budget 2021: The government has announced production linked incentive schemes for 13 manufacturing sectors in India
Government aims to make India a hub for manufacturing and exports. With this in mind, it has announced production linked incentive schemes for 13 sectors. The scheme will encourage foreign companies to set up manufacturing units in India. This will also encourage the local companies to expand their production and manufacturing capacities. In addition to the 4.6 Million Euro announced for the PLI for electronic manufacturing schemes, the government will spend 2.25 Billion Euro on several productions linked incentive schemes over the next 5 years. The scheme is proposed with the intent to provide incentives to companies on the incremental sale of products manufactured in the country, cut down import bills, reduce dependency on China and absorb the country’s growing workforce.
9.Make in India: Budget 2021 to aid local manufacturing in India
To know more, click here – https://www.theweek.in/news/biz-tech/2021/02/01/make-in-india-budget-2021-to-aid-local-manufacturing.html
Budget 2021 aims to boost Micro, Small and Medium Enterprises and strengthen the Atmanirbhar Bharat initiative of the prime minister. It will help India strengthen its domestic manufacturing ecosystem. Furthermore, it will facilitate the ease of doing business and increase the local manufacturing base in the country.
10.Make in India: Budget 2021 boosts mobile manufacturing in India
In a bid to promote local mobile manufacturing, the government has initiated a move to remove exemptions on parts of chargers and mobiles. Furthermore, there will be a 0.2% imposition of customs duty on several parts of mobiles. Moreover, the production linked incentive scheme announcement offers 4.6 Million Euro on the manufacturing of mobiles and specified electronic components. This will promote domestic mobile manufacturing in support of Make in India.
11.Budget 2021: Government targets fiscal deficit reduction from 9.5% in FY21 to 4.5% by FY26
The government has revised the upwards the fiscal deficit for FY21, redrawing the fiscal deficit roadmap to 9.5% of the GDP from the earlier estimation of 3.5% of GDP. However, the target is to achieve a fiscal deficit of 4.5% of the GDP by FY26. “We hope to achieve the consolidation by first, increasing the buoyancy of tax revenue through improved compliance. Secondly, by increased receipts from monetisation of assets, including Public Sector Enterprises and land,” the finance minister said.
12.Budget 2021: Finance Minister announces 2.1 Million Euro scheme for public transport in urban areas
The government announces to work towards the betterment of public transport in urban areas. Coupled with the expansion of metro rail network and augmentation of city bus service. In regard to this, the government announces a 2.1 Million Euro scheme to augment public transport in urban areas. The scheme aims to boost the automobile sector in India. Furthermore, it aims to promote economic growth, create employment opportunities and provide ease of mobility for urban residents.