What India inc got from the never-before union budget 2021?

In last few years, non-performing assets (NPA) of banks have increased to an alarming number. To tackle this, government will set ARC and AMC to manage the bad debt of public sector banks. Along with this, 2021-22 has announced PLI schemes in 13 sectors under Atma Nirbhar Bharat initiative to strengthen manufacturing.

What India inc got from the never-before union budget 2021

The first budget after the outbreak of an unprecedented disease got a thumbs-up from India Inc with the equity markets jumping around 5 per cent in the day’s trade on the day of announcements. The biggest take-away from the budget has been centre’s aggressive push to revive the economy through higher outlay for capital expenditure.

There is a sharp increase in capital expenditure with BE of Rs 5.54 lakh crore which is 34.5 per cent more than the BE of last fiscal year (Rs. 4.12 lakh crore). The Minister stated that despite the resource crunch it has been government’s effort to spend more on capital and it is expected that the total capital expenditure during 2020-21 will be around Rs 4.39 lakh crore.

With the main objective to revive India’s pandemic-battered economy, the centre has opted for a massive spending spree on infrastructure creation, healthcare, education, and demand generation. Finance Minister Nirmala Sitharaman has proposed to unleash massive fiscal expansion in 2021-22 on the back of high borrowings, fire sales, and an agricultural cess.

Dr. Arun Singh, Chief Economist at Dun & Bradstreet called the budget a visionary scheme. “Even as the budget misses the expectation of being unconventional, multiple unique initiatives have been announced such as fintech hub, gold exchanges, digital census etc. The big thrust on infrastructure and healthcare sets a positive story. It will boost the economy through the multiplier effect by helping other ancillary sectors and create job more than what direct consumption boosting measures would have.”

He suggests government to create equilibrium between creation of jobs versus direct allowances. “Covid-19 has led to an increase in precautionary savings and contraction in consumer spending. The measures taken such as setting up a Development Finance Institution, a rational blueprint for asset monetization, enabling debt financing of InVITs and REITs by foreign portfolio investors and a friendly tax regime for foreign investors was much needed to assuage concerns of raising funds,” he says.

Inside article-What India inc got from the never-before union budget 2021

Policies on non-performing assets (NPA) of banks

In last few years, non-performing assets (NPA) of banks have increased to an alarming number. To tackle this menace, government will set Asset Reconstruction Company Limited (ARC) and Asset Management Company (AMC) to manage the bad debt of public sector banks (PSB) such as State Bank of India, Punjab National Bank, and others.

Such institutions are called bad banks.

A bad bank refers to a financial institution which takes over bad assets of lenders and provides resolution. Lenders have urged to set up bad banks to ease out the pressure of bad loans on them in these difficult times. The idea of creating a bad bank was first proposed in the Economic Survey 2017, calling it as Public Sector Asset Rehabilitation Agency (PARA) to tackle the problem of stressed assets.

This announcement has come at a time when the economist feared that NPAs will be a major challenge in 2021.

Due to economic crisis during last year, financial institutions resulted in more defaults and bad loans. Data suggest that 10 largest private sector banks in India have bad loans worth Rs 42,000 crore. Also, large number of companies and individuals are struggling to repay loans and debts. This also indicates that thousands of crores worth hidden bad loans, as top courts have ordered banks to maintain loan accounts as standard during crisis period.

According to Chief Economic Advisor KV Subramanian, these agencies will help in consolidating some of the NPAs. Resolution of bad assets due to alacrity in decision is often impacted because of the fear of 3Cs. It refers to Central Bureau of Investigation (CBI), Central Vigilance Commission (CVC) and Comptroller and Audit General (CAG).

Besides that, announcement to infuse Rs 20,000 crore for PSBs will certainly help in boosting their functioning.

Reacting on the announcement, Meghna Suryakumar, Co-founder & CEO at Crediwatch says, “We hope it helps in cleaning up the stressed assets and exorcises lingering bad spirits from commercial credit ecosystem. It could also bring more trust in the lending industry.”

With this, experts are in wait and watch mode, to see how it is going to turn out.

Prem Rajani, Managing Partner, Rajani Associates says, “It will aim to deal with NPAs of the financial sector. However, time will tell if the bad banks effectively shift the toxic assets of a bank to infuse fresh growth stimulus or not,”

Dr. Singh of D&B then adds, “Unlike the developed countries, India will not be able to afford to take the path of debt monetization to support its financial sector. The initiative to set up ARC and AMC in this regard looks promising, nonetheless, India needs to find investors to buy impaired assets in India. The mechanism must set rightly. The incentivization and the management of the ARC and AMC should be such that it does not follow the steps of the public sector units,”

Voluntary vehicle scrapage policy

The automotive sector was demanding scrappage policy since long. Hence, the government has announced it in the union budget 2021-22. Under this policy, 6.8 million old and unfit vehicles will be phased out. The scheme will increase the number of fuel-efficient and environment friendly vehicles. This is turn will reduce vehicular pollution and oil import bill.

Welcoming the move, Pawan Goenka, Managing Director, Mahindra & Mahindra said in a press conference, “The scrappage policy is a step in the right direction. The impact will now depend on how aggressively the policy is implemented and whether the government is going to create incentives for scrapping.”

According to data of Federation of Automobile Dealers Associations (FADA), there are 37 lakh CVs and 52 lakh PVs eligible for voluntarily scrappage if we take 1990 as a base year. Vinkesh Gulati, President of the apex body comments, “As an estimate, 10 per cent of CV and 5 per cent of PV may still be plying on road. We still need to see the details to access the kind of incentives which will be on offer and thus have a positive effect on retail.”

Justifying the move of not making the policy mandatory even as that would help spur the demand, Goenka said, “To incentivize the scrap is the right thing but to force owners to scrap their vehicles is a wrong thing to do. Moreover, you may not be able to cope up with the demand that would generate because number of old vehicles is large.”

Scrapping of vehicles will be based on fitness tests, to be conducted in automated fitness centres. Timeline for fitness test is twenty years in case of personal vehicles, and fifteen years in case of commercial vehicles. Moreover, the policy promises to infuse fresh investments worth Rs 10,000 crore and add 50,000 new job opportunities.  

Besides this, scrapping policy will benefit allied sectors too.

Electric vehicles players feel the voluntary scrappage policy will promote indigenous EV industry.

Talking to us Ankit Kumar, CEO, Gozero mobility, an EV maker tells us, “This policy would incentivize owners of old vehicles, which are usually the ones that fit the bill. Also, it would push the EV industry more into the limelight as it has more reason to evaluate economic feasibility of EVs and e-micro mobility options.”

Commenting on the impact of policy on various businesses, Parthasarathi Patnaik, Chief Risk Officer at Vayana Network says, “I think this may be the first bold step the government is likely to take to aggressively curb use of polluting vehicles and usher into an era of electric vehicles in line with global trends. This measure signifies well for the auto sector as it is likely that many older commercial and private vehicles will be replaced by newer fuel-efficient vehicles.”

With this policy in compliance, the dependence on steel imports is going to come down significantly in coming years. Goenka suggests, voluntary scrappage policy will allow old vehicles to be phased over in five years. It can be then made mandatory, “The scrappage policy has to be done carefully so that it is not ‘misused,’ and the government should plug all the loopholes,” he said. The ministry is going to soon notify on details of the policy, and it is expected to be implemented from April 1, 2022.

Production Linked Incentive scheme (PLI)

If India wishes to become a 5-trillion-dollar economy, manufacturing sector must grow in double digits consistently. Hence, budget for 2021-22 has announced PLI schemes in 13 sectors under AtmaNirbhar Bharat initiative. The government has committed 1.97 lakh crores for five years beginning from FY 2021-22 for all these sectors. This initiative will help in bringing scale and size in key sectors and will nurture global champions among them. It will also provide jobs to our youth.

As per Commerce Secretary Dr Anup Wadhawan, the budget aims at enhancing India’s overall competitiveness and manufacturing capacities. Such a step would enable growth, diversification, and technological enhancement of India’s exports. This will also cover ease of doing business around approvals and procedures. It will also create a physical environment for investment by forming a plug and play eco-system for investors.

The idea is to make a robust infrastructure, logistics, and utilities environment for the manufacturing sector. These sectors include Advance Chemistry Cell (ACC) battery, electronic and technology products, automobiles and auto components, pharmaceuticals drugs, telecom and networking products, textile products, food products, high efficiency solar PV modules, white goods (ACs and LED), and specialty steel.

All these were notified about this last year and mobile and certain electronic components, Active Pharmaceutical Ingredients (APIs), and medical devices sectors were added this year.

Rajesh Uttamchandani, Director, Syska Group welcomes the grant in addition to the Rs 40,951 crore towards the PLI scheme the sector gets. Supporting the step, he says, “India’s manufacturing industry has the tremendous potential to place our country on the global manufacturing map. Our manufacturing companies can then become an integral part of global supply chains.”

Textile industry which comes under PLI scheme lauded the thrust given to the sector in form of seven mega integrated textile regions and apparel parks (MITRA). Indian Texpreneurs Federation (ITF) Convenor Prabhu Dhamodharan says, “With MITRA the sector particularly the SMEs can build competitiveness in manufacturing. Further, the parks can be aligned with environmental, social and governance goals to attract international buyers as well as investors.”

Adding in her remarks, Jyotsna Chaman, Co-founder of Vaaya, a clothing brand says, “Last year, mass-production suffered tremendously as the pandemic wrecked the havoc. This ordeal arose due to mass job losses, decrease in purchasing power etc. Overall revenues declined but expenses were constant, if not hiked. PLI and park scheme will help the industry to recuperate from this. The step would also help to ensure seamless supply chains that would add to profits.”

On the other hand, plastic manufacturing industry was hoping to get included under PLI, but it was excluded. Commenting on this, Arvind Goenka, Chairman, The Plastics Export Promotion Council (PLEXCONCIL) opines, “Overall budget will stimulate growth in the economy after a global pandemic. But PLEXCONCIL has been seeking inclusion of plastics under the PLI Scheme. As the government aims manufacturing sector to grow, it must encourage plastics’ manufacturing companies to develop core competence and innovative technology to become an integral part of global supply chains.

A budget to fuel consumption

According to Niranjan Gidwani’s, Former CEO of Eros Group, Dubai and now Independent Consultant Director, more could have been done in this budget. Considering the size, scale and complexity of our nation and the extent of damage caused due to pandemic, the government should be surely complimented for being much more willing and responsive.

He says, “We are sure that from now onwards, the lower, middle and upper middle class will be made to feel genuinely more inclusive. We know that this government has the desire and ability to ensure that the shortcomings of a few will not be the basis of dealing with the large majority of the nation.”

The collective opinion of experts suggests that budget 2021-22 is a pro-infrastructure and pro-investment budget with a clear focus on higher capital spending, financial sector reform, and asset sales. The enhanced public spending on rural segments, public distribution, and transport will not only boost the country’s industrial potential but will also catalyse consumption in hinterlands.

A good news for retail and FMCG segment.

Shyam Sunder Aggarwal, Managing Director, Bikano says, “Right policy measures with various schemes and initiatives would generate sufficient and sustainable employment. Only this would lead to stable incomes and higher purchasing power which in turn would generate demand for FMCG and food products and services. Furthermore, the allocation of substantive funds for roads, highways and railways will improve the distribution network and efficiency in provision of food products and services.”

Adding his comments, Amrinder Singh, Managing Director, Bonn Group of Industries also feels that stimulus packages in the form of low-income tax slabs, tax exemption for notified affordable housing for migrant workers, and new Agriculture Infrastructure and Development Cess will promote consumerism. It will also boost overall GDP growth.

The increased financial allocation for building roads, housing and new factories, and income opportunities will be generated for our rural consumers. This year’s spending on rural infrastructure development has been spiked by 34 per cent to Rs 40,000 crore, while micro-irrigation corpus is doubled to Rs 10,000 crore. Other measures will help in creating jobs and boost farm incomes resulting in enhanced purchasing power.

Commenting on it, S Shriram, Vice President, Levista Coffee says, opportunities in Infrastructure Sector will create jobs. He says, “With thousands of workers losing jobs in this sector and livelihood in the past few months, I believe this step would provide momentum for more money in the pockets of the earning class. It would also propel consumption of essentials like coffee.”  

Jewellery sector players also view this as opportunity, “As a jewellery sector brand, we are happy to see the reduction on import duty on gold as the prices urgently required correction to improve the market performance. This is going to boost demand and make gold jewellery more affordable for buyers,” says Saroja Yeramilli, Founder and CEO, Melorra.

Pankaj Khanna, Founder & Managing Director, Gem Selections also feels the same, “Custom duty on gold and silver is rationalised as per budget 2021, this is a great step for the better import and export of gemstones and jewellery across the globe. However, policies around export of gems and jewellery need further evaluation though,” he concludes.

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