Budget expectations 2021

The seven areas that the government may focus on in the upcoming Union Budget 2021 includes the following: 

1. Investing in infrastructure, health, skills, and defence 
   • Invest in building a robust infrastructure and productive assets, which will be key in realising India’s self-reliance ambition. Infrastructure is one area where India needs to scale up significantly to compete with its peers globally and the government should also allocate at least 4−6 percent GDP in the near term.
   • Emphasise on infrastructure investment, which will translate into employment generation, livelihood for low- and semi-skilled workers, and demand for goods and services offered by Ministry of Micro, Small & Medium Enterprises (MSMEs).
     
     • Reduce the logistics costs and improve the efficiency and performance of the industry and the private sector. 
     • Boost smart city projects to create a vibrant and self-sustaining ecosystem to attract global investors.
     • Expand economic hubs in tier-2 and tier-3 cities to ensure geographically equitable and inclusive growth.
       
   • Allocate for judiciary infrastructure, which will provide swift justice and result in resolution of pending cases, leading to improved investment sentiments.
   • Boost health and social care to make the country ready to deal with similar challenges in the future with higher resilience.
     
     • Increase spending on health care infrastructure from the current 3.5 percent of GDP to at least 5 percent this year and target to reach the world average of 10 percent over the next 10 years.
     • Ensure access to loans, lands, and facilities to rural and sub-urban hospitals and improved health care services.
       
   • Spend resources on upgrading and procuring defence resources to support operational capacities amidst geopolitical tensions.
     
2. Generating demand, economic activity, and employment opportunities
   
   • Allocate resources to address structural challenges obstructing MSMEs’ growth.
   • Announce more schemes and incentives for the agriculture sector. Introduce tax cuts for both personal and corporate income. However, keeping in mind that the revenue income is likely to be low in FY2021 , the benefit may be given to those who have been most hit by the pandemic.
   • Allocate more resources to ensure social and health protection to workers and facilitate inclusion.
   • Encourage expansion of international finance centres across the country that will result in higher income and job benefits.
   • Formulate schemes to improve local networks and channelise efforts to expand job opportunities in tier-2 and tier-3 cities, especially when the possibility of virtual working is opening up newer opportunities.
   • Spur real estate investments by providing developers hassle-free access to loans at subsidised rates, access to external commercial borrowings, an opportunity to raise funds from foreign investors, including Sovereign Wealth Funds (SWFs) and Foreign Pension Funds (FPFs), and input tax credits for certain construction services. Growth in this sector will ensure jobs to migrants and low-skilled workers who have been hit hard during this pandemic.
     
3. Improving the ease of doing business environment 
   
   • Rationalise the tax structure (change the GST rate structure and ease compliance requirements) and clarify tax ambiguities and treatments of certain expenses to open up new income and investment opportunities.
   • Allocate funds to address logistics challenges and for better implementation of labour and land laws. 
   • Spend resources on digitising the government procedures and mandatory requirements, such as improving the basic IT infrastructure hurdles for filing taxes and implementation of online single window system for clearances and integrating business procedures.
   • Invest in economic corridors after a careful assessment of comparative advantages, and identification of sectors and value chains.
     
4. Increasing export footprint and moving up the global value chain 
   
   • Promote specialisation and investment in sectors where India has a competitive advantage and that are labour intensive by providing tax incentives and mechanisms to facilitate trade, subsidised credit, and specific programmes for the targeted industries.
   • Provide incremental production-linked incentives (an inspirational initiative already announced for the manufacturing sector) associated with the creation of domestic value addition and high value-adding operations. The idea is to provide more incentives to those who engage in high level value addition and vice versa, thereby, encouraging more manufacturers to participate in export and even move up the global value chain.
   • Announce incentives to scale-up facilities, favourable trade policy announcements, and measures to address logistics and co-ordination costs associated with world-class transport and communication.
   • Allocate resources for building and protecting Intellectual Property Rights (IPR) and promoting innovation.
     
5. Allocating resources for innovation and upskilling to prepare for future of work
   
   • Encourage technological innovation and promote competition through increased incentives for R&D and attract industry players to invest in more innovation contract R&D and human resources.
     
     • Re-introduce weighted deduction for R&D expenditures 
     • Bring R&D players within the fold of the reduced tax regime or extending incentives for R&D. 
     • Improve the patent box regime to offer reduced tax rates to assignees/transferees. 
       
   • Invest in specialised education and targeted training to upskill its working and youth population.
   • Allocate more funds for research in premier academic universities and institutes and encourage their networking with firms.
     
6. Stabilising the financial sector
   
   • Infuse more capital, experience, expertise, and ensure healthy competition within the Indian banking sector by granting licences to large corporate and industrial houses/Non-banking Financial Companies (NBFCs) (which is being evaluated by the RBI), subject to a strong regulatory, independent, and governance framework.
   • Rationalise corporate tax rates for Indian branches of foreign banks and bring them at par with tax rates applicable to Indian banks.
   • Provide additional tax concessions or deductions towards a tax neutrality scheme to foreign banks converting Indian branches into wholly owned Indian subsidiaries and non-applicability of transfer pricing provisions.
   • Ensure credits/funds flow to NBFCs and Housing Finance Companies (HFCs), with concrete credit backstop measures to minimise systemic risks.
   • Provide exemptions from thin capitalisation rules and withholding taxes domestic borrowers face.Simplify tax regime, provide tax certainty and tax exemptions for certain investors to attract long-term investors, such as sovereign wealth funds.
     
7. Funding expenses and managing the fiscal deficit will be key
   
   • Rationalise spending by reducing revenue expenditure spending and raising capital expenditure even if it means a higher fiscal deficit for the initial few years.
   • Create a bank to fund infrastructure spending to supplement resources for India Infrastructure Finance Co.
   • Explore options, such as external borrowing (as interest rates are historically low in several advanced nations), strategic disinvestments, and public-private participation. 
   • Stabilise GST rates, broaden the tax base while finding new sources of revenues, improve the basic IT infrastructure hurdles for filing taxes, and plug loopholes that encourage tax evasion to improve revenue buoyancy.
   • Disinvest in less productive assets and use those resources for more productive assets, such as infrastructure.