India’s Union Budget 2021 – Focus on growth and stability
India’s Finance Minister, Nirmala Sitharaman, presented the Union Budget 2021-22 on Monday 1st February. The UKIBC held our Budget Roundtable 24 hours after Ms Sitharaman made her presentation, providing a chance for our members and clients to share their reactions and thoughts on the budget, and we heard from experts at members HSBC and PwC on the key take-aways, with opening and closing remarks from UKIBC CEO, Jayant Krishna and FICCI Secretary General, Dilip Chenoy.
In a year when India, like many countries, faces its deepest recession the national budget had particularly high expectations. The general consensus is that the budget presents stability in the main, or “business as usual”, with increased spending in several key areas.
The Government has increased spending in areas such as healthcare and infrastructure in spite of no increase in direct taxes. Consequently, India’s fiscal deficit for the current financial year is set to rise to 9.5%, the highest since the country moved to more pro-market principles in 1991.
Although the high deficit, which the GoI aims to bring down to 6.8% in the following year, will present challenges, the decision to keep taxes stable will be welcome news to business owners, for which stable tax policy can only be positive.
At just over GBP 21bn, India’s health spending has more than doubled, unsurprisingly so due to the pertinence of COVID-19 which has laid bare the need for an appropriate healthcare sector.
Spending on infrastructure has risen by more than 35%, including a new Development Finance Institution (DFI) to help fund large-scale infrastructure projects. National highway projects and infrastructure corridors have been cleared in poll-bound states such as Tamil Nadu, Kerala, Assam and West Bengal for example. A scheme to set up textile parks across the country was also announced.
As well as healthcare and infrastructure, increased government spending will come in critical areas of the economy such as agriculture, education and defence.
A very positive step for international onlookers was the opening up of India’s financial services sector, mainly the increased foreign investment limits in insurance companies from 49 percent to 74 percent. This has been a key advocacy goal of the UKIBC in recent years and as such one most welcome by British industry.
Moreover, the budget has seen a push for privatisation of a number of state-run companies. Disinvestment, including privatisation of banks and insurance, presents great opportunities to potential investors, as the Government seeks to raise much needed revenue.
Experts are predicting a sharp rebound in India’s economy – which is now projected to contract 7.7% in the current financial year – in the short to medium term with growth at 11% predicted in 2021-22. This would make India among the fastest growing economies in the world, returning to the world-leading levels it has achieved for much of the last decade.
So, a solid budget on paper, providing stability and some investment opportunities; the reality will depend on execution and fiscal consolidation. The UKIBC will continue to support the Government of India across our networks at the Central and State level, and to support our members and clients in the UK-India economic corridor.