What Does India Seek from the 2021 Union Budget?

Posted by Written by Melissa Cyrill Reading Time: 2 minutes

India’s 2021 Union Budget will be presented on February 1 by the Finance Minister Nirmala Sitharaman. Like all years prior, this year’s budget is highly anticipated though it comes amid some uncertainty over what the government can deliver.

The ongoing COVID-19 pandemic has placed much of the Indian economy in disarray, resulting in economic contractions, job losses, and uneven industry recovery.

To successfully combat these challenges, the budget should ideally look towards establishing baseline measures that will aid in economic recovery while facilitating long-term conditions to boost private sector investment and employment generation.

Below we highlight five key areas that the budget is expected to focus on for FY 2021-22.

1. Focus on healthcare

The pandemic has made clear the necessity of investing across India’s ailing healthcare infrastructure, with clear capacity and resource gaps across rural-urban centers. Budget watchers expect some focus spent on public healthcare, including financing the COVID-19 vaccination drive.

2. Growth of micro, small, and medium enterprises (MSMEs)

Micro, small, and medium enterprises have been especially vulnerable due to less resources available to cushion the pandemic shock and failure to withstand major and sudden financial losses. These enterprises are a pillar of the Indian economy and an important source of job creation. However, several limitations, such as the lockdowns and erosion of savings have led many enterprises to close their operations. Market and industry analysts alike will be waiting to see if there are any sops targeting the MSME sector – including with a view to equip manufacturing and service enterprises for transitioning to the digital economy.

3. Addressing the infrastructure gaps

In addition to the goal of housing for all, major infrastructure and logistics development is required to successfully attract scalable industrial projects and sustain foreign investment incentives. Spending on roads, railways, housing, and, both, rural and urban infrastructure will be expected. Public investment needs will strain the government’s position on fiscal rules. Meanwhile, in the private sector, attention will be paid to any support for debt financing – which will be necessary for funding infrastructure spending, particularly as the pandemic disrupted the working capital/savings of firms in this sector.

4. Support for manufacturing sector

The manufacturing sector has been hit badly during the pandemic – due to slowdown in demand and labor shortages triggered by the lockdown. However, this sector is key to India’s ambitions to move up the industrial value chain and participate in the global supply chain – besides wanting to attract foreign companies seeking to relocate from China and expand their Asia footprint. The resuscitation of jobs growth in the informal sector is also essential for the economy to stabilize.

5. Incentives for the corporate sector

India Inc. and foreign firms alike are less expectant on this front as the government is balancing several spending priorities as it looks to pull the Indian economy towards long-term recovery and growth rebound. However, multinational companies want a predictable tax regime and clarity on transfer pricing rules. Reforms are also desired to strengthen India’s Advance Pricing Agreement (APA) program. MNCs will also pay attention to any moves to ease the compliance pressure on company groups.

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