Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members


Budget 2021 is a bid by the government to revive the economy after the year that we’ve had- where everything from consumption, investments and exports has fallen.  In the first quarter of FY20-21 the economy witnessed a staggering 24% fall and post that there has been a continued reversal of that trend. Now almost a year after Covid-19 first hit our shores, the government is attempting to rebuild the economy through infrastructure spending, investment in distressed sectors especially MSMEs and focusing on a growth formula through upskilling and innovation.

ETILC hosted an exclusive post-budget analysis session with over 50 CEOs involved engaging with senior members from KPMG India.

The Numbers In The Budget

The government has factored in a  14.4% growth in GDP for FY21-22 which is a real GDP growth of 11% if one accounts for 3.4-4% inflation. For this to be achieved, the services sector would have to grow at 25-30% for a total GDP growth of over 14%. A total receipt of Rs. 17.88 lakh crore rupees has been budgeted for tax and non-tax revenue and 34.83 lakh crore rupees of expenditure has been budgeted for FY 21-22.

Euphoria of The Markets

There are two reasons for the euphoria of the markets surrounding the budget. First, the market was expecting an increase in taxes but there has been no increase in taxes nor has there been an introduction of any fresh taxes. Second, the market has responded to the year on year increase in government expenditure which results in more growth for corporates.

Attracting Capital

There is a strong policy push in this budget to attract capital, the kind India has never attracted before. The government has said that it will be putting public operating infrastructure in the control of private capital. In order to do this, they will be seeking to attract capital from vehicles such as REITs and InVits. There is a policy pronouncement which promises that within a short amount of time the necessary framework will be ready for FPI debt to flow into public and private REITs and InVits.

While the government understands its constraints, it has allowed the fiscal deficit to slip. It has not cut back on expenditure, at the same time it is planning for future generations, by striving for long term capital, 14-18 year capital,  to flow into these vehicles.  The government has also introduced zero coupon bonds and formation of DFI – debt funding for infrastructure projects. There is a budgetary allocation for Rs. 20,000 crores for DFI.

PSU Divestment Program

The government has set out a very realistic PSU divestment program – two banks, one insurance company and they’ve mentioned an LIC IPO. According to experts, Rs. 1,75k crore is a very conservative target and in all probability the government could raise  more. Also, to increase IRR on disinvestment deals and to increase returns for bidders, the government has made changes in the tax laws, to essentially accord tax neutral treatment to these disinvestment deals and to accord certain tax benefits to the buyers.


On a go-forward basis, every customs notification, which is issued which has any degree of conditionality attached to it, will have a shelf life of only 2 years. And all existing notifications that exist today, will automatically expire on 31st march 2023. While this brings in a great amount of clarity, it limits a business person in some ways. If you’re running a business or implementing a project, and if you rely on a particular exemption under customs, then your point of view on that product can’t be more than 2 years.

Another welcome announcement is that, all investigations that start under customs, today, there is no time limit on closure of investigations. Now, a time bound investigations clause has been inserted where all issues that are being investigated have to be completed within two years. In select circumstances this can be extended by one more year and that’s by maximum the investigation can go.

“The PLI scheme  has seen a lot of action in the last couple of years, emerging as a core strategy for Make In India. That is being supplemented by select custom duty changes.  Importing a certain product is being made more expensive, now importing parts of it is also being made more expensive. The more you localize and use local resources, the price arbitrage between local goods and imported goods, will increase. The third element of that is the most invisible but perhaps the most powerful, use of non-tariff barriers and quality control orders,” says Rajeev Dimri, Partner and Head of Tax, India

Tax Policy

The government has taken a strict stance against aggressive tax planning and technical niceties. Transactions will be judged more by substance rather than form. Over the last three-four years the government has seen that promoters and entrepreneurs misuse the partnership route to exit companies to private equities. This route has been used to avoid paying tax and now the government has reiterated that this route will not be allowed to be artificially used.

The second thing that the government has done is it has decreased the look back period. Earlier the government was entitled to look back six years, in order to make any reassessment of any tax provision. Now, in the ordinary course, the government will go back only (three plus one) years instead of the previous (six plus one). However, in certain limited cases, the government has the ability to go back ten years.

The goodwill depreciation regime has been entirely overhauled covering both merger goodwill and acquired goodwill. The depreciation on goodwill will not be allowed even on deals done in the recent past. This measure is likely to hurt the profitability of many companies. However identified intangibles, like trademarks, copyrights and patents have been spared this goodwill depreciation restriction.

Overall, the budget was a bold one making many changes to rebuild the economy, adopting digitization even more and easing administrative requirements for compliant companies.

“The focus on health, infrastructure and the resolve for financial reforms are quite encouraging. 137% increase in spend to revamp primary, secondary and tertiary health sectors is the need of the hour. 37% increase in spend for infrastructure would be a big growth driver. Financial reforms like disinvestment of PSUs, IPO for LIC, allowing up to 74% of FDI in insurance sector, creation of DFI and asset reconstruction / asset management company are impactful decisions.” –Sebi Joseph, President, Otis India

“The strong policy push by the government to attract capital through vehicles such as REITs and InVits is a tremendous initiative.  The number of REITs and InvITs has to grow multi-fold, if the capital has to flow into the real estate & infra developers who need the liquidity for further capex.  In the US for instance, the real estate assets are no longer illiquid, they are getting traded on Stock Exchange platforms. India is moving towards making infra & real estate more liquid assets, which is a great initiative.” –R Suresh, MD, INSIST

“Budget has announced several projects that will enhance activity in the Dedicated Freight Corridor sector. GMR is an active player in this segment as it is already executing projects in this sector. INR 3 lakhs crores for the power sector should improve DISCOMs financial health and will be a long term positive for the sector. Improving ease of doing business through setting up of a conciliatory mechanism for quick resolution of contractual disputes, strengthening of the NCLT system, adoption of e-courts and setting up of an alternative mechanism of debt resolution.” –BVN Rao, Business Chairman, Transportation & Urban Infrastructure, GMR

“The Budget 2021 has mostly ticked the right boxes for rejuvenation of the banking and financial system, with safety and growth levers for institutions as well as customers. There are three most important points. Firstly, the pandemic, with its emphasis on social distancing, has played a vital role in pushing digital payments over cash transactions, and this has led to vast sections of the population – especially the urban youth – to permanently switch to digital payment modes like the UPI.

Secondly the budget has now been introduced to form both an Asset Reconstruction Company (ARC) that would purchase the bad loans and an Asset Management Company (AMC) which will manage the loan and recover maximum possible through a team of specialists in the field.

Thirdly, the proposed FinTech hub at Gujarat International Finance Tec-City (GIFT) is the right step towards rapid innovation for a country like India. The FinTech hub is capable of bringing out Make in India apps for India as well as for the rest of the world in the financial space.” –Jaya Vaidyanathan, CEO, BCT Digital

The budget has been very reassuring on all fronts and in line with Prime Minister Narendra Modi’s vision of an Aatmanirbhar Bharat. The Indian electronics sector will largely benefit from schemes like Production Linked Incentive (PLI) scheme, Modified Special Incentive Package Scheme (MSIPS), Electronics Manufacturing Cluster (EMC) scheme and electronic development fund.

“The Indian electronics sector will benefit from these allocations, as it would address, to an extent, the high cost of financing and boost manufacturing capabilities in India. Schemes like PLI will trigger competition among players, as it will be viewed as a benchmark to assess the unit’s capacity. and competence.” –Anku Jain, MD, MediaTek India

“As an education-focused NBFC, we believe that the following announcements have the potential to impact the overall education segment and financial institution sector positively. Government’s collaboration with UAE to benchmark skill qualifications, assessment and certification and the implementation of collaborative training programme with Japanese will up-skill our youth and provide vocational and industrial skills along with proper techniques and knowledge. The amendment of the Apprenticeship Act to improve the opportunities for the youngsters of our country will build the necessary confidence in them and assist them to be future-ready. These initiatives combined with the proposed regulatory mechanism for collaborations with foreign higher education institutes will enable students to develop global skills and prepare them for a bright career.” –Amit Gainda, CEO, Avanse Financial Services

Reflecting on the continued focus on ‘AtmaNirbhar Bharat’, the Finance Minister has announced extended support for the manufacturing of electronic components & sub-assemblies, including mobile phones. The public infrastructure has got a strong boost with specific allocation for NHAI for continued vigour on highway construction and improvement of the roads; with specific budget allocation for some of the states, including Assam. REIT will be vastly encouraged due to the abolition of dividend distribution tax and, this will accelerate the real estate growth, especially since debt financing by FII has been allowed now. This long-awaited concession will steamroll global funding into India’s real estate sector leading to a large boom in Housing and Commercial infrastructure. –Dinesh Aggarwal, Joint Managing Director, Panasonic Life Solutions India Pvt. Ltd.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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