Following the black swan event that the pandemic was, and in a bid to bolster the economy of the nation, the Finance Minister came out with a budget that targeted several key areas. The budget also had a multi-fold increase in the allocation for a wide range of sectors, including healthcare, infrastructure, education, and finance, among others.
In addition to that, there were also several indirect tax reforms by way of revision in the customs duty rates. Taking all of the announcements and revisions of rates into consideration, here’s a list of the industries/sectors that may emerge as the winners and losers, and a closer look at the items that are likely to undergo a price change.
Here’s a sector-wise breakup of winners and losers as a result of the announcements made in the Budget 2021 presentation.
Budget 2021 increased the total capital outlay for health and well-being to Rs. 2,23,846 Crores for the upcoming financial year 2021-2022. This marks a massive increase of around 137% from last year’s allocation of Rs. 94,452 Crores. It also includes an additional capital outlay of Rs. 563 Crores earmarked for health research activities. Furthermore, around Rs. 35,000 Crores have also been allocated solely for COVID-19 vaccinations.
To realize the goal of AtmaNirbhar Bharat, the government of India has earmarked around Rs. 1.97 Lakh Crores to be spent over the next 5 years for promoting domestic manufacture and self-reliant measures. This is likely to be done through a Production Linked Incentive (PLI) scheme to create manufacturing global champions and to provide additional jobs to the youth of the country.
Mega Investment Textiles Parks (MITRA), a new scheme, is also to be set up by the government of India solely to cater to the textile industry. Over the next 3 years, around 7 textile parks are slated to be created, with leading infrastructure to ensure global competitiveness and promote generation of employment.
Budget 2021 proposed the setting up of a dedicated Development Financial Institution for financing long-term debt to infrastructure companies. The Finance Minister has allocated around Rs. 20,000 Crores for the initiation of this institution. This move is likely to benefit all major infrastructure companies, including those in real estate and construction.
Thanks to the announcements in Budget 2021, metal industries are one of the biggest winners. The proposed introduction of the voluntary vehicle scrapping policy and the announcement for construction of an additional 11,000 kilometers of national highway corridors under the Bharatmala Pariyojana Project are likely to spur heavy demand for metals such as aluminium and steel. In addition to that, there’s also the augmentation of railway infrastructure and metro lines, which would also lead to more demand for metals.
The Budget 2021 announcements include an increase in the Foreign Direct Investment (FDI) limit in insurance companies. According to the presentation, the permissible FDI limit has been hiked to 74% from around 49%. This would effectively allow foreign ownership, albeit with several safeguards put in place.
Public Sector Banks (PSBs) are likely to experience a huge wave of relief, thanks to the measures introduced in the budget. In 2021-2022, the Government of India has planned to infuse around Rs. 20,000 Crores to bolster the capital adequacy of PSBs.
Furthermore, the Finance Minister also proposed the creation of an Asset Reconstruction Company (ARC) and an Asset Management Company (AMC) respectively to consolidate and take over all of the existing stressed debts and assets from PSBs. This would not only help in quicker resolution and realization of the stressed assets, but would also help clean up the books of the banks.
To fund its expenses for the forthcoming financial year, the Government of India unveiled a borrowing plan of $164 billion during the budget presentation. In addition to that, the government also plans to raise another Rs. 80,000 Crore by the end of this financial year as well. This announcement negatively impacted the Indian sovereign bonds, leading to a fall in the rates.
In a bid to boost manufacturing in India, the customs duty on several key items have been hiked. For instance, the duty on solar inverters and solar lanterns have gone up by 15% and 10% respectively. Similarly, certain auto parts and mobile phone parts will also attract a higher customs duty, leading to several importers having to bear the brunt of the hike.
Although the agriculture sector received some attention in the budget, they were relatively minor compared to other sectors. The lack of major announcements could act as a dampener for the industry. Also, there were no new reforms geared towards boosting the rural economy.
Despite being India’s biggest exporter of services, the IT sector received little to no focus this year. The Budget 2021 didn’t carry any announcements regarding the future of Information Technology in India, which could end up impacting the major IT firms negatively in the near future.
As you’ve already seen above, the customs duty on several products have been revised in Budget 2021. This has the potential to directly affect the pricing of the said products.
So, let’s take a look at the list of items that are likely to get costlier and cheaper.
Here’s a list of items that are likely to get more expensive:
The customs duty on certain electronic parts and mobile phone parts has been increased by anywhere between 2.5% to 10%. Such a hike can lead to an increase in the cost of certain electronics and mobile phones.
The customs duty on solar inverters has been increased from 5% to 20%, whereas on solar lanterns, the duty has been hiked from 5% to 15%.
Certain specified auto parts also attract a higher customs duty of 15% from the erstwhile 7.5%.
Cotton is all set to get expensive, as it now attracts a customs duty of 5% and an agriculture infrastructure and development cess of 5%. Similarly, raw silk and silk yarn are also likely to get expensive since the duty has been hiked from 10% to 15%.
Here’s a list of items that are likely to get cheaper:
The customs duty on non-alloy steel products has been reduced from 10% to 7.5%, whereas the duty on iron and steel scrap has been reduced from 2.5% to nil.
Copper scrap now attracts a lower customs duty of 2.5%, down from the erstwhile 5%. This should lower the price of copper in the near future.
Nylon chips, fibre, and yarn all enjoy a lower customs duty of just 5%, down from the erstwhile 7.5%.
The customs duty on gold and silver has also been reduced from 12.5% to just 7.5%, which should lead to a reduction in the cost of gold and silver in the country.
The true impact of these measures is likely to be seen more clearly in the coming days. While the measures introduced in the budget will no doubt impact the industries concerned as well as the cost of many of the products or services it pertains to, there are also many other factors at play. So, while there may be many segments that are gainers, and a few that are not, the real winner here would likely be the country, since this budget could pave the way for an AtmaNirbhar Bharat.
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