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Budget 2021: India’s spending spree continues, proposes raising import duty on mobile phone parts

Finance Minister Nirmala Sitharaman holds a case containing a tablet device, during the Budget Session of the Parliament, at Parliament House in New Delhi,
Finance Minister Nirmala Sitharaman holds a case containing a tablet device, during the Budget Session of the Parliament, at Parliament House in New Delhi, (PTI)

India unveiled a budget that blows out the fiscal deficit wider than expected as the government of Prime Minister Narendra Modi seeks to spend its way out of the pandemic-induced slump.

India unveiled a budget that blows out the fiscal deficit wider than expected as the government of Prime Minister Narendra Modi seeks to spend its way out of the pandemic-induced slump. So announcements regarding the export of mobile phone parts were also made. Proposes raising import duty on mobile phone parts, auto parts, solar items were also made. The details are yet to be revealed.

This comes in addition to the financial minister announcing the extension of tax holidays for startups by one year until March 2022 as part of the Union Budget 2021-22. The minister also announced extending capital gains tax exemption by one year. The minister also announced extending capital gains tax exemption by one year.

Sitharaman has also laid out so far in the budget:

-Raising 1.75 trillion rupees ($24 billion) through selling stakes in state-run companies; to sell stakes in two more state banks

-Capital spending targeted at 5.54 trillion rupees in the new fiscal year

-To set up firm to manage stressed debt at banks

-India will set up a firm to buy investment-grade bonds to boost confidence in -he nation’s corporate debt market

-Also setting up a company to manage bad debt at banks as the country faces a surge in stressed assets

-Raising health and wellbeing outlay 137% to 2.23 trillion rupees

-Increasing FDI limit in insurance from 49% to 74%

-Setting aside 1.18 trillion rupees of spending for roads

-Earmarking 200 billion rupees for recapitalizing state banks

-Setting up a firm to manage stressed debt at banks

-Proposing voluntary vehicle scrapping policy

Also read: Social security benefits to be extended to e-commerce, gig workers: FM

The budget gap for the year starting April 1 is targeted at 6.8% of gross domestic product, Finance Minister Nirmala Sitharaman said in Parliament on Monday. That’s wider than the 5.5% forecast in a Bloomberg survey. The deficit will be 9.5% for the current year, against a planned 3.5%, she said.

Bonds sold off after reports of the higher-than-expected deficit. The yield on the most-traded 5.77% 2030 bond rising 10 basis points. India’s benchmark Sensex index advanced 1.7% as of 12:29 p.m. in Mumbai.

The federal spending plan is among India’s most highly anticipated and closely watched annual events, and more so this year as Modi’s government seeks to recover from the country’s deepest-ever recession amid one of the world’s worst coronavirus outbreaks.

Sitharaman said the government exceeded the current year’s budget by more than 4 trillion rupees ($54.7 billion) as it spent to support the economy, resulting in the wider deficit. The gross borrowing for the next fiscal would be about 12 trillion rupees, she said, compared to a median 10.6 trillion rupees expected in a Bloomberg survey before the budget was released.

“The government is fully prepared to support and facilitate the economy’s reset,” she said. “This budget provides every opportunity for our economy to rise and capture the pace it needs for a sustainable growth.”

Also read: Union Budget 2021: Govt extends tax holiday for startups until March 2022

Sitharaman had pledged before Monday that the government would look beyond fiscal deficits in its aim to revive Asia’s third-largest economy, which is expected to outpace the global recovery. The government’s annual economic report card, released Friday, forecast an 11% rebound in the coming fiscal, following an estimated 7.7% contraction in the current year.

The new budget also comes as the nation’s financial sector faces increasing pressure from a growing pile of bad loans, escalating border tensions with China and widespread anger from farmers, whose protests against market reforms overwhelmed parts of the capital New Delhi last week.

The budget will be followed by the Reserve Bank of India’s rate decision this Friday. The central bank has paused rate cuts since the middle of last year due to sticky inflation, which has recently shown signs of easing, opening the door for further stimulus.

(Written with inputs from Bloomberg -Vrishti Beniwal and Abhijit Roy Chowdhury.)

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