Finance Minister Nirmala Sitharaman today announced a bundle of measures in her third Budget speech to boost the Indian economy which has been greatly impacted by the pandemic. She forewarned that the fiscal deficit for the financial year of 2021-22 will be higher than expected. Following are the highlights.
- Announcement of Groundwork for Privatization of power sector.
- Asset Monetization- In other words alienation of landed properties held by the Govt.
- 74% FDI in the insurance sector
- Privatization of two public sector banks and one general insurance company.
- The fiscal deficit targeted at 9.5% with a drop of 3% last year will be targeted at 6.8% during the next year.
- It has been decided to raise 12 lakh crore loans to fill the deficit.
The privatization of the Power Sector
Presently the power distribution companies across the country are monopolies, owned by either government or private. The Union Budget 2021-22 proposed for liberalization in the power distribution sector encouraging competition. This means consumers need not bank on ESCOM. People will have the option of choosing the power distribution Company, like LPG Gas distribution.
Asset monetization
In order to monetize and to operate public infrastructure assets, Govt is proposed to launch the “National Monetization Pipeline“. As per the new policy, Government will outsource the infrastructures of NHAI, PGCIL & Railways for fetching higher returns. Govt is of the opinion that NHAI and PGCIL sponsored Infrastructure Investment Trusts (InvIT) will attract domestic and international Investors. Five operational roads with an estimated enterprise value of Rs. 5,000 crores are being transferred to the NHAI InvIT and Transmission assets of a value of Rs.7,000 crores will be transferred to the PGCIL InvIT. Railways will monetize Dedicated Freight Corridor assets for operations and maintenance, after commissioning. Similarly, Airports, Toll Roads, Oil Gas Pipelines, Assets of PSU’s will be monetized.
Increasing FDI in Insurance Sector
As per the budget proposal, the Insurance Act, 1938 will be amended to increase the permissible FDI limit from 49% to 74% in Insurance Companies. Further, it allows foreign ownership and control with safeguards. Under the new structure, the majority of Directors on the Board and key managerial persons would be resident Indians, with a minimum of 50% of Directors being Independent Directors.
Disinvestment and Strategic Sale
The budget envisages disinvestment and strategic sale of BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam limited etc during the year 2021-22. Along with IDBI Bank, Govt proposes to take up the privatization of two Public Sector Banks and one General Insurance company in the year 2021-22.
Fiscal Deficit
FM has stated that the fiscal deficit has climbed to 9.5% of the GDP which is more than 3.5% of the last year’s budget estimation. This, she said is the result of a weak inflow of revenue to pandemic at the beginning of the financial year. She further added that Government has taken many measures by way of packages to revive the economy.
Borrowings
The borrowings of the government for 2021-22 will be reduced by Rs. 75 thousand crores as against the estimated Rs.12.80 Lakh Crore. FM in her budget speech said, “We plan to continue with our path of fiscal consolidation, and intend to reach a fiscal deficit level below 4.5 percent of GDP by 2025-2026 with a fairly steady decline over the period.”
With these key areas, Govt is willing to transfer its responsibilities with private players and stick to the core vision of development through privatization.
