#Budget2021Outlook

MSME is the backbone of Indian economy contributing approx 30% of the GDP in Indian Economy and 48% of total exports. Although COVID-19 pandemic had shaken all but the micro small and medium enterprises (MSME) have borne the maximum brunt during the lockdown. As a result MSME sector has been facing a massive liquidity and supply crunch, shortage of labour and non payment of dues.

A increased allocation of 15,700 crore in the Budget along with reduction of custom duty on semis, flat and long products of non- alloy, alloy and stainless steels.,Expemtion of duty on certain product and the creation of a special framework for MSMEs for debt resolution will definitely boost the moral of the sector and help the MSME sector to mitigate the stress caused by the lockdown.

Hopefully they will continue to play a vital role in overall growth of the Indian economy.

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I feel this Vehicle Scrappage Policy, which was in discussion from some time now, is proposed to come into effect from 1st April’22, will be a boon for Automotive Industry. The idea is to phase out, around 51 lakh vehicles. While it’s possible for the car to pass a mandatory fitness test and acquire a fitness certificate, each fitness test would cost approximately Rs 40,000, this is in addition to the road tax, and possible “Green Tax” that one has to pay while mandatorily renewing your private vehicle’s registration after the 15-year period. Each fitness certificate is applicable for five years, after which the owner of the vehicle will be required to get another fitness test, costing the same. The financial cost of keeping a car in road-ready shape, alone would then dissuade the owner from constantly renewing the certificate and go for New Vehicle purchase.

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It is the reader's responsibility to verify their own facts. The views and opinions expressed in this article are those of the author alone and do not necessarily reflect the official policy or position of the organization.

One comment which can be shared with greater degree of comfort that this seems to be first Budget, with almost no negative initiative/drive. It is built on very balanced six pillars, and each one of these, are capable of bringing a new world of opportunities for all stake holders. Whether it is the question of impact on economy, adding to employment or creating additional market and opportunity, it is built in for almost all segments of economy. The ‘Financial & Physical Capital’ concept Itself, will be a huge buildup of much liberal thought process, recently being observed, in consultative approach of Regulatory authorities, opening up for increased FDI limits and also initiatives like ‘Sand Box approach’ to test out newer ideas and concepts. Such contributory enablers, will support the series of initiatives, against other five pillars and support in overall lead of our country. All of them are capable of becoming booster and enabler for other initiatives and will be creating huge employment and related possibilities. The only caution or concentration needs to be on Implementation , which has been a major challenge during past. It will be of interest, to keep a watch, on details of each pillar and way forward, as adopted by Government in the detailed policies and implementation contribution by all of us as stake holders.

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Its Union Budget time! What do people do the next morning following the budget – they possibly glance through the budget analysis doled out by many advisory firms and eye-ballthe major highlights of the budget. Nothing more. Gone are the days when people used to make a rush for the newspapers to see what’s going to cost more and what’s become cheaper from an everyday use point of view.

This is largely attributable to a strong framework of indirect taxes in the form of GST, which can be amended only through the federal structure of the GST Council comprising finance ministers of all states. The budget for the ordinary people seems to have almost disappeared!

But why is then Budget 2021 so important? Because it’s the first one after a once-in-a-century event (the pandemic) and also its only the fourth one in 74 years of independent India following a sluggish economy and yes, also the first one of this decade.

Overall, Budget 2021 has a significant thrust on investment, infrastructure and healthcare spending rather than stimulating consumption gradually. But what does Budget 2021 mean for the ordinary Indian? Experts had predicted an additional COVID cess to level the government's revenue loss. The salaried class was hoping for a tax cut. In the end, the government did neither. This was never meant to be a populist budget. It is a practical budget. The finance minister’s speech was one of the shortest in Indian history so far– the main reason being the brief section on taxation, though, in jest, I like to think this was actually the result of the feedback which she received on her budget speech in 2020 (which was the longest in Indian history!). This government has shown all indication of focusing on improving tax compliance rather than tinkering around with the policies and the rates. I would give that a thumbs-up.

Now for the specifics on insurance. Foreign direct investment (FDI) in insurance has been hiked to 74% from the current 49% with sufficient governance and management safeguards. FDI in insurance broking is already at 100%. This move is bound to help build capacity within India, strengthen the sector and also help penetration of insurance, which still is way behind the world average. It has the paved way for many foreign insurers who were unsure of whether or not to enter Indian markets earlier because of the 49% rule. From the consumer perspective, this works well too – there would be more innovative products to choose from. For the intermediaries too, this move adds to their product basket - as more the number of products that are available in the market, more would be the need for specific advice as regards the same. Intermediaries with innovative distribution models and a customer-focused approach would thrive.

On the individual front, there is no tax exemption for maturity proceeds of unit-linked insurance policies (ULIPs) issued on or after February 1, 2021,with an annual premium above INR 2.5 lakh. However, amounts received under such ULIP policies on death of the policyholder will remain exempt from tax. Possibly, this could lead to a dent in the sale of ULIPs, a product which I personally do not fancy much!This also drives home the point that insurance must be viewed from a risk protection perspective and not from an investment return or tax savings perspective.

The Budget speech also clarified that Life Insurance Corporation of India (LIC) will go for an initial public offering (IPO) in 2021-22. This is likely to be a mega event ending up with LIC becoming the ‘big daddy’ in market capitalisation. One of the general insurance companies is also going to be on the privatisation block. The name is not yet disclosed. But both these events are likely to release a significant amount of resources to meet the ambitious investment, infrastructure and healthcare spending envisaged in the budget.

Saurabh V Dharadhar

Chief Financial Officer and Ethics Officer

Mahindra Insurance Brokers Limited

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The insurance sector opened up in 2001 with FDI capped at 26%. Subsequently it was enhanced to 49% and then to 74 % in the recent union budget. This is a welcome step and will ensure that there is more inflow of capital into this sector and will bring in global practices more in vogue . Insurance growth is a testimony to the growth of GDP and Unfortunately the insurance penetration in our country is abysmally low and stands at 3.76 % of the GDP. When we compare this with other developed Asian economies, we have a long way to go. In the General Insurance segment it is even lower at 0.94% of the GDP. India has a large segment of the population and assets to be still covered under insurance and this move will enable the insurance companies to penetrate deep into the nook and corner of India.

With the further opening up of the industry we will definitely see more participation from the insurance giants who have still not entered the Indian market and the existing one will show more participation. Now it remains to be seen how the management control is going to play out with certain safeguards imposed. Further divestment of the government stake in the General insurance company will also be interesting to watch out

Insurance buying has seen a paradigm shift from direct selling to tech based selling. There are insurance brokers who sell policies using tech platforms. As the FDI in the Brokerage industry is already at 100 % this step undertaken by the government will help the intermediaries sell new and innovative products in the days ahead with more participation from global insurers. This will also increase employment opportunities in a big way.

Disclaimer and Other Legal Information:

It is the reader's responsibility to verify their own facts. The views and opinions expressed in this article are those of the author alone and do not necessarily reflect the official policy or position of the organization.