The Union Budget for the fiscal year 2021-22 was recently presented by the Minister of Finance in a digital-first approach. This budget comes with proposals that primarily focus on Physical and Financial Capital enhancement. The discussion in this article will delve into the various elements of the budget.
Financial Capital Enhancements
The budget outlines the establishment of a single Securities Markets Code. The plan is to construct an investor charter that will serve as a right for all financial investors. Additionally, a permanent institutional framework will be introduced to foster the growth of the Bond market. In an effort to further regulate the financial market, plans for a Regulated Gold Exchanges system are under way.
The Securities and Exchange Board of India (SEBI) is set to be announced as a regulator, while measures are being taken to strengthen the Warehousing Development and Regulatory Authority.
Stressed Asset Resolution
A significant proposal in the budget includes the establishment of Asset Reconstruction Company Limited and Asset Management Company, commonly known as Bad Bank. These institutions are aimed at solving the issue of stressed assets within the financial system.
Increasing Foreign Direct Investment in Insurance Sector
There is a proposed increase in the permissible Foreign Direct Investment (FDI) limit from current 49% to 74%, allowing foreign ownership and control with protections in place.
Deposit Insurance
Changes are to be made in the Deposit Insurance and Credit Guarantee Corporation Act, 1961, to facilitate depositors with easy and time-bound access to their deposits to the extent of the deposit insurance cover. It also increases the deposit insurance from Rs. 1 lakh to Rs. 5 lakh for bank depositors.
Reconstruction of Financial Assets and Enforcement of Security Interest Act
The minimum loan size eligible for debt recovery under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 is proposed to be reduced from Rs. 50 lakh to Rs. 20 lakh for NBFCs with minimum asset size of Rs. 100 crore.
Reforms for Businesses and Firms
The budget highlights the decriminalization of the Limited Liability Partnership (LLP) Act, 2008. Compliance requirements of Small companies will be eased by revising their definition under Companies Act, 2013. In addition, start-ups and innovators are promoted by incentivizing the incorporation of One Person Companies (OPCs).
Fast-Track Resolution
To ensure a faster resolution of cases, efforts will be made to strengthen the National Company Law Appellate Tribunal (NCLAT) framework, implement an e-Courts system and introduce alternative methods of debt resolution. A special framework will also be set up for Micro, Small and Medium Enterprises (MSMEs).
Disinvestment and Strategic Sale
A new policy for Strategic Disinvestment has been approved; Central Public Sector Enterprises (CPSEs) except in four strategic areas will be privatized. Also, the Initial Public Offering (IPO) of Life Insurance Corporation (LIC) will occur in 2021-22.
Government Financial Reforms
The Treasury Single Account (TSA) System for Autonomous Bodies will be extended for universal application. The government also plans to introduce a separate Administrative Structure to streamline the Ease of Doing Business for Cooperatives.
