Union Budget gives a leg up to services sector, implementation key to outcomes
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Union Budget 2021 has broken the mould and proposed many path-breaking steps to revive the Indian economy from the black swan event like the Covid pandemic. Especially, Finance Minister Nirmala Sitharaman's announcements regarding the services sector are important in many ways. Given the fact that the services sector contributes around 55 per cent of Indian GDP and keys a critical role in generating employment, this year's budget has given the right thrust to the startups. Of late, India has emerged as the global hub for startups with the third largest ecosystem in the world. The country is home to 21 unicorns with a combined valuation of $73.2 billion.
Against this backdrop, the budget proposed tax exemptions for units setting up centres in the International Financial Services Centre, or IFSC, at GIFT City Gandhinagar. Similarly, the tax holiday for startups has been extended by another one year, a much-needed relief during this pandemic period. The budget also allocated Rs 1,500 crore towards promoting digital payments. The most important move comes in the form of setting up one Person Company without any restriction on paid-up capital or turnover. This is likely to go a long way in promoting entrepreneurship and innovation. The services sector is usually labour intensive. Keeping this in mind, the government will set up a portal to collect information on gig workers for providing them with social security.
Innovation in the services sector is critical to make India a global hub of innovations. The FM has, therefore, allocated Rs 50,000 crore for National Research Foundation over five years, which is expected to support critical R&D work in emerging technologies.
For promoting efficiency and attract FDI (foreign direct investment) in the financial services sector, the budget proposes raising the FDI cap to 74 per cent from the current 49 per cent. Even the FM announces to divest government stake in two public sector banks and one general insurance company. This coupled with the plans to allow Life Insurance Corporation (LIC) going public can promote the growth of the services sector.
Though the Indian IT industry doesn't draw much revenue from India, the budget has come up with concrete plans to change this. Indian IT firms stand to gain from the budget proposals of Digital Census 2021 and revamp of Ministry of Corporate Affairs portal MCA 21 3.0 with a combined worth of more than Rs 3,000 crore. Apart from these steps, the budget proposals on ports and aviation sectors- two high-frequency indicators of Indian economic health- are also likely to support the growth of the services sector.
At a time, when the Covid pandemic has battered the services sector badly with a projected contraction of 8.8 percent in FY21, the Indian services sector has got a leg up in the budget proposals. However, the right outcome will depend heavily on the assiduous implementation of these budget proposals in a timely manner.
