Budget 2021: The Key Changes for the Businesses in India

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On 1st February 2021, the Finance minister announced the union budget. The budget is alleged by experts to be non- controversial as there are no major changes related to the tax slabs or neither there is a remission nor addition to the financial structure.  But there are few changes made in the existing corporate and security laws that will have a long-term effect on the economy.

 Modi 2.0 govt. is big on its commitment towards Atmanirbhar Bharat (self-reliant) campaign. It is taking various measures to boost the corporate environment and promoting the opening of businesses in the form of startups, OPC or LLPs. Some of the major steps that the government has proposed to take towards its mission of Self-reliant India are:

  1. To begin with, the budget of 2021 is called the ‘Digital Budget’. The hefty allocation of Rs.1500 crores for enhancing the digital payment mechanism is huge and the government is taking various steps to further make it a more common practice among all classes of the society.
  2. The govt. has relaxed the criteria for opening of the ‘One person company’ under section 2(62) of the companies Act. Earlier the OPC could only be created by an Indian citizen or resident in India. The criteria for the proprietor to be a resident in India has been reduced from 182 days to 120 days this will encourage the non-resident Indian to invest in India more by incorporating an OPC.
  3. The other major change was announced pertaining to the security laws in this the currently different operated laws the Securities Contracts regulation Act, 1956, SEBI Act, 1992, Depositories Act and the Government Securities Act will be consolidated to make the Securities Code.
  4. With an estimate for India to grow its FinTech Industry to six Billion rupees by 2025. The Finance minister has announced to set up a FinTech hub at the Gujrat International Finance Tec (Gift) city. The Gift city is also called the planned business district in India.
  5. The market for corporate bonds has also been strengthened in the budget where it has been proposed that the government will establish an institution which will engage itself with the buying and selling of the corporate bonds. It is speculated by the experts that this will bring stability to the secondary market.
  6. SEBI’s role has been increased towards the protection of investors.
  7. The budget also emphasised upon strengthening of the Insurance sector by allowing foreign direct investment to be increased from 49% to 74% in the investment sector. After the news the entities engaged in Insurance and banking sector saw a jump in their share prices.
  1. For good corporate governance, there is a proposed increase in the number of independent directors in the board. At least 50% of the directors to must be independent directors and the role of the key managerial personnel will also have a better-defined role for maintaining the corporate transparency.
  2. To ease the load of non-performing assets on the banking sector, it has been proposed that more asset reconstruction companies will be established that will buy the unpaid bills from the banks and then make amends to the asset and flip it in the market again.
  3. Decriminalisation of Corporate criminal liability which was proposed in the 2020 amendment of the Companies Act has now been extended to limited liability entities which are registered under the LLP Act, 2008.
  4. The definition of small companies has been revised and the limitation has been increased to Rs. 2 crores from Rs. 50 lakhs., in order to reduce the compliance burden on small businesses.
  5. The current framework of National Company Law Tribunal will be strengthened. It is also one of the objectives presented by the Finance Minister to ease the interpretation and application of the corporate governance.
  6. There will be drafting of the legal framework which will specifically deal with the working of MSMEs. The fund of Rs.15, 700 crore  has been allocated for the growth of this sector in the union budget.
  7. Disinvestment is widely encouraged in the budget. Disinvestment is selling or liquidating of asset by the government. In the budget, the disinvestment of public sector undertaking like the BPCL and Shipping Corporation will be done. The LIC was disinvested by the government last year. In the budget of 2021, the LIC will now be allowed to offer initial public offering.

The steps taken by the finance ministry looks promising for the corporate sector. A boost is   needed in the finance sector after surviving the pandemic and it is crucial for economic contraction that India is facing currently. Many of the experts believe that proposed amendments will further enable India to climb the ladder of ‘Ease of doing business’ index. On the other hand, it was also realized where the entrepreneurs will get a boost for opening of business the budget did not speak for any increased scope for employment or instant relief for people who have lost jobs in the pandemic. Further, decriminalization of corporate offences both for companies and LLPs can have reaching adverse effects on the economy both in positive and negative form. The budget did not make any vital change and looked promising overall. The budget was welcomed by investors and that was visible by the jump in the market index i.e., both Nifty and Sensex. The actual growth in financial year 21-22 will speak for the effectiveness of the proposed budget.

Author: Avantika Banerjee is pursuing LLM (Corporate and Securities Laws) from School of Law, Pondicherry University.

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