Union Budget 2021-22 and the Proposed Reforms in Corporate Sector: A Bird’s Eye View
In its 71st Republican Year, India has presented its first budget in the digital format through a Made in India Tablet moving away from the traditional bahi-khata mode of presentation in order to promote digitalization. This year’s budget has been a ray of hope in the troubled times of pandemic and has captured the attention of the masses. Especially, the common man has his eyes glued to the particulars of the budget so as to opportune the maximum relief they could mobilize in the coming times. Budget in India is also seen as one of the biggest movers of the market and consumer sentiments, therefore, a balanced and polished budget is ideologically a need for the people of India.
This year’s budget proposal rests on six pillars naming firstly, Health & Wellbeing, secondly, Physical & Financial Capital, and Infrastructure, thirdly, Inclusive Development for Aspirational India, fourthly Reinvigorating Human Capital, fifthly, Innovation and R&D, and sixthly, Minimum Government and Maximum Governance. With the roots of the budget being resilient, it is necessary to particularly analyse the impact of budget proposal on the key legal changes and amendments that have been planned for the Commercial & Company law regime in the year 2021-22 so as to examine the anticipated market sentiments that would be fluctuated due to the budget being the driving force. Therefore, a compact analysis of such proposed changes in the particular sector is being summarized as follows-
- A proposal has been made to create a National Monetization Pipeline in which potential brownfield infrastructure assets will be launched. It is because monetizing the operating public infrastructure assets is a significant financing option for new infrastructure construction. Therefore, an asset monetization dashboard is expected to be made which would help the investors to keep track of the progress of such projects.
- Proposal has been made to consolidate the provisions of Securities and Exchange Board of India Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1956, and Government Securities Act, 2007 into a rationalized single Securities Markets Code. Through this measure, consolidated and exhaustive legislation would be empanelled to deal with the Security Markets and will avoid overlapping of laws.
- Formation of a permanent institutional framework is proposed to instil confidence amongst the participants in the Corporate Bond Market to enhance liquidity in secondary markets.
- For the Gold exchanges in India, SEBI will be notified as its regulator and Warehousing Development and Regulatory Authority will try to ensure a commodity market ecosystem
- Additional Capital Infusion of Rs. 1000 Crores and Rs. 1500 crores have been planned for the Solar Energy Corporation of India and Indian Renewable Energy Development Agency, respectively.
- With the aim of enhancing FDI in the insurance sector, amendments are being proposed in the Insurance Act, 1938 to potentially increase the permissible FDI limit from 49% to 74% in the Insurance Companies and allow foreign ownership and control with safeguards. In this new structure, it has been proposed that at least 50% of the Directors would be Independent Directors and that key managerial positions, as well as majority of Directors on Board, would be Indian Residents.
- A plan has been made to set up an Asset Reconstruction Company and Asset Management Company which together would work to consolidate and take over the existing stressed debts and would liquidity for eventual value realization. This measure is advanced to reduce the stressed debts and to clean up the bank books.
- Suitable amendments are being proposed in Deposit Insurance and Credit Guarantee Corporation Act, 1961 so as to provide relief to the depositors and to streamline the provisions for increased Deposit Insurance cover i.e. 5 lakhs for bank customers. Also, for those Non-Banking Finance Companies’ who have a minimum asset size of 100 crores, it has been proposed to reduce minimum loan size eligible for debt recovery under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 from Rs. 50 lakhs to Rs. 20 lakhs.
- Dealing with the company law matters, it is proposed to decriminalize the provisions of the Limited Liability Partnership Act, 2008. Moreover, under the Companies Act, 2013, the definition of Small Companies have been revised by enhancing the thresholds for Paid-up Capital from not exceeding `50 Lakh” to “not exceeding `2 Crore” and turnover from “not exceeding `2 Crore” to “not exceeding `20 Crore”. This measure has been proposed to provide benefit to approximately 2 lakh companies in easing their compliance requirements. Further, a proposal has been strategized to strengthen the NCLT framework for faster resolution of the disputes, and also an approach for creating an alternative method for debt resolution is being planned to be introduced.
- In order to promote the incorporation of One-Person Companies (OPC’s) and to provide relief to the Start-ups, provisions have been proposed in the smooth functioning of OPCs such as removing restrictions regarding paid-up capital and turnover, allowing the freedom to convert the nature of a company at any time, reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days and permitting, and allowing NRIs to incorporate OPCs in India. Additionally, eligibility for claiming tax holiday for start-ups has been extended by one more year i.e. till 31st March 2022.
- With the aim of promoting credit facilities to SCs, STs, and Women under the StandUp India scheme, loans will now also be made for agricultural related activities and the margin money requirement percentage has also be reduced to 15% from earlier 25%
- Several new reformatory measures have been proposed in the Direct Tax regimes such as providing relief to senior citizens, reducing the time-period in Income Tax proceedings and reducing the time-period of reopening of assessments, creating a dispute resolution committee, and coming up with faceless income tax appellate tribunal, providing relaxation to NRI’s, etc.
All in all, these proposed measures are in tune with the higher goal of making India an ‘Aatmanirbhar Bharat’. These proposals aim to solidify the corporate regime in India and are in directive to firstly, fill the potholes that are still open in the sector and are causing hardships, and secondly, to provide a well-ordered framework for smooth functioning. Therefore, the proposed budget of 2021-22 has the potential to sail the corporate boat even in rough weather.