What got cheaper and expensive due to the new Budget?
A government budget is a year-long country’s financial report explaining item-wise calculations of future revenue and expenditure. The budget explains what the income and expense of a nation is.
The government prepares an expenditure according to its objective and then starts gathering the resources and funds to fulfil the proposed investment. The funds are collected from fees, taxes, interest on loans given to states, fines, and dividends by public sector enterprises.
The Union Budget of India, also referred to as the Annual Financial Statement in the Article 112 of the Constitution of India, is the annual budget of the Republic of India. The Government presents it on the first day of February so that it could be materialised before the beginning of new financial year in April. India’s Finance Minister Nirmala Sitharaman announced the annual budget on February 1, 2021 – paperless for the first time in the history of India. The Finance minister in her Budget 2021 speech announced a slew of taxation reforms along with an increased spending on healthcare with Rs 35,000 crore on Covid-19 vaccine development.
Union Budget for 2021-22 proposed reduction in custom duty of gold
- Customs duty is a form of indirect tax which is imposed at the time of both import and export of goods and services.
- The tax which is imposed on the import of goods and services are is known as Import duty and for export of goods and services are known as Export duty.
- Finance minister Nirmala Sitharaman reduced customs duty on gold and silver.Notably, custom duty on gold has been reduced to 7.5%.
What was the fall in custom duty proposed?
- Gold and silver presently attract a basic customs duty of 12.5%.· Since the duty was raised from 10% in July 2019, prices of precious metals have risen sharply.
- To bring it closer to previous levels, Government is rationalising customs duty on gold and silver.
- Sitharaman explained that the step was taken due to the increase in prices of the precious metals.
- According to experts, high customs duty on gold helps the government in reducing gold imports, which is good as it keeps trade deficit under check.
- The move was expected as the latest Economic Survey which was tabled in Parliament on Friday also said that gold has emerged as a “safe-haven investment” in the backdrop of the pandemic-induced economic uncertainties, with prices increasing by 26.2% in November 2020 as compared to December 2019.
- From January 2020 onwards, gold prices have sharply increased with the sharp rise in the GEPU [Global Economic Policy Uncertainty].·
- In fact, compared to other assets, gold had returns during the year that were considerably higher.
- Customs field formations across the country have reported large-scale smuggling of gold mainly because of lucrative margins.
- Therefore, reducing the margin by slashing the import duty on gold, is a step towards reducing the smuggling of gold as well.
Union Budget for 2021-22 proposed hike in custom duty of gold
- Imported products such as compressors for refrigerators and air conditioners (ACs), alcoholic beverages, raw silk, spandex fibre, LED lamps, solar lanterns, mobile phones and power banks are set to cost more as Finance Minister Nirmala Sitharaman proposed an increase in the customs duty on a range of items in her Budget 2021 speech.
- Union Budget 2021 announced a 2.5% customs duty on certain mobile phone parts and power banks.
- For compressors used in ACs and refrigerators, the customs duty will be hiked to 15% from 12.5%. This means that the prices of refrigerators and ACs will go up by 2.5% from April 1.
- Customs duty exemption on import of certain kinds of leather will be removed as these products are domestically produced in good quantity and quality, mostly by MSMEs.
Summary of the items that will become costlier or cheaper due to the budget
Imported items that will become cheaper
- Gold and gold products
- Silver and silver products
- Other precious metals like platinum and palladium
- Medical devices imported by international organisation and diplomatic missions.
Imported items that will become costlier:
- Compressors for refrigerators and air conditioners
- LED lamps, parts and spares such as printed circuit board
- Raw silk and cotton
- Solar inverters and lanterns
- Automobile parts such as safety and toughened glasses, windscreen wipers, signalling equipment
- Mobile phone parts like PCBA, camera module, connectors, back cover, side keys
- Mobile phone charger components, -Inputs or raw materials of Lithium-ion battery
- Ink cartridges and ink spray nozzle
- Finished leather products
- Nylon Fibre and Yarn
- Plastic builder wares
- Cut and polished synthetic stones, including cut and polished cubic zirconia,
One of the primary purposes of budgeting is to provide control over the revenues and expenditures of the government. The budgets are an important part of maintaining control of a government’s finances and are a means of achieving the financial reporting objective of accountability. With reduced duty on gold, cost will come down, which is a big positive in long term for the demand outlook of gold. It will provide a boost to the gems and jewellery sector, which plays a vital role in the Indian economy, leading to a thrust towards manufacturing and export and thus job creation. Also, it will curb illegal trade in gold, resulting in supplementing government’s revenue