Union Budget 2020: A mixed bag to help revive the economy
Union Finance Minister Nirmala Sitharaman presented the Budget 2020-21 under challenging economic conditions. GDP growth rate has slumped to a 11-year low; unemployment is disturbingly high, tax revenues are far below targets and there is palpable slowdown in businesses activity. RBI has been providing the monetary stimulus through rate cuts; but five rate cuts in succession totaling 1.35 per cent have not produced the expected monetary transmission. With monetary policy becoming less effective, the FM was expected to provide the extra fiscal stimulus through the budget. Did the FM rise to the occasion?
Budget 2020-21 is built on three major themes of Aspirational India, Economic Development and Caring India
Budget 2020-21 is built on three major themes of Aspirational India, Economic Development and Caring India. The nominal GDP growth rate of 10 per cent for FY 2021 is achievable. Actual fiscal deficit, including off-budget borrowings, would not be 3.8 per cent and 3.5 per cent respectively for FY20 and FY21 as reported, but 4.5 per cent and 4.3 per cent respectively if we factor in the off-budget borrowings of PSU entities like the FCI. If we take the total deficit of the Centre, the states and the borrowings of the PSUs like FCI, then the total Public Sector Borrowing Requirements (PSBR) would be around 8.5 per cent of the GDP. This is more than the total household financial savings in the economy. Therefore, the fact is that there is not much room for fiscal stimulus.
The FM has attempted to stimulate the rural economy through some major schemes like Sagar Mitra, Kisan Rail, Krishi Udaan, Solar pumps and Jal Jivan Yojana. Agriculture has been given an allocation of Rs. 2.83 lakh crore; Rs. 99,300 crore has been allotted for education and Rs. 69,000 crore for the health sector. Rs. 1.7 lakh crore has been provided for transport infrastructure. 100 new airports are to be built by 2024.
From the market perspective, a positive is the abolition of DDT paid by companies. This is a progressive measure. However, dividends will be taxed at the hands of taxpayers at the applicable tax rate. The highlight of the budget is the proposed IPO and listing of LIC. The proposed sale of government stake in IDBI Bank takes the liberalization of financial system forward. The 100 per cent tax concession to Sovereign Wealth Funds for investing in infrastructure projects would provide a boost to infrastructure. Opening up of certain categories of government securities to NRI investors and hiking the FPI investment limit in corporate bonds from 9 per cent to 15 per cent will help deepen the bond market.
The disinvestment target of Rs. 2.1 lakh crore appears ambitious, particularly in the context of the dismal performance of disinvestment in FY 2020. Therefore, the fiscal deficit target of 3.3 per cent for FY21 is unlikely to be achieved.
Some categories of income tax payers will get marginal benefit if they opt for the new IT regime with lower taxes but no exemptions. Under the proposal, tax rates on different income slabs would be: 10 per cent on Rs. 5-7.5 lakh income; 15 per cent on Rs. 7.5-10 lakh; 20 per cent on Rs. 10-12.5 lakh; 25 per cent on Rs. 12.5- 15 lakh and 30 per cent on above Rs. 15 lakh. Though the new scheme is simple, the new IT regime co-existing with the old one will make the IT system unnecessarily complex.
The budget alone cannot be expected to stimulate the economy. Earlier, the FM had initiated some major policy initiatives like the sharp cut in corporate tax and some sector-specific stimulus for sectors like automobiles, MSMEs and real estate. Also, an ambitious infrastructure programme – National Infrastructure Pipeline – which envisages an investment of Rs. 102 trillion over a five-year period, was announced. The cumulative impact of all these measures along with the monetary stimulus provided by the central bank will, hopefully, help revive the economy. The recovery will be a slow flat U-shaped recovery, rather than a sharp V-shaped one.
Union Budget 2020 proved a shocker to Kerala as it ignored the long-pending demands of the State and drastically slashed its share of central taxes
The Union Budget proposes levying 22 per cent tax plus surcharge on cooperative societies, which will have a profoundly negative impact on the cooperative sector and financial institutions operated by them. The Budget has turned a deaf year to the legitimate demands of the State. Our demands with regard to GST compensation, Angamaly-Sabari railway line, semi high-speed corridor, increase in debt ceiling, hike in rubber subsidy, more fund allocations for PSUs, expedition of National Highway projects, increase in the number of Attaches in embassies in the Gulf countries and backing for expatriate rehabilitation found no mention in the Budget.
– Pinarayi Vijayan | Chief Minister of Kerala
Union Finance Minister Nirmala Sitharaman's Budget 2020 is a war cry against the State. The fund allocation to the State was reduced to Rs. 15,236 crore compared to Rs. 17,822 crore in the previous year. There has never been such a low allocation for Kerala in history. It appears that the Budget was mere rhetoric to cover up the recession in the country. Unless the BJP Government led by Prime Minister Narendra Modi goes, Kerala will not get anything. The Union Government's expenditure and investments are showing a downward trend. Compared to the previous year, the Centre will be spending Rs. 1 lakh crore less in the next fiscal. The Budget allocation for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has declined by Rs. 10,000 crore. The allocation for the agriculture sector has remained the same as last year at Rs. 1.5 lakh crore. All these indicate that the current financial crisis is going to become severe.
– Dr. T M Thomas Isaac | Minister of Finance, Government of Kerala
There is something really weak about the attention being paid to the agriculture sector and welfare. I am not excited about this budget at all. I think in many ways that after the slogan of Stand-up India, it is now a sit-down India budget.
– Dr. Sashi Tharoor | Senior Congress Leader & MP, Thiruvananthapuram