7 PM |A workmanlike account: on Budget 2020-21 |3rd February 2020

Context:Key highlights of the Union Budget 2020-2021.

More in news: Finance Minister Smt. Nirmala Sitharaman unveiled a series of far-reaching reforms, aimed at energizing the Indian economy through a combination of short-term, medium-term, and long term measures in the first union budget of the third decade of 21^st century.

Status of Indian Economy:

• Economic slowdown:India’s annual growth in gross domestic product or GDP fell to 4.5% for the quarter ended September 30, down from 5% in the previous three months. India’s slowdown was largely unexpected, as is evident from the IMF’s markdown of India’s growth from 7 per cent in June 2019 to 4.5 per cent recently. 
• The situation is worse if one looks at nominal GDP growth, which is expected to fall to a 42-year low of just 7.5 per cent. Real GDP is nothing but the nominal GDP minus the rate of inflation.
• Engines of growth: Broadly, there are four engines that provide the power to drive GDP growth in an economy. These are:
• Consumption of private individuals (C),
• Demand for goods from the government (G),
• Investments from businesses (I) and
• the net demand from exports and imports (NX).

GDP = C + G + I + NX

The corporate investments (I) engine has been slowing sharply since 2011. The new businesses found that the financiers to the economy, that is the banks (especially the public sector banks, which accounted for 70 per cent to 80 per cent of all lending), were themselves struggling with non-performing assets.

Private consumptiondemand was first hurt in the rural areas with poor commodity prices. While this meant that retail inflation was under control, the purchasing power of farmers declined. This weakness in rural demand was compounded by a collapse in urban demand after credit flow from the non-banking financial sector companies stopped following the meltdown in IL&FS.

Savings and Investment: The domestic saving rate has declined from 31.4% in 2013-14 to 29.6% in 2016-17.The gross capital formation rate has declined from 33.8% to 30.6% during same period. For any country’s growth consistent rise in savings and investment should be needed.

• Stress in NBFC: Non-Banking Financial Companies (NBFCs) bring in diversity and efficiency to the financial sector and makes it more responsive to the needs of the customers. In the recent past, the NBFCs have played increasingly important role in resource mobilization and credit intermediation, thereby helping commercial sector to make up for low bank credit growth. Stress in NBFC sector also contributed to the slow down by adversely impacting consumption finance.

Three prominent themes of the Budget:

• Aspirational India – better standards of living with access to health, education and better jobs for all sections of the society
• Economic Development for all – “Sabka Saath , Sabka Vikas , Sabka Vishwas”.
• Caring Society – both humane and compassionate; Antyodaya as an article of faith.

Three broad themes are held together by:

• Corruption free, policy-driven Good Governance.
• Clean and sound financial sector.

Ease of Living underlined by the three themes of Union Budget 2020-21.

Main Budget proposals:

Taxation:

• To simplify the tax system and lower tax rates, around 70 of more than 100 income tax deductions and exemptions have been removed.
• Dividend Distribution Tax (DDT) abolished.
• Tax concession for foreign investments:100% tax exemption on Sovereign Wealth Fund of foreign governments.
• Concessional 5% withholding tax entended to municipal bonds
• Personal Income Tax: Significant relief to middle class taxpayers. New and simplified personal income tax regime proposed:

New tax regime to be optional – an individual may continue to pay tax as per the old regime and avail deductions and exemptions.

• Corporate Tax: Tax rate of 15% extended to new electricity generation companies. Indian corporate tax rates now amongst the lowest in the world.

Housing:Tax holiday for affordable housing extended by 1 year. Additional deduction up to Rs. 1.5 lakhs for interest paid on loans taken for an affordable house extended till 31st March, 2021.

Investment:

• Govt plans to sell part of its holding in Life Insurance Corporation (LIC) by way of Initial Public Offering.
• Certain specified categories of government securities will be open fully for NRIs, apart from being open to domestic investors
• FPI limit in corporate bonds raised to 15% from 9%.
• Government doubles divestment target for the next fiscal at Rs 2.1 lakh crore.
• Expand Exchange Traded Fund by floating a Debt ETF, consisting primarily of govt. securities.

Indirect Tax :

• Customs duty raised on footwear to 35% from 25% and on furniture goods to 25% from 20%.
• Excise duty proposed to be raised on Cigarettes and other tobacco products, no change made in the duty rates of bidis.
• Basic customs duty on imports of news print and light-weight coated paper reduced from 10% to 5%.
• Customs duty rates revised on electric vehiclesand parts of mobiles.

Start-ups and MSMEs:

• Start-ups with turnover up to Rs. 100 crore to enjoy 100% deduction for 3 consecutive assessment years out of 10 years.
• Turnover threshold for audit of MSMEs to be increased from Rs 1 crore to Rs 5 crore, to those businesses which carry out less than 5% of their business in cash.

Fiscal Management:

• FY20 fiscal deficit revised to 3.8% from 3.3% in the current fiscal. For FY21, fiscal target seen at 3.5%.
• Deviation of 0.5%, consistent with Section 4(3) of FRBM Act.
• Net market borrowing for FY20 at Rs 4.99 lakh crore; For FY21 it’s pegged at Rs 5.36 lakh crore.
• Nominal GDP growth for 2020-21 estimated at 10%.
• A good part of the borrowings for the financial year 2020-21 to go towards Capital expenditure that has been scaled up by  more than 21%.

Infrastructure:

• Rs.100 lakh crore to be invested on infrastructure over the next 5 years.
• National Infrastructure Pipeline: Rs. 103 lakh crore worth projects; launched on 31st December 2019. More than 6500 projects across sectors, to be classified as per their size and stage of development. 
• A National Logistics Policy to be released soon: 
• To clarify roles of the Union Government, State Governments and key regulators.
• A single window e-logistics market to be created
• Focus to be on generation of employment, skills and making MSMEs competitive.
• 5 new Smart cities to be set up via PPP model.
• Rs 1.7 lakh crore allocated to transportation.
• 100 more airports to be set up by 2024 to support UDAN scheme.
• Accelerated development of highways will be undertaken; Delhi-Mumbai expressway and two other projects to be completed by 2023. Chennai-Bengaluru Expressway to be started.

Railways:

• Large solar power capacity to be set up alongside rail tracks, on land owned by Railways
• More Tejas-like trains for tourists.
• 150 new train to be introduced on PPP basis; Four stations will be also be redevelopment with the help of PPP.

Telecom:

• Rs 6,000 crore for BharatNet programme; Fibre to Home connections under BharatNet will be provided to 1 lakh gram panchayats this year itself
• New policy for private sector to build Data Centre Parks.

Tourism:

• 5 archaeology sites to be developed for world-class museums:
• Rakhigarhi (Haryana)
• Hastinapur (Uttar Pradesh)
• Shivsagar (Assam)
• Dholavira (Gujarat)
• Adichanallur (Tamil Nadu)

Energy:

• Expansion of National Gas Grid from 16,200 km to 27,000 km along with reforms to deepen gas markets, enable ease of transactions and transparent price discovery
• Rs 22,000 crore allocated to to power and renewable energy.

Education and Skills:

• Rs. 99,300 crore for education sector and Rs. 3000 crore for skill development in 2020-21.
• New Education Policy to be announced soon.
• National Police University and National Forensic Science University proposed for policing science, forensic science, and cyber-forensics.

Wellness, Water and Sanitation:

• Rs. 69,000 crore allocated for overall Healthcare sector.
• Rs. 6400 crore (out of Rs. 69,000 crore) for PM Jan Arogya Yojana (PMJAY)
• Jan Aushadhi Kendra Scheme to offer 2000 medicines and 300 surgicals in all districts by 2024.
• TB Harega Desh Jeetega campaign launched – commitment to end Tuberculosis by 2025.

Agriculture, Irrigation and Rural Development:

• Govt has pegged the agricultural credit target at ₹15 lakh crore for fiscal 2020-21.
• Kisan Rail to be setup by Indian Railways through PPP:
• To build a seamless national cold supply chain for perishables (milk, meat, fish, etc.
• Express and Freight trains to have refrigerated coaches.
• Krishi Udaan to be launched by the Ministry of Civil Aviation:
• Both international and national routes to be covered.
• North-East and tribal districts to realize Improved value of agri-products.
• One-Product One-District for better marketing and export in the Horticulture sector.
• Balanced use of all kinds of fertilizers – traditional organic and innovative fertilizers.
• Measures for organic, natural, and integrated farming:
• Jaivik Kheti Portal – online national organic products market to be strengthened.
• Zero-Budget Natural Farming (mentioned in July 2019 Budget) to be included.
• Integrated Farming Systems in rain-fed areas to be expanded.
• Multi-tier cropping, bee-keeping, solar pumps, solar energy production in non-cropping season to be added.
• Government is expanding‘PM Kusum Scheme’ to 20 lakh farmers to set up solar pumps.
• Village Storage Scheme:
• To be run by the SHGs to provide farmers a good holding capacity and reduce their logistics cost.
• Women, SHGs to regain their position as Dhaanya Lakshmi.
• Livestock:
• Doubling of milk processing capacity to 108 million MT from 53.5 million MT by 2025.
• Artificial insemination to be increased to 70% from the present 30%.
• Deen Dayal Antyodaya Yojana – 0.5 crore households mobilized with 58 lakh SHGs for poverty alleviation.

How these proposals will help?

• Presents clear picture of Indian Economic condition: To a large extent, the Budget has presented a realistic assessment of the present economic conditions and projections for future growth prospects. It gives a much clearer picture of the off-balance sheet borrowings, which add to the government’s debt and its obligations to pay. This will enhance credibility among the investor community while taking decisions on committing capital for India’s future.
• Disinvestment:The major boost to revenues is expected from disinvestment and privatisation of central public sector enterprises, together with asset monetisation (selling of various road, rail, land, logistics and other projects which the government has undertaken over the years). The target is up sharply to Rs 2.25 lakh crore. 
• Capital Expenditure: Spending, which depends on revenue collection, has also been optimally allocated, with capital expenditure budgeted to increase faster than revenue. 
• Federal Approach: A federal approach to tackling the slowdown, in a coordinated fashion, will probably be the most effective.
• Flow of credit: The proximate cause of the surprise on the extent of the slowdown was a squeeze in the flow of credit from all sources, domestic and offshore, banks, corporate bonds, and external borrowings to companies. The allocated budget to all the sectors will help in ensuring the flow of credit.

Conclusion:

The signature theme of the Economic Survey this year was “the invisible hand of the market supported by the hand of trust”. Fostering trust was also repeatedly emphasised in the Budget speech, and is increasingly evident in the ongoing initiatives of the government for increasing transparency and simplification of processes. Implementation will be key to achieving the $5-trillion goal.

Source:https://indianexpress.com/article/opinion/columns/budget-2020-indian-economy-economic-slowdown-6247924/