By Verendra Kalra
The Finance Minister, Nirmala Sitharaman, had to present the Union Budget 2020 in the very challenging backdrop of a slowing economy, falling aggregate demand, decline in exports and lacklustre credit flows, all resulting in GDP growth standing at its lowest at 4.5%. On the eve of this budget, the question uppermost on everyone’s mind was whether the worst is behind us, whether we can see any green offshoots of recovery and, most importantly, whether Budget 2020 does enough to nurture and propel India back to its high growth path.
The budget chose to focus on 3 major themes – Aspirational India; Economic Development for all; and a Caring Society. The Budget allocates funds and proposes new schemes for every sector under these three themes. There is a significant capital outlay earmarked for agriculture. There is also a detailed 16-point plan to invigorate the agriculture sector. These steps include economic reforms and deregulation, connecting the farm to fork through supply chains, addressing water stress and reducing price distortions.
The FM has aimed to pave the course for a vibrant India, riding high on inclusive growth and wealth creation with the focus on youth and technology, on the one hand, and a governance structure underpinned by mutual trust and a recapitalised financial system, on the other. The Budget also has a clear eye on the future and signals a willingness to embrace the new economy. The budgetary allocation for disruptive technology and the announcement of a National Mission for Quantum Technology is a modest first step and indicate a desire to compete with economic superpowers on the frontiers that matter.
The ‘Minimum Government, Maximum Governance’ slogan of the Government rests on the twin measures its gradual withdrawal from running businesses as well as the need for increasing participation of the private sector in nation building. The budget acknowledges this as it aims to raise through disinvestment more than Rs 2 lakh crore (INR 2 trillion), particularly in LIC, IDBI, and privatising one major port. This not only helps bridge the fiscal deficit, but more importantly, signals the Government’s determination to let the private sector have a greater play in the economy.
On the infrastructure front, the tax exemption to sovereign and other funds for long-term investment in infrastructure will go a long way in encouraging fund inflows. The budget also makes significant provisions for the ambitious National Infrastructure Pipeline initiative announced recently. In the medium-term, infrastructure spending will be a crucial driver of economic growth for the Indian economy.
On the direct tax front, widely expected relief for the common person by way of reduction in income tax slabs comes as a mixed bag, wherein those eligible for the relief would stand to qualify only if they do not seek any exemptions, and indulge in a bit of struggle with the math to decide whether they really stand to gain. On the whole, it should put more disposable money in the hands of tax payers and can help to boost consumption. The abolition of DDT is aimed largely to make India’s tax regime more attractive from the FDI perspective and, in the process, only the smaller resident tax payers will stand to gain. The dispute resolution scheme, though less attractive than the one recently brought out for indirect taxes, sends just the right signals to boost business sentiment and cut down litigation in the spirit of ‘vivad se vishwas’. Tax exemptions for startups with over up to Rs 100 crore (INR 1 billion) is a benefit directly aimed at the youth of this country. On the flip side, the expected abolition of long-term capital gains tax however failed to materialise. The significant changes in the definition of residents to tax rich Indians going abroad to save tax may, instead, induce them to give up Indian citizenship.
On the indirect tax front, the budget points to certain anomalies in our free trade agreements with partner nations, which have led to a surge in imports, to the detriment of domestic industry. Hence, some much-needed protectionist measures have been put in place, though many economists would advocate going for the more progressive measures of enhancing export competitiveness rather than reducing import dependence.
An important highlight in the budget was the enshrinement of the ‘Taxpayer Charter’ in the statutes of the tax laws. Coupled with other measures like faceless appeals, removing provisions for criminal liabilities from Companies Act and the proposal to increase deposit insurance limit from Rs 1 Lakh to Rs 5 Lakh (INR 0.1 Million to 0.5 Million), will not only bridge the trust deficit in line with the slogan ‘sabka saath, sabka vikas, sabka vishwas’, but will also enhance ease of doing business.
The downside of this budget is that it has not touched upon the sorely needed major structural reforms such as labour and financial market reforms. The current struggle to access credit from the banking sector remains largely unaddressed.
Despite the huge expectations, but given the limited room for maneuverability in view of the prevailing economic situation, the budget looks more realistic. The fiscal deficit of 3.8% for the current year, though higher than what the fiscal discipline road map allows, is on expected lines. A deficit target of 3.5% for FY 2020-21, though, looks challenging to attain given the domestic sluggishness and global economic headwinds. Despite the interventions announced in Budget 2020, it looks like that the budget implicitly underpins its hopes on a global recovery.
It looks like the worst is behind us. Tackling slowdown should not be what we should look forward to from this budget. The larger concern remains on touching the USD 5 Trillion economy target by FY 2024-25, especially keeping in view the current slippages. India’s emergence into a higher growth orbit is not only what the citizens of this country want but it is something that the world awaits.
(The author is a practicing chartered accountant and is also the Chairman of the Uttarakhand State Chapter of the PHD Chamber of Commerce and Industry)