STRATEGIC EYE – A column on current national and global issues
Proposals On Agriculture, Infrastructure, Smart Cities, Solar & Digital Enterprises Geared To Growth
By Ambassador Praveen Verma (Retd.)
Indian Finance Minister Nirmala Seetharaman presented the Union of India Budget to the parliament on 1st February 2020 for the financial year 2020-21 ( 1st April 2020 to March 31st 2021. She broke tradition by bringing the Budget to the Parliament in a red cloth bag instead of a briefcase. She presented the ‘Bahi Khata’ for the nation, which in traditional Indian accounting signifies ‘book keeping’.
The budget centers around three main themes –Aspirational India, Economic Development and Caring Society. A number of policy guidelines have been included in the Budget under these themes. Under Aspirational India proposals have been included in the agriculture sector, education and skills, water and sanitation.
Under Economic development there are allocations for infrastructure and industry, promotion of smart cities and solar and digital enterprises. Under Caring society focus is women empowerment, encouraging women specific programmes, promoting technologies for upliftment of backward sections of the society. Senior citizens as well as Divyangs (physically challenged) are also included in the welfare initiatives proposed under this head.
However the most awaited proposals which attract most attention are the new provisions on taxes especially Income tax. These proposals impact most people’s earnings and affect their net income. This may also interest NRIs, who earn income in India and abroad and pay their taxes in India as a part of their global income.
The budget has made some changes in the slab structure of taxation which prima facie seems to reduce the taxes to be paid by individuals by a big margin.
The new slab structure is as follows:
0 to 5 lakhs –Exempt
5 lakh to 7.5 lakh — 10% (20% earlier)
7.5 lakh to 10 lakh – 15% (20% earlier)
10 lakh to 12.5 lakh- 20% (30% earlier)
12.5 lakh to 15 lakh-25%(30 % earlier)
Income above 15 lakhs – 30%
(1.lac= 100,000: approx $1Can=Rs 53 )
The revised slabs are subject to opting out of all exemptions currently awailable at present. These exemptions include those on expenditure on medical treatment, education, house rent, investments in designated categories and many others. This has led to speculation whether there will be any real gain under the new dispensation. Budget critics claim that there may be losses in all income categories where exemptions are being claimed now. Government sources claim that most individuals stand to gain. This has prompted calls to CAs for individual clarifications.
Government also promises simplification of taxation processing procedures. A new Tax Charter is proposed in this Budget. The charter will define the rights of the Taxpayers and obligations of the Government. It will lead to greater accountability and send a strong signal that government intend to be tax-payer friendly. NRIs will have to stay out of India for 245 days to be deemed as NRI for Tax purposes and to avoid tax on Global income in India.
Other tax benefits included in the budget include 100% exemption on Sovereign wealth funds’ investments, concessional 5% withholding tax extended to municipal bonds and removal of Dividend Distribution Tax (DDT). A simpler GST filing system is to be introduced from April 2020. An average household will save 4% of its monthly income on account of reduced GST.
Customs Duty
Increase in Customs Duty has been more consciously imposed to create level playing fields for domestic manufacturers to promote Made in India. Duty has been imposed on imported daily use goods such as toys, shavers, table and kitchenware, stationary, small electronics and others.
Addressing the Environment issue an additional 5% has been allocated to the ministry. Government stands committed to taking actions in various sectors to reduce fossil fuel consumption. A determined effort has been made to promote solar energy and other renewable energy and clean air projects. Old and polluting thermal power plants have been slated to be phased out. Expansion of PM KUSUM (Pradhan Mantri Kisaan Urja Suraksha Uthan Abhiyan) scheme will enable farmers to install standalone solar pumps. The implementation of Paris agreement commitments start on 1st January 2021.
While presenting the Budget Finance Minister did face a fiscal crunch. Both targets for tax collection as well as expenditure were missed at revised estimates stage during the current financial year. Country’s GDP was at a low of 5%. Slowdown in world economy was evident.
The deficit gap for 2020 Budget has been pegged at 3.8%, 50 points higher than last year. Government intends to raise additional funds through disinvestment, with a target of Rs 2.1 lakh crore. This will be raised by selling part of government shares in LIC through Initial public offer as well as sell holdings in IDBI bank. Disinvestment of Air India is also on cards but may take time. Additional resource funding will be through incentivising Foreign Direct investment including Sovereign Funds.
Earlier on 29th February, Ms. Seetharaman had presented the Economic Survey of India prepared by Chief Economic Adviser to Government, Mr Krishnamurthy V Subramanian. This document presented a report card of the government performance during the previous year and recommended the path forward based on the realities of previous year’s performance. It recommended a conceptual framework of the budget providing for strengthening the invisible hands of the market by a caring hand. Working towards a 5 Trillion economy the Survey recommended economic policies to promote grassroots industries bringing entrepreneurship within fair competition and competitive market and eliminate government intervention wherever not required. The survey projects economic growth to rebound and hit 6% to 6.5% during the next financial year.
PM Modi commented “the Economic Survey focuses on wealth creation of 130 crore Indians. It outlines a multi-faceted strategy to achieve a 5 trillion economy through enterprise, export, ease of doing business and more”
The Budget prompted a decline of 988 points, the largest percentage drop after a budget. Last major drop was of 870 points after budget was presented by Pranab Mukherjee in 2009 during the Global crisis.
Perhaps businesses did not see any big ticket measures for the industry. Not much could be seen in the Budget which could have immediate impact on demand generation and pump the market. Nevertheless the Budget focussed on middle class, farmers and key fundamental developmental and infrastructure issues which is expected to turn the economy around. According to Finance minister ‘this was not the Budget for this one year but also sets the course for next five years’. It is now for the nation to respond.
The markets recovered in two days!
Amb. Verma has served in Indian missions in Pakistan, Jordan, UAE, Panama, Canada (1998-2002), Nigeria, Turkey, Yemen and Guatemala.