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Editorial Analysis: The multi-pronged reforms in Union Budget 2020

Union Budget 2020 briefing

Approx Read Time: 5 minutes
Union Budget 2020
Union Budget 2020 briefing

Union Budget at a challenging time:

  • The finance minister had to present this year’s Union Budget in a very challenging context.
  • Slowing economy, falling aggregate demand, and lackluster credit flows and exports, were all pointing to the need for a sharp fiscal stimulus.

Limited fiscal space:

  • Despite the need for stimulus, fiscal space was limited since tax collection was not growing fast enough.
  • It is further constrained by the FRBM Act passed by Parliament.

Some fiscal liberty taken as per FRBM Act:

  • FRBM Act has an exemption in case of special circumstances.
  • Hence taking recourse to that allowable deviation, the FM presented a budget which has a higher fiscal deficit.

Stimulus for various sectors:

  • The stimulus helps address the growth needs of various stakeholders, such as farmers, urban middle class, corporates and bank depositors.
    1. Agriculture:
      • For instance, 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:
        1. Economic reforms and deregulation;
        2. Connecting farm to fork through supply chains;
        3. Addressing water stress;
        4. Reducing price distortions.
    2. Corporate sector:
      • Similarly, there is also a boost to the corporate sector by abolition of the dividend distribution tax.
      • Already, corporate taxes had been reduced to 22%, and in fact 15% for new manufacturing companies.
      • This will help make India’s industry competitive.
      • Some much-needed protectionist measures have been put in place recognizing certain anomalies in our free trade agreements with partner nations, which have led to a surge in imports, to the detriment of domestic industry.
    3. Middle Class:
      • The mainly urban middle class got a boost through a cut in income tax.

Infrastructure spending boost:

  • The budget also made significant provisions to 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.

LIC Disinvestment is a big step:

  • Beyond fiscal boost, one of the very significant announcements in the budget was the part sale of shares in the Life Insurance Corporation of India.
  • This is in line with an ambitious disinvestment programme which aims to raise more than Rs 2 lakh crore next year.
  • This helps bridge the fiscal deficit, but more importantly, signals the government’s determination to let private sector have a greater play in the economy.
  • The Union Cabinet has already cleared the disinvestment in a slew of public sector companies.

Taxation:

  1. Charter to reduce harassment:
    • The budget also helps address the issue of tax harassment.
    • An important signal in the budget was the enshrinement of the “taxpayer charter” in the statutes of the tax laws.
    • It will lead to less coercive recovery of taxes.
    • This will enhance the element of trust between the taxpayer and the government.
    • Faceless appeals and the introduction of the settlement scheme for direct tax disputes are welcome too.
  2. Widening tax base:
    • In order to attain fiscal sustainability, the tax net needs to be wider, and tax rates modest.
    • The reduction in corporate income tax announced earlier, and now extended to the power sector, is greatly welcome.

Technology focus for the future:

  • The budget referred to disruptive tech and the announcement of a National mission for Quantum Technology, with an outlay of Rs 8000 crore over five years, is a modest first step.
  • It indicates a desire to compete with economic superpowers on the frontiers that matter.

Conclusion:

  • Budget 2020 also has a clear eye on the future and signals a willingness to embrace the new economy.
  • The world is looking forward to India’s emergence into a higher growth orbit.

Also Read: Extra Bytes: Business possibilities in a world of digital payments

Related Article: Budget 2020-21 Summary

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