Union Budget 2020 briefingApprox Read Time: 5 minutes
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.
- 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:
- Economic reforms and deregulation;
- Connecting farm to fork through supply chains;
- Addressing water stress;
- Reducing price distortions.
- 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.
- 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.
- 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.
- 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.
- 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.