New Delhi: Finance minister Nirmala Sitharaman delivered the second Budget of the Modi government’s second term today. She kicked off her speech by mentioning Narendra Modi’s massive mandate in May 2019. Crucially, Sitharaman said that this is a Budget to boost income and enhance consumer spending. At the end of her speech, though, it was unclear what steps the government will be taking.
As has become the norm, she began the speech by listing the Modi government’s economic “achievements”. Among other achievements, she said that teething problems of the Goods and Services Tax. She spent a considerable time on this – but did not address the fact that the government’s biggest revenue problem this year was low GST collections.
This budget is being woven around three important themes, Sitharaman said. They are:
1. Aspirations of a New India (people want access to better jobs, education, healthcare).
2. Reforms across swathe of the economy, yielding more space for private sector.
3. A ‘caring society’ that is both humane and passionate.
Loosened fiscal deficit targets
“We have estimated the nominal growth of GDP for FY’21 on basis of trends available. Accordingly, receipts for the year FY’21 are estimated at Rs 22.46 lakh crore. Keeping in mind commitment of government to various schemes, level of expenditure at Rs 30.42 lakh crore,” Sitharaman said.
Sitharaman claimed that all flagship programmes of government have been fully provided for, and asked people to go check details in the budget documents.
“Expected tax buoyancy will take time,” she continued. “We estimate a fiscal deficit of 3.8% in FY’20 RE. And 3.5% for FY ’21 BE.” This means the government has loosened its fiscal deficit targets.
“I have taken a deviation of 0.5% consistent with sections of the FRBM Act,” the finance minister said. This was more or less expected, the Act allows an escape clause of .5 percentage points, which they are using. FY’19 fiscal deficit was supposed to 3.3%-3.4%. It will now be 3.8%.
Net market borrowing for FY’20 is Rs 4.99 lakh crore and for FY 21, it will be Rs 5.36 lakh crore.
Sitharaman said the government has a 16-point action plan to further the Modi government’s plan to double farmers’ income. Here’s what she said the government will do:
1. Encourage state governments who undertake the model laws – model agriculture land leasing act, model agriculture produce and marketing act, model agriculture livestock facilitation act 2015. States encouraged to consider the model acts favourably.
2. Government proposing measures for 100 water-stressed districts.
3. ‘Anndata can be urjadata’. Kusum scheme linked pump sets to solar energy; now the government will expand the scheme to provide support to 20 lakh farmers to establish stand alone solar pump sets. Scheme for farmers to set up solar powered units on fallow and barren lands. “So, that farmers can make a living from barren lands also.”
4. Current regime incentivises excessive use of chemical fertilisers. Farm lands will be encouraged to not use excessive fertiliser.
5. NABARD will undertake an exercise to geo-tag grain storage warehouses. There will also be viability gap funding to set up warehouses.
6. A village storage scheme proposed to be run by women SHGs. These SHGs can avail of Mudra and NABARD assistance to regain ‘danya laxmi’.
7. Indian Railways will set up a ‘kisan rail’ so that perishable goods can be easily and quickly transported.
8. ‘Kisan Udan’ by civil aviation ministry will help improve value realisation.
9. The agri-credit target for FY’21 is pegged at Rs 15 lakh crore. All eligible PM-Kisan beneficiaries to be covered by Kisan Credit Card Scheme.
10. Integrated farming system in rain-fed areas to be expanded. Solar in non crop areas. Zero budget natural farming will also be taken forward.
11. Financing on negotiable warehousing receipt to be integrated with ENam.
12. Agriculture credit to be increased. All PM Kisan beneficiaries to be given KCC.
13. Eliminate foot and mouth disease and PPR to be eliminated by 2025. Production of 108 metric tonnes of milk by 2025.
14. Blue economy: Framework of development and management of marine fisheries.
15. By 2023, raising food production to 200 lakh tonnes. Growing of algage, seaweed and cage culture will also be promoted.
16. The government will appoint sagar mitras and farmer producing units to ensure that rural youth can be employed.
Sitharaman went through a dizzying array of healthcare announcements, most of which are about strengthening existing schemes such as TB awareness, Jan Aushadhi and Jan Arogya Yojana.
The Swachh Bharat Mission was given Rs 12.3 thousand crore.
India’s education ministry will receive Rs 99,300 crore in funding. This is a slight bump compared to FY’20 BE, which was Rs 94,853 crore. The most important part though will be to see what the RE will be for FY’20, which is what we will know once the budget documents are uploaded.
Internships: The government will be giving fresh engineering graduates one-year internships with urban local bodies, Sitharaman said. This will be good experience for them and help ULBs plan better, she said.
The finance minister did not indicate if these “internships” will be paid, or how much.
A new exam: Sitharaman announces the introduction of ‘Ind-SAT’, an exam for Asian and African countries to help make India a higher education destination.
Sitharaman brought up her National Infrastructure Pipeline project. This was announced a while ago, with an outlay of over Rs 100 lakh crore. She ran through a bizarre array of small details: a project preparation facility, making sure all government infra agencies rope in the youth, a National Logistics Policy and so on.
The National Highways Authority of India will “monetise at least 12 lots of highway bundles of over 6,000 km before 2024”, Sitharaman said.
The finance minister announced Rs 1.7 lakh crore for transport infrastructure in FY’21.
Smart, pre-paid meters for electricity connections are needed, said Sitharaman. Rs 22,000 crore to be allocated for to the renewable energy sector in FY’21.
The new economy
Sitharaman then turned her attention to the new economy. “AI, IoT, drones, DNA, quantum computing” – the FM listed out all the new buzzwords. “The government will bring out a new policy to build data centre parks throughout the country. Will enable India Inc to incorporate data in every step of value chain,” she said.
What is left unsaid: This is closely linked to Modi’s data localisation policy, which was actually diluted in the privacy bill in response to criticism by the Trump administration. And as always, follow the money. Many major corporate groups want to build data parks in India, including the Adani Group.
‘A caring Budget’
Sitharaman said Rs 28,600 will be allocated for “women-specific” programmes. She did not clarify what this means or what “women-specific” programmes are.
She also defended Modi’s ‘Beti Bachao, Beti Padhao’ programme – to be greeted with protests from the house.
The FM said Rs 35,000 crore is being allocated for nutrition-related programmes in FY’21.
Similar to her vague announcement about women, Sitharaman said “Rs 9,500 crore is provided for FY’21 for senior citizens”. Again, she didn’t mention which schemes this is for.
Sitharaman went into some details of India’s financial sector, which is reeling from the NBFC crisis. In an important announcement, she said insurance cover of a depositor, which is now at Rs 1 lakh, will be raised to Rs 5 lakh. Changes will be made accordingly.
This is a welcome development, especially in light of recent failures in the urban-cooperative banking space (PMC Bank, etc).
Sitharaman also said that the government’s stake in IDBI Bank (which recently was taken over by LIC) will be divested to retail investors through the stock markets. Will it find takers though? That’s the key question.
An optional new income tax regime
Sitharaman announced a new income tax payer regime that will be voluntary.
1) Rs 5 lakh to Rs 7.5 lakh becomes 10%, from current prevailing 20%.
2) Rs 7.5 Lakh to Rs 10 Lakh becomes 15% from current prevailing 20%.
3) Rs 10 lakh to Rs 12.5 Lakh , becomes 20% from current prevailing 30%.
4) Rs 12.5 Lakh to Rs 15 lakh, from 25% current prevailing 30%,
5) Income above Rs 15 lakh will be 30% with no deduction.
‘Proposed tax structure wiill provide significant relief, says Sitharaman.
All this comes with a caveat that no exemption or deduction can be taken. Thus, a taxpayer can choose what she wants to go for.
“For example – a person earning Rs 15 lakh and not availing any deduction will be Rs 1.95,000 as compared to Rs 2,73,00,” the finance minister said.
This is the slowdown context in which Budget 2020 must be viewed. As per the first GDP advance estimates released in the first week of January 2020, several key economic indicators will likely to fall to multi-year lows this fiscal. Among them is investment growth, which is set to shrink to just 1%, the slowest in 17 years.
Here’s a snapshot of how FY’20 has been for India’s economy:
1) Investment (GFCF): 1%, lowest in 17 years.
2) GDP growth: 5%, lowest in 11 years (subject to possible revisions in light of FY’19’s downgrade).
3) Private consumption: 5.8%, lowest in six years.
4) Manufacturing: 2%, lowest in 15 years.
5) Agriculture: 2.8%, lowest in four years.
A layman’s guide to the Union Budget
There are ten key macro elements to the budget exercise. We’ve prepared a simple guide that explains how they all add up. But the most important bits include:
1) Balancing fiscal deficit math: The government had budgeted fiscal deficit (FD) at 3.3% of GDP in the July budget but subsequent to first advance estimate of GDP, this was automatically revised upward to 3.44%. Given the requirement of higher spending and subdued revenue collections, the FD could be higher at around 3.8%-4% for both FY’20 and FY’21.
2) Tax Revenue vis a vis GDP: Muted growth in tax revenue needs to be looked at in reference to growth in nominal GDP. In the previous budget, tax revenue was budgeted to grow by 11.1% while the nominal GDP growth was estimated at 12%. However, so far between April-November, tax revenue growth has been notably lower at 2.6% while the nominal GDP growth as per FY20 (AE) is shockingly at just 7.5%.
Lingering bottlenecks in GST collections coupled with corporate tax cut would make it difficult to project a significant jump in tax revenue.
3) Disinvestment target:One of the popular “capital receipts” is “disinvestment” which in recent years has been budgeted for more than Rs 1 lakh. However, so far this year the number has be around Rs 18,000 crore till December.
The government had approved strategic disinvestment of five CPSUs including two key entities namely BPCL and CCIL. Budgeting this number again at Rs 1 lakh crores for FY’21 would be achieving almost Rs 1.5 lakh crores in one year. Is this possible? That’s a good question.