New Delhi: Finance Minister Nirmala Sitharaman is presenting the Modi 2.0 government’s first Budget today. She began her speech in parliament at 11 am, after she had met with President Ram Nath Kovind in the morning.
“Within five years, it [the Indian economy] has received $2.7 trillion. The $5 trillion goal is well within our reach,” Sitharaman said as her speech began – referring to the goal Prime Minister Narendra Modi had proposed. “Filled with an inherent desire to progress, led by a dedicated leadership in this House, the target is achievable. All of India’s private sector industries have played a substantial role in growing our economy.”
This goal, Sitharaman said, would be achieved by “minimum government, maximum governance”, involving:
- Building social infrastructure
- Digital India
- Make-in-India with emphasis on MSMEs
- Defence manufacturing
- Pollution-Free India
- Space programmes
- A host of other initiatives including Ayushman Bharat.
Even before the speech began, Sitharaman had caught some eyeballs by replacing the traditional image of the finance minister with a brown briefcase outside parliament. Instead of a briefcase, she held a red cloth bag with the Budget documents. According to CNBC, chief economic adviser Krishnamurthy Subramanian calls it a traditional ‘bahi-khata’ and that it symbolises the departure of slavery from Western thought.
After talking about the country’s growth goals, Sitharaman ran through a string of infrastructure projects that government has planned. “I wish to propose a number of initiatives as part of kick-starting the virtuous cycle of domestic and foreign investment,” she said.
She began by talking about roads and metro rail tracks, and also said that time may be ripe for India to get into aircraft financing and leasing, to create a self-reliant aviation industry. She also talked about a national charging grid for electric cars, the development of inland waterways and using public-private partnerships for railway development.
Sitharaman also effectively announced a scaling up of India’s infrastructure network, parts of which have started over the last five years. “I propose to make a blueprint available for developing gas grids, water grids and regional airports.”
However, the finance minister failed to clarify where the money would come from. While she mentioned PPPs, India Inc’s balance sheets are already stressed – with little appetite for risky infrastructure bets.
The finance minister announced more interest subvention for loans taken out by MSMEs (both fresh and incremental loans). “Government will create a payment platform for MSMEs to enable financing of bills and payment on that platform itself,” Sitharaman said.
She also said pension benefits will be extended to three crore shopkeepers and retailers whose retail turnover is less than Rs 1.5 crore, in the form of a new scheme. No further details were in the speech on this.
Allowing more FDIs
Allowing more foreign direct investment may be on the cards, Sitharaman suggested. “Government will examine suggestions of further opening up FDI in aviation, media, animation and insurance sector.”
- Local sourcing norms will be eased for FDI in single-brand retail sector
- 100% FDI for insurance intermediaries
- Government is contemplating organising a global investors meet in India.
Moving on to the rural section of the Budget, Sitharaman spent some time complimenting the previous Modi government’s achievements, including on the Ujjwala Yojana and Saubhaghya Yojana (LPG and electricity schemes). She also brought up older promises of the Modi government – such as electricity and gas for all by 2022, and the rural housing goals – and said that India is on track to achieve them.
Sitharaman said the government has decided to increase the Budget for the PM Gram Sadak Yojana – and said one lakh kilometres worth of roads will be updated. This would cost the government Rs 80,250 crore. She did not mention where this money will come from.
On farming, the finance minister said, we need to “go back to the basics”. She complimented India’s traditional farming methods and the idea of zero-budget farming.
“Hope to form 10,000 new farmer producer organisations that will ensure economy of scale for farmers over next 5 years,” she said. She also talking about encouraging more states to use the e-NAM – an online trading platform for agricultural commodities – more.
A major step towards providing drinking water for all was taken earlier this year, Sitharaman said, referring to the Jal Shakti Mantralay. Water for all will be provided by 2024 and the government will focus on integrated management of piped water, including focus on creating local infrastructure (rain water harvesting, groundwater recharge and so on).
She did not talk about how much funding this would get.
Talking about Modi’s pet Swachh Bharat project, Sitharaman said it has been widely successful and “9.6 crore toilets have been constructed since October 2014”. The Wire has done a large number of reports on how these toilets may have been constructed – but that doesn’t mean they’re usable. Kabir Agarwal’s series from Uttar Pradesh, for instance, talks about the multiple issues with this ‘toilet construction’.
She then promised India will be ‘open defecation free’ by October 2 this year. FYI: This is harder than it looks. India has claimed it is already 96% ODF-free. Santosh Mehrotra explains in The Wire why this isn’t quite true.
She also talked about the plight of manual scavengers – but not in a particularly constructive way. The finance minister claimed that sanitation work will now be done by robots to “save manual scavengers their dignity”.
Multiple reports have shown how the kind of technology the government uses to clean sewers is ineffective, and requires human intervention. In addition, a large number of manual scavengers – particularly women – are engaged in night soil collection and dry toilet cleaning, which robots cannot be deployed for. Sitharaman made no reference to this.
Sitharaman talked about the Skill India programme by making some small announcements – but did not mention the many flaws in the scheme that have been pointed out.
Banking and financial sector
Sitharaman started this section of her speech by saying that the government has been successful in tackling non-performing assets.
“Our efforts at cleaning up the banking sector are now clearly visible. NPAs of banks have reduced by over Rs 1 lakh crore over the last year. Recorded recovery of over Rs 4 lakh crore due to IBC have been effected in last four years. Provision coverage ratio is now at its highest in 7 years. Domestic credit growth has risen by 13.8%.”
This is all largely true, although the IBC still struggles with legal challenges, provision coverage ratio is still low when compared globally and credit growth hasn’t rebounded uniformly.
She also announced a public sector bank recapitalisation plan. “PSBs are now to be further provided Rs 70,000 crore in capital to boost credit,” says Sitharaman. This was required and expected.
The Budget speech said the strategic disinvestment of select Central Public Sector Enterprises will be a priority for this government. “In view of current macroeconomic priorities, government will not only re-initiate process of divesting Air India, but also offer up more CPSEs for strategic participation by private sector.”
The target for disinvestment proceeds was set at Rs 1.05 lakh crore for FY 2019-20.
A full 1.5 hours into the speech, Sitharaman began Part B by thanking India’s taxpayers. “I begin by thanking our taxpayers, who as responsible citizens performed their duty by paying their taxes. It is because of their valuable contribution that our government is able to work for collective dream…”
She said that the government’s direct tax efforts have paid off. “Due to a slew of efforts taken by our government, direct tax revenue has significantly increased by over 78% from 6.38 lakh crore in FY 14 to around Rs 11.37 lakh crore in FY 18.”
She also said that the government would increase the number of companies who could benefit from the lowest corporate tax rate – to 99.3% of all companies. “Currently, the lower rate of 25% applies to companies having annual turnover of Rs 250 crore. I propose to widen this to include all companies having annual turnover of up to Rs 400 crore. This will cover 99.3% of all companies.”
The government has also decided to make PAN and Aadhaar cards “interchangeable”, Sitharaman said.
The first substantial change Sitharaman announced was increasing tax rates on individuals who earn more than Rs 2 crore and Rs 5 crore per year. “I propose to enhance surcharge on individuals having taxable income of Rs 2 crore to Rs 4 crore and Rs 5 crore and above so that effective tax rates will increase by 3% and 7% respectively.”
She also said that there will now be a cash transaction tax – 2% TDS – on withdrawals of more than Rs 1 crore per year.
Customs duty on various goods was also hiked – cashew kernels, vinyl flooring, tiles, metal fittings, mountings for furniture, auto parts, certain kind of synthetic rubber, marble slabs, optic fibre cable, CCTV camera, IP camera.
The duty on petrol, diesel and gold was also increased. “I propose to increase special additional excise duty and load and infrastructure cess each by Re 1 a litre on petrol and diesel,” Sitharaman said. “It is also proposed to increase customs duty on gold and other precious metal from 10% to 12.5%.” This announcement was met by booing from the house.
While closing her speech, Sitharaman said the fiscal deficit for the year is at 3.3%, down from 3.4%, and that particular outlays can be found in the annexure to the Budget documents that will be released online.
Note: This copy will be updated as the Budget speech goes on.