UNDERSTANDING UNION BUDGET 2020-2021

UNDERSTANDING UNION BUDGET 2020-2021

Introduction

The Finance Minister Nirmala Sithraman has presented the budget in the Parliament on 1st February 2020. While producing the budget, she stated “In May 2019, Prime Minister Narender Modi received massive mandate to form government again. Citizens of India has given their janadesh for not just political stability but have reposed their faith in our economic policies. This Budget will boost their income and purchasing power.”

The Budget focuses on 3 major themes, Aspirational India, Economic Development and A Caring Society. The budget allocates funds and proposes new schemes for every sector under these three themes. The year 2019 was proved to be very challenging in terms of economic growth and development globally. The major decline in the development globally was faced by India in the month of July-September. GDP was at its lowest that is 4.5 percent. The aim Budget 2020 is focused on reviving the Indian Economy in this fiscal through changes in Income Tax Slabs, Taxation Reforms, and Policy Changes for Real Estate Sector, and Automobile Sector.

Summary of Budget 2020

Theme I: Aspirational India

The Sectors under these themes are as follows-

Agricultural Sector: The budget 2020 is aimed at doubling farmer income 2022. State Government has to implement National Laws such as Contract Farming Act, 2018, Model Agriculture Land Leasing Act, 2016 etc. Many other provisions are implemented for the upliftment of this sector.

Wellness: The present budget allocates Rs 12,300 crores for Swachch Bharat Mission. Moreover Budget talks about ‘Fit India Movement’ in the context of India’s Fight against Non Communicable Diseases. Budget also allocate Rs 69,000 crores for the Health Sector.

Education Sector: As per this Budget 150 higher education institutions will start apprenticeships in 2020-21. Urban Local Bodies have been asked to provide internships opportunities for the freshers and engineers for the period of one year. Budget also proposes to set up National Police University and National Forensic Science University. The Budget allocates Rs 99,300 crores for the Education Sector and Rs 3000 crores for Skill development.

Theme II: Economic Development

The Union Budget 2020 proposes to set up an ‘Investment Clearance Cell’ to offer services such as to be set free investment advisory, land banks and others. An online portal will be launched in this regard. Budget allocates Rs 27,300 crores for the development of industry and commerce in 2020-21. Budget proposes to make each district export hub. The Sectors under this theme are as follows-

Indian Railways: It was promised in the Budget 2020 that 100 airports will be built till 2024 under UDAN Scheme and, 12 lots of national highways will be built.

Energy Sector: The States have to remove current meters with prepaid smart meters. Budget allocates Rs 22,000 crores for the Power and Renewable Energy sector. A new Policy will be launched for the construction of data centre parks by the private sector.

Theme III: Caring Society

Under the programme Beti Bachao – Beti Padhao, the enrollment of girls are higher than the boys. Nevertheless, Rs 35,600 crores will be provided for nutrition related programmes and further help is provided to girls. The steps taken under other sector in this theme are as follows-

Art and Culture: The Government will constitute Indian Institute of Heritage and Conservation as a deemed University. Moreover, the development of five archeological sites is decided. A tribal museum is to be built in the capital of Jharkhand.

Tourism Sector: The tourism sector shall grow from 7.8% to Rs 1.88 Lakh Crore.

Climate: The Coalition for Disaster Resilient Infrastructure will be implemented from January 2021.

Banking Sector: Deposit insurance cover has increased tremendously from Rs 1 Lakh to Rs 5 Lakh. Disinvestment in Banks, government share in IDBI Bank will be sold to private sector.

Corporate Sectors: The FPI-Limit in Corporate Bond has increased to 15%. Certain categories of government securities will now be opened for Non-resident Investors.

10 Major Outcomes

• Deposit insurance coverage to increase from Rs 1 Lakh to Rs 5 Lakh per depositor.

• In manufacturing and power sector, concessional corporate tax rate 15 percent.

• 100 more airports are to be built under the mission UDAN.

• Turnover threshold for an audit of MSMEs increased.

• PM-KUSUM Scheme, to cover 20 lakh farmers for standalone solar pumps and other 15 lakh for grid connected pumps.

• Simplified GST return shall be implemented from April 1, 2020, Refund process to be fully automated.

• Dividend Distribution Tax is removed and the classical system of dividend taxation is adopted.

• Viability gap funding for the creation of efficient warehouses on PPP mode.

• Tax concession for sovereign wealth fund of foreign governments and other foreign investments

• Tax benefits to start-ups, by way of deduction of 100 per cent of their profits are enhanced by increasing turn over limit and period of eligibility.

Understanding Economy

There are four engines that subsist a power to GDP Growth in an economy. These four engines are –

1. Consumption of Private Individual denoted as (C)

2. Demand of Goods from the Government, (G)

3. Investment from Businesses, (I)

4. Net Demand from exports and imports (NX)

Hence, GDP = C + G + I + NX, these four engines form GDP of India. With every passing year government is losing the growth of its engines due to which GDP growth is also affected.

Investment: It is referred to as fixed investment, in the amount of Capital Goods added by a country in a provided year. It is very significant to segregate the goods produced for present consumption versus the goods that will aid in maximizing production in the forthcoming years. The component gives a good idea about what the GDP of an economy in the future years will be. Further, the component ‘I’ is further divided into two components Residential and Non-Residential investments.

The growth of Corporate Investment Sector is slow since the year 2011. The reason of slow growth is that most businesses took loan in the previous years has faced loss because of financial crises held globally. New businesses found that financial institutions such as banks were themselves struggling from Non Performing Assets. Most of the NPA’s Holders are big business men who were now absconded

Consumption: It represents all the goods and services that were purchased by households i.e., individual consumers. This component of the GDP is the best indicator of the purchasing power in any given economy. The higher (C) number denotes a good economy. This depicts that the economy is driven by the market i.e., by consumer spending and is not artificially inflated. In the last few years, private consumption demand was first hurt in the rural areas with poor commodity prices. While this meant that retail inflation was under control, the purchasing power of farmer was declined. This weakens the consumer’s demand in the rural areas whereas consumer demand in urban areas was declined by the credit flow from the non banking financial sector.

Government Demand: Another component is a government demand. Government spending directly measures the amount of money spent by the government in the provided year. It is usually believed that the higher the government spending poorer the economy will be.

Net Demand Export and Import: The last component is the net exports i.e., X-M. The alphabet ‘M’ denotes import here whereas the ‘X’ depicts export. However, usually subtracting of imports provide negative connotation but the truth is import is subtracted to protect the double counting. This is because import is already counted under the component ‘C’. . The Net Demand from exports and imports are strongly affected by global issues such as Brexit in Europe and the Trade war between China and US. Therefore, this component has also not provided much to the GDP last year.

Conclusion

In Indian GDP ‘C’ or private consumption holds 57% of total GDP, on the other hand 32% sustain Investment (I). The other sectors contribute very less in GDP. After the slowdown of economy since 2017, Indian Citizens were expecting more from the current budget. This is the second time NDA government has presented budget within 7 months in the parliament. Nevertheless, the government has set a strong vision for the new decade such as target of ‘Har Ghar Jal’ till 2024, ‘Ayushman Bharat’ etc. The Amendment made by legislation under Income Tax was referring people who are working outside India and not paying tax there. The purpose is not to target a bonafide worker but to target a tax evader. The government has made various changes in budget with a view to grow India’s GDP; but the aftereffects will only be observed with time.

References

• Explained Union Budget; 2 February 2020; Udit Misra; The Indian Express

• Union Budget of India (2019-2020) ; July 2019; Indian Brand Equity Foundation

• Why Budget proposal on tax on Indian working abroad triggered confusion; 3 February 2020; Udit Misra; The Indian Express

• Image Credits: www.outlookindia.com