Budget cuts income tax, to spend more on agriculture, infrastructure to boost growth
Union Finance Minister Nirmala Sitharaman delivered one of the longest Budget speeches in recent memory in just under three hours and the biggest takeaway for most taxpayers was her announcement of a new tax regime which reduced tax slabs for income taxpayers whose annual income was less than 15 lakhs per annum.
However, that reduction of tax slabs has come at a massive cost, which is the removal of several exemptions ranging from medical insurance, house-rent allowance and leave travel allowance to many of the varied exemptions previously available under various provisions of Section 80.
The other major headline is the defibrillation shock that the Government plans to give to its moribund disinvestment process through the planned partial divestment of the Life Insurance Corporation in India which could become the most valuable company in India.
However, there is an overwhelming feeling among both economists and businessmen, who are not always on the same page that this Budget is a major missed opportunity. For one, there is a feeling that it does not seriously enough recognise the economic growth malaise in India. There is no booster for the manufacturing sector and with infrastructure spending not dramatically enhanced, little that will boost rural spending. The fact that there was not much for industry was reflected in an all-round decline in the bourses.
In one of the strongest negative reactions to the Budget, the benchmark Sensex tanked 2.43 per cent or almost 1000 points on Saturday. The headline Nifty index of India’s top 50 companies declined dropped 3.1 per cent, as investors gave the Union Budget two thumbs down.
Part of the decline could be because of the Government’s reluctance to infuse more funds into the public banking sector and with credit growth at multi-year lows and the government still owning two-thirds of banking capital, it is difficult to imagine how credit offtake will increase.
While certain sops have been announced that will make India a more attractive destination for foreign sovereign investment funds as well as the abolition of the Dividend Distribution Tax (DDT) which might hurt Indian promoters but will benefit foreign-based shareholders of Indian companies. There are the standard price increases with higher excise duties on certain sin items, of course cigarettes continue to be on that list, as strangely enough were toys.
The single-window clearance for infrastructure projects as well as the move towards encouraging cleaner energy production as it moves towards meetings its obligations under the Paris Climate Treaty are positives as is the dramatically enhanced Rs 4,000 crore that will be poured into ensuring “clean air” in large cities.
In every Budget there are both positives and negatives but there is a feeling that this Budget has left most Government and industry watchers disappointed because it has not done enough. While there is a level of fiscal balancing done by the Government, the confidence with which it stated several of their numbers have been questioned because there is a lack of confidence in the ability of this Government to pull off the disinvestment proposals required that will raise the funds needed to keep the fiscal deficit in check.
This Budget might have been fine if the Indian economy was purring along at a believable 8-10 per cent actual growth rate but with the need to boost the economy and create millions of new jobs every year, this is a deeply unambitious and dull Budget, not one that India needed as it finds its economy in a funk.
The revised estimated expenditure for FY20 has been pegged at Rs 26.99 lakh crore and receipts at Rs 19.32 lakh crore.
It has been proposed to remove dividend distribution tax on companies, and henceforth the tax will be shifted to recipients at the applicable rate.
A price stabilisation fund (PSF) is also in the pipeline to control prices of food items like onion and tomato that pushed retail inflation to a five-year high in December.
In a marginal hike, the Defence Budget was increased to Rs 3.37 lakh crore for 2020-21 against last year’s Rs 3.18 lakh crore, belying expectations of a significantly enhanced allocation to fast-track long-pending military modernisation. The net market borrowings would be at Rs 4.99 lakh crore in FY2019-20 and are estimated at Rs 5.36 lakh crore in the next fiscal.
The Minister announced cuts in personal income tax, extended tax benefits for affordable housing and gave relief to companies on payment of dividend as it looked to boost consumption to bring the economy out of the worst slowdown in 11 years.