Finance Minister Nirmala Sitharaman presented her second Budget in Modi 2.0 government on February 1, 2020 with India’s longest Budget speech till date. Budget 2020 comes at a time when India is staring at an estimated 5% annual rate of expansion, the slowest pace since 2009. All eyes were on new announcements to revive the economy as after holding its position as the world’s fastest-growing major economy for four years, India was expected to emerge as the third largest economy after the US and China. In the Budget, it was expected that the Finance Minister (FM) will address on the slowing economy, low consumer confidence, rising inflation, sagging demand, fiscal deficit constraints, GST simplification, job creation, exports revival, agrarian crisis and raise public investment without compromising on fiscal prudence.
As expected, Budget 2020 clearly focused on empowering the common man through several policy reform initiatives. It unveiled a series of far-reaching reforms, aimed at energising the Indian economy through a combination of short-term, medium-term, and long term measures. With a specifically rural-focused, agri-centric budget, FM Sitharaman has sought to address the woes of rural India with measures like the expansion of the NABARD refinance scheme and improved access to institutional credit that will boost agricultural activity. Krishi Udaan and Kisan Rail schemes are a welcome change in the Budget presentation. These schemes will play a pivotal role in the proposed 16 point action plan to boost agriculture and farmer welfare.
Major changes in direct tax were announced, new slabs were introduced and lower tax rates for different slabs for an individual with income of up to Rs. 15 lakh per annum were announced, if a taxpayer opts for foregoing exemptions and deductions. The new tax regime, however, will be optional and the taxpayers will be given the choice to either remain in the old regime with exemptions and deductions or opt for the new reduced tax rate without those exemptions. The FM claimed that individuals will not require help of any professionals to file their TDS under the new regime.
The FM has accepted the long pending demand of the industry to reverse the taxability of dividends back to the recipients. Thus, the government scraped the Dividend Distribution Tax (DDT) for companies.
Certain specified categories of government securities have been opened to non-resident investors, in a bid to deepen the bond market. FPI limit in corporate bonds have been increased and that will help to deepen the tangible bond market in the country. Infrastructure investments up to March 2024 from foreign sovereign wealth funds have been given huge benefits such as - zero tax on interest, dividend and capital gains. It’s a big step to boost infrastructure investments in the short term. Exports also remained the key budget focus area with the announcement of the Nirvik scheme for exporters.
On the privatisation front, a big bang announcement of the intention of the government to sell stake in LIC through an IPO, along with decision to sell government stake in IDBI Bank were announced. Big relief came on the fiscal deficit front where with risks of slippages looming, the FM pledged to keep the fiscal deficit at 3.5% of the Gross Domestic Product (GDP) in 2020-21 and revised the current year’s deficit to 3.8% from 3.3% targeted in the Budget.
Going forward with its “Make in India” motto, measures were announced to encourage the manufacture of mobile phones, electronic equipment, and semiconductor manufacturing as well as medical devices in the country. The FM also unveiled plans for India’s highways and railways as in going solar, station redevelopment projects, national logistics policy, proposed highway development and proposed more Tejas-type trains were the key focus.
The decision to launch a “Vivaad Se Vishwas” scheme allowing corporate entities and individuals to settle pending tax disputes is a laudable step. This will not only help in offsetting the revenue shortfalls, it will also lower the burden of pending cases on the judiciary. Additionally, it is well placed to give the tax payer a definitive end to their outstanding litigations.
This yearʼs Budget has a focus on the agriculture and allied sectors, infrastructure, job creation, skill development and financial sector. Many measures including tax incentives have been announced to deepen the corporate bond market as well.
With the country facing a massive slowdown where households aren’t spending, companies are sitting on unsold stocks, farmers are in distress, the world economy in a bad shape and with rising inflation it was a tough job for the FM but she has done a good job in keeping the fiscal deficit estimates within expected lines.