MEGA TALKATHON BUDGET
Fiscal deficit pegged at 3.5%; Nominal GDP to be 10%; Capex scaled to 21% Few takers for differential tax slabs proposed for those foregoing exemptions
In a move to boost consumption for bringing the economy out of the worst slowdown phase, the government on Saturday announced some sops to cheer both corporate and aam admi in some way or the other, while at the same time, it widened budget deficit targets for the current and next fiscal years to help spur growth.
The most remarkable measures announced by the government in its Budget 2020 include, cutting personal income tax on lower slabs, raising deposit insurance to `5 lakh from `1 lakh at present, scrapping Dividend Distribution Tax (DDT) to encourage coporates for more investment, spending more on agriculture and rural sector, raising funds via listing of Life Insurance Corporation (LIC), pegging FY21 fiscal deficit at 3.5 per cent of GDP, etc.
Presenting her second Budget in Parliament, finance minister Nirmala Sitharaman said that the 2020-21 Budget was aimed at boosting incomes and enhancing purchasing power, stressing that the economy’s fundamentals were strong and inflation was well contained in the country.
As far as fiscal deficit is concerned, it is, however, expected that the government will miss its deficit goals for a third year, pushing the shortfall to 3.8 per cent of gross domestic product (GDP) from a planned 3.3 per cent in the year ending March this year.
“The deficit target for the coming fiscal year starting April 1 was widened to 3.5 per cent,” the finance minister said. For the next fiscal, she also pegged net borrowings of `5.45 lakh crore and doubled target of raising revenue from the sale of government stake in PSUs to `2.1 lakh crore.
Sensing a good economic health in next fiscal, the government also pegged the country’s nominal GDP growth rate at 10 per cent in the next fiscal and the capital expenditure is scaled up by 21 per cent to prop up the economy.
However, Sitharaman said, “Receipts for 2020-21 are pegged at `22.46 lakh crore while expenditure at `30.42 lakh crore. The revised estimated expenditure for FY20 has been pegged at `26.99 lakh crore and receipts at `19.32 lakh crore.”
In a move to boost domestic manufacturing in the country, Ms Sitha-raman also raised import duty on a variety of products ranging from tableware and kitchenware to electrical appliances to footwear, furniture, stationery and toys, while at the same time, she provided funds to help farmers set up solar power generation units and set up coal storages to transport perishables.
Keeping labour-intensive sectors in MSME as critical for employment generation, the finance minister also pointed out that cheap and lowquality imports are an impediment to their growth.
“Special attention has been taken to put measured restraint on import of those items which are being produced by our MSMEs with better quality. Keeping in view the need of this sector, customs duty is being raised on items like footwear and furniture,” she said.
Public expectation towards the Union Budget 2020 has been extraordinary especially at a time when the Indian economy is performing below its true potential. This is reflected in the fiscal deficit target pegged at 3.8% for FY20 and 3.5% for FY21.
The finance minister has tried her best to present a balanced Budget in spite of facing many constraints and challenges — both local and global.
To encourage consumption, she has tried to leave more income in the hands of middle class tax payers, especially the ones who were not able to get all the tax benefits.
In order to promote affordable housing, the finance minister has extended the tax benefit on affordable housing loans by a year. Besides, tax holiday under Section 80IBA of the Income Tax Act for developers for affordable housing has been extended by a year.
As far as the funding constraint for the real estate sector, the finance minister spoke about enhancing the partial credit guarantee scheme for NBFCs, which is a good move, but the ailing real estate sector needs much more. Real estate sector requires a huge push like the onetime restructuring of loans.
The finance minister has proposed a tax relief for buyers and sellers of property by allowing it to be valued at up to 10% below circle rates for calculation of stamp duty and capital gains tax. Earlier, this was 5%. This has the potential to remove the irritant in secondary market transactions.
The listing of LIC is a good move which will bring focus on the life insurance sector. The insurance industry will be watchful of the implication of the direct tax changes in the new tax regime.
The Budget has focused on the generation of employment and inclusive growth through increased expenditure on the rural economy and MSME.
The finance minister has been more realistic by assuming nominal GDP growth of 10% for FY 21.
The Budget provided tax benefit to the common man and focused on farmers’ incomes.
Focus on aviation, infrastructure, logistics, health, data centre park, renewable energy sectors and domestic manufacturing of network products should support the government to achieve expected GDP of 6.5% in FY 21.
— The author is managing director, HDFC Ltd
In order to promote affordable housing, the finance minister has extended the tax benefit on affordable housing loans by a year. Besides, tax holiday under Section 80IBA of the Income-Tax Act for developers for affordable housing has been extended by a year.