Union Budget 2020-21: Read complete analysis

Union Budget - Union Finance Minister Nirmala Sitharaman presented the Union Budget for Financial Year (FY) 2020-21 on 1st Feb, amid the concerns regarding economy hitting a six-year low GDP growth rate. However, the Economy Survey 2019-20 projected the economic growth to rebound and hit 6%-6.5% in the next FY 21.

This Budget contains a series of far-reaching reforms, aimed at energizing the Indian economy through a combination of short-term, medium-term, and long-term measures.

Background

  • The Constitution refers to the budget as ‘annual financial statement’. The term ‘Budget’ has nowhere been used in the Constitution.
  • The Budget is a statement of the estimated receipts and expenditures of the Government of India in a financial year, which begins on 1st April and ends on 31st March of the following year.
  • In 2016, the Government has decided to merge Rail Budget with the Union Budget on the recommendations of the Committee headed by Bibek Debroy, a former member of NITI Aayog.
  • Apart from this, Modi Government, in its first term, decided to prepone the date of presenting the budget from last working day to first working day. Accordingly, Union Budget for 2017-18 was presented on February 1, and since then, tradition is continued.
  • The motive behind this move was to complete the budgetary process by March 31, so that expenditure exercise for 12 months to begin on April 1 itself.

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Highlights of the Budget

Union Budget 2020-2021 has three broad themes:
  1. Aspirational India: Better standards of living with access to health, education and better jobs for all sections of the society. There are three components of Aspirational India:
  • Agriculture, Irrigation, and Rural Development.
  • Wellness, Water, and Sanitation.
  • Education and Skills
  1. Economic Development for all: “Sabka Saath , Sabka Vikas , Sabka Vishwas”.
  2. Caring Society: Both humane and compassionate; Antyodaya as an article of faith.
  • These three broad themes are held together by Corruption free, policy-driven Good Governance” and Clean and sound financial sector”.
  • Ease of Living underlined by the three themes of Union Budget 2020-21.

AGRICULTURE, IRRIGATION AND RURAL DEVELOPMENT (16 Action Points)

  • Total Allocation: 2.83 lakh crore. Out of which, Rs. 1.60 lakh crore has been allocated for Agriculture, Irrigation & allied activities and Rs. 1.23 lakh crore for Rural development & Panchayati Raj.
  • Agriculture credit, which means a type of financing in the form of credit or loans for agricultural producers, includes:
  1. The target for the year 2020-21 has been set at 15 lakh crore.
  2. PM-KISAN beneficiaries to be covered under the Kisan Credit Card (KCC) scheme.
  3. NABARD Re-finance Scheme to be further expanded.
  4. Comprehensive measures for 100 water-stressed districts proposed.


  • Blue Economy:
  • 1 lakh crore fisheries’ exports to be achieved by 2024-25.
  • 200 lakh tonnes fish production targeted by 2022-23.
  • 3477 Sagar Mitras and 500 Fish Farmer Producer Organisations to involve youth in fisheries extension.
  • Growing of algae, sea-weed and cage culture to be promoted.
  • Framework for development, management and conservation of marine fishery resources.
  • Kisan Rail to be setup by Indian Railways through Public Private Partnership (PPP) to build a seamless national cold supply chain for perishables (milk, meat, fish, etc.) and it will comprise refrigerated coaches in Express and Freight trains.
  • Krishi Udaan to be launched by the Ministry of Civil Aviation on international and national routes to transport perishable goods to less accessible areas such as the north-east and tribal districts.
  • One-Product One-District for better marketing and export in the Horticulture sector.
  • Fertilizers: Balanced use of all kinds of fertilizers - traditional organic and innovative fertilizers.
  • Measures for organic, natural, and integrated farming:
  • Jaivik Kheti Portal – online national organic products market to be strengthened.
  • Zero-Budget Natural Farming, which was mentioned in 2019 Budget, is a farming practice that believes in natural growth of crops without adding any fertilizers and pesticides or any other foreign elements, to be included.
  • Integrated Farming Systems in rain-fed areas to be expanded.
  • Multi-tier cropping, bee-keeping, solar pumps, solar energy production in non-cropping season to be added.
  • Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (PM-KUSUM) to be expanded under which 20 lakh farmers to be provided for setting up stand-alone solar pumps. Another 15 lakh farmers to be helped to solarize their grid-connected pump sets. The scheme enables farmers to set up solar power generation capacity on their fallow/barren lands and to sell it to the grid.
  • Village Storage Scheme to be run by the Self Help Groups (SHGs) to provide farmers a good holding capacity and reduce their logistics cost. Women, SHGs can regain their position as Dhaanya Lakshmi.
  • NABARD to map and geo-tag agro-warehouses, cold storages, reefer van facilities, etc.
  • Warehousing in line with Warehouse Development and Regulatory Authority (WDRA) norms:
  • Viability Gap Funding for setting up such efficient warehouses at the block/taluk level.
  • Food Corporation of India (FCI) and Central Warehousing Corporation (CWC) to undertake such warehouse building.
  • Financing on Negotiable Warehousing Receipts (e-NWR) to be integrated with e-NAM.
  • State governments who undertake implementation of model laws (issued by the Central government) to be encouraged.
  • Livestock:
  • Doubling of milk processing capacity to 108 million MT from 53.5 million MT by 2025.
  • Artificial insemination to be increased to 70% from the present 30%.
  • MNREGS to be dovetailed to develop fodder farms.
  • Foot and Mouth Disease, Brucellosis in cattle and Peste Des Petits ruminants (PPR) in sheep and goat to be eliminated by 2025.
  • Deen Dayal Antyodaya Yojana – 0.5 crore households mobilized with 58 lakh SHGs for poverty alleviation.

WELLNESS, WATER AND SANITATION

  • Rs. 69,000 crore allocated for overall Healthcare sector.
  • PM Jan Arogya Yojana: Rs. 6400 crore (out of Rs. 69,000 crore) has been allocated for PMJAY.
  • More than 20,000 hospitals already empanelled under PMJAY.
  • Viability Gap Funding (VGF) window proposed for setting up hospitals in the Public Private Partnership (PPP) mode.
  • Aspirational Districts with no Ayushman empanelled hospitals to be covered in Phase 1.
  • Machine Learning and Artificial Intelligence will be used to target diseases.
  • Jan Aushadhi Kendra Scheme to offer 2000 medicines and 300 surgical in all districts by 2024.
  • TB Harega Desh Jeetega campaign launched in order to end Tuberculosis by 2025.
  • Jal Jeevan Mission (which was aimed to provide piped water supply to all households)
  • 3.60 lakh crore to be approved (out of which Rs. 11,500 crore for FY 2020-21).
  • Augmenting local water sources, recharging existing sources, and promoting water harvesting and de-salination.
  • Cities with million-plus population to be encouraged to achieve the objective during the current year itself.
  • Swachh Bharat Mission:
  • Rs. 12,300 crore to be allocated for this scheme in 2020-21.
  • Commitment to Open Defecation Free (ODF)-Plus in order to sustain ODF behavior.
  • Emphasis on liquid and greywater management.
  • Focus on Solid-waste collection, source segregation, and processing.

EDUCATION AND SKILLS

  • Rs. 99,300 crore for education sector and Rs. 3000 crore for skill development in 2020-21.
  • New Education Policy to be announced soon.
  • National Police University and National Forensic Science University proposed for policing science, forensic science, and cyber-forensics.
  • Degree level full-fledged online education program to be provided by top-100 institutions in the National Institutional Ranking Framework (NIRF).
  • Up to 1-year internship to fresh engineers to be provided by Urban Local Bodies.
  • This budget proposes to attach a medical college to an existing district hospital in PPP mode.
  • Special bridge courses to be designed by the Ministries of Health, and Skill Development in order to fulfill the demand for teachers, nurses, para-medical staff and care-givers abroad and to bring in equivalence in the skill sets of the workforce and employers’ standards.
  • Apprenticeship embedded degree/diploma courses to be provided by 150 higher educational institutions by March 2021.
  • External Commercial Borrowings (ECBs) and Foreign Direct Investment (FDI) to be enabled for education sector.
  • Ind-SAT Exam is proposed for Asian and African countries as a part of Study in India

ECONOMIC DEVELOPMENT

Industry, Commerce and Investment

  • 27,300 crore allocated for FY21 for development and promotion of Industry and Commerce.
  • In order to provide “end to end” facilitation and support to investors and to work through a portal, Investment Clearance Cell is proposed to be set up.
  • Five new smart cities proposed to be developed on the pattern of Gujarat International Finance Tec-City (GIFT) of Gandhinagar with dedicated metro corridors, energy-conserving buildings, walkability elements, state-of-the-art design elements and automated garbage collection.
  • Scheme to encourage manufacture of mobile phones, electronic equipment and semi-conductor packaging is also proposed.
  • National Technical Textiles Mission to be set up with four-year implementation period from 2020-21 to 2023-24 at an estimated outlay of Rs 1480 crore to position India as a global leader in Technical Textiles.
  • The new export credit insurance scheme, NIRVIK (Niryat Rin Vikas Yojana), offering lower premiums for small exporters, higher insurance cover and faster claim settlement, will be implemented in FY2020-21.
  • Turnover of Government e-Marketplace (GeM) is proposed to be increased upto Rs 3 lakh crore.
  • Scheme for Revision of duties and taxes on exported products to be launched. Exporters to be digitally refunded duties and taxes levied at the Central, State and local levels, which are otherwise not exempted or refunded.
  • All Ministries to issue quality standard orders as per Prime Minister’s vision of “Zero Defect-Zero Effect” manufacturing.

 Infrastructure

  • 100 lakh crore to be invested on infrastructure over the next 5 years.
  • National Infrastructure Pipeline (NIP) will enable a forward outlook on infrastructure projects which will create jobs, improve ease of living, and provide equitable access to infrastructure for all, thereby making growth more inclusive. NIP includes economic and social infrastructure projects. More than 6500 projects across sectors to be classified as per their size and stage of development. 
  • A National Logistics Policy, aimed at promoting seamless movement of goods across the country and reducing high transaction cost of traders, to be released soon to clarify roles of the Union Government, State Governments and key regulators.
  • A single window e-logistics market is proposed to be created.
  • Focus to be on generation of employment, skills and making MSMEs competitive.
  • National Skill Development Agency to give special thrust to infrastructure-focused skill development opportunities.
  • Project preparation facility for infrastructure projects proposed to actively involve young engineers, management graduates and economists from Universities.
  • Infrastructure agencies of the government to involve youth-power in start-ups.
  • 1.7 lakh crore proposed for transport infrastructure in 2020-21.

Highways:

  • Accelerated development of highways to be undertaken, including 2500 Km access control highways, 9000 Km of economic corridors, 2000 Km of coastal and land port roads, 2000 Km of strategic highways.
  • Delhi-Mumbai Expressway and two other packages to be completed by 2023. Chennai-Bengaluru Expressway to be started.
  • Proposed to monetize at least 12 lots of highways spanning over 6000 Km before 2024 in a bid to encourage the National Highways Authority of India (NHAI) to pursue commercialization of roads to raise funds.

Indian Railways:

  • Large solar power capacity to be set up alongside rail tracks, on land owned by railways.
  • Four station re-development projects and operation of 150 passenger trains through PPP.
  • More Tejas-type trains to connect iconic tourist destinations.
  • High speed train between Mumbai and Ahmedabad to be actively pursued.
  • Bengaluru Suburban transport project, 148-km long, at a cost of Rs 18600 crore, to have fares on metro model. Central Government to provide 20% of equity and facilitate external assistance up to 60% of the project cost.

Ports & Water-ways:

  • Corporatizing at least one major port and its listing on stock exchanges to be considered.
  • Governance framework keeping with global benchmarks needed for more efficient sea-ports.
  • Economic activity along river banks to be energized as per Prime Minister’s Arth Ganga Special focus on developing inland waterways under Arth-Ganga project will boost economic development and inclusive growth for farmers, small traders and villagers. Also, cargo volume on Ganga will be increased by 4 times.

Airports:

  • 100 more airports to be developed by 2024 to support UDAN scheme, which is a regional airport development and Regional Connectivity Scheme (RCS) of Government of India aimed at making air travel affordable and to boost inclusive national economic development, job growth and air transport infrastructure of all regions and states of India.
  • Air fleet number expected to go up from present 600 to 1200 during this year.

Electricity:

  • “Smart” metering to be promoted. Smart metering is a way for businesses to keep track of how much energy they're using so they can adjust their usage, if necessary.
  • More measures to reform DISCOMs to be taken. This new reform is aimed at addressing the requirements that power distribution companies have for ensuring 24x7 supply. The scheme will have assistance for reduction of losses. This assistance will be in terms of technology, modern equipment to help address the losses.

 

Power:

  • 22, 000 crore proposed for power and renewable energy sector in 2020-21.
  • National gas grid to be expanded from the present 16200 km to 27000 km.
  • Further reforms to facilitate transparent price discovery and ease of transactions.

New Economy

  • To take advantage of new technologies:
  • Policy to enable private sector to build Data Centre parks throughout the country to be unveiled soon.
  • Fibre to the Home (FTTH) connections through Bharatnet to link 100,000 Gram Panchayats this year. Rs.6000 crore proposed for Bharatnet programme in 2020-21.
  • 8000 crore proposed over five years for National Mission on Quantum Technologies and Applications.

Financial Sector

  • As part of reforms accomplished in Public Sector Banks (PSBs), 10 banks are consolidated into 4 and Rs. 3, 50,000 crore capital infused. More governance reforms to be carried out to bring in transparency and greater professionalism in PSBs.
  • Few PSBs to be encouraged to approach the capital market to raise additional capital.
  • Deposit Insurance and Credit Guarantee Corporation (DICGC) permitted to increase Deposit Insurance Coverage to Rs. 5 lakh from Rs.1 lakh per depositor.
  • Scheduled Commercial Bank’s health will be monitored through a robust mechanism, keeping depositors’ money safe.
  • Cooperative Banks to be strengthen by amending Banking Regulation Act for increasing professionalism, enabling access to capital and improving governance and oversight for sound banking through the RBI.
  • NBFCs eligibility limit for debt recovery reduced from Rs. 500 crore to Rs 100 crore asset size and Rs 1 crore to Rs 50 lakh loan size.
  • Private capital in Banking system: Government to sell its balance holding in IDBI Bank to private, retail and institutional investors through the stock exchange.
  • Easier mobility in jobs by auto-enrolment in Universal Pension coverage. Inter-operability mechanism to safeguard the accumulated corpus.
  • Amendment in Pension Fund Regulatory Development Authority of India Act is proposed to strengthen regulating role of PFRDAI, to facilitate separation of National Pension System trust for government employees from PFRDAI and to enable establishment of a Pension Trust by the employees other than Government.
  • Amendment in Factory Regulation Act 2011 is proposed to enable NBFCs to extend invoice financing to the MSMEs through TReDS. An app-based invoice financing loans platform for MSMEs to be launched to prevent the problem of delayed payments and consequential cash flows mismatches.
  • Window for MSME’s debt restructuring by RBI to be extended by one year till March 31, 2021.
  • Export promotion of MSMEs for selected sector such as pharmaceuticals, auto components and others. Rs 1000 crore scheme anchored by EXIM Bank together with SIDBI. Hand holding support will be provided for technology up gradations, R&D, business strategy etc.

Financial Market

  • Deepening Bond Market by opening fully certain specified categories of Government securities for non-resident investors also. Foreign Portfolio Investors (FPI) limit in corporate bonds increased to 15% from 9%.
  • Debt Based Exchange Traded Fund to be expanded by a new Debt-ETF, consisting primarily of Government Securities to give attractive access to retail investors, pension funds and long-term investors.
  • A Partial Credit Guarantee scheme for the NBFCs formulated post-Union budget 2019-20 to allow state-run banks to buy lower-rated assets from non-bank lenders. Its liquidity constraints will be addressed.

Disinvestment: Government to sell a part of its holding in Life Insurance Corporation by way of Initial Public Offer (IPO).

Fiscal Management

  • XV Finance Commission (FC) has given its first report for FY2020-21. Recommendations are accepted in substantial measure. Its final report for five years beginning 2021-22 to be submitted during the latter part of the year.
  • GST Compensation Fund: Balances due out of collection of the years 2016-17 and 2017-18 to be transferred to the Fund, in two instalments. Transfers to the fund to be limited only to collection by way of GST compensation cess.
  • Overhaul of Centrally Sponsored Schemes and Central Sector Schemes necessary to align them with emerging social and economic needs of tomorrow and to ensure that scarce public resources are spent optimally.
  • Fiscal deficit of 3.8% estimated for FY20 (2019-20) and 3.5% for FY21 (2020-21)
  • A good part of the borrowings for the financial year 2020-21 to go towards Capital expenditure.

Direct Tax: Efforts are being made to stimulate growth, simplify tax structure, bring ease of compliance, and reduce litigations.

  • Personal Income Tax:
  • New and simplified personal income tax regime proposed to provide significant relief to middle class taxpayers.
  • Around 70 of the existing exemptions and deductions (more than 100) to be removed in the new simplified regime. Remaining exemptions and deductions to be reviewed and rationalized.
  • New tax regime to be optional - an individual may continue to pay tax as per the old regime and avail deductions and exemptions.
  • Measures to pre-fill the income tax return initiated so that an individual who opts for the new regime gets pre-filled income tax returns and would need no assistance from an expert to pay income tax.
  • Corporate Tax: Tax rate of 15% extended to new electricity generation companies.
  • Dividend Distribution Tax (DDT):
  • DDT removed making India a more attractive investment destination.
  • Deduction to be allowed for dividend received by holding company from its subsidiary.
  • Start-ups: Start-ups with turnover up to Rs. 100 crore to enjoy 100% deduction for 3 consecutive assessment years out of 10 years.
  • MSMEs to boost less-cash economy: Turnover threshold for audit increased to Rs. 5 crore from Rs. 1 crore for businesses carrying out less than 5% business transactions in cash.
  • Cooperatives:
  • Parity brought between cooperatives and corporate sector.
  • Option to cooperative societies to be taxed at 22% + 10% surcharge and 4% Cess with no exemption/deductions.
  • Cooperative societies exempted from Alternate Minimum Tax (AMT) just like Companies are exempted from the Minimum Alternate Tax (MAT).
  • Tax concession for foreign investments: 100% tax exemption to the interest, dividend and capital gains income on investment made in infrastructure and priority sectors before 31st March, 2024 with a minimum lock-in period of 3 years by the Sovereign Wealth Fund of foreign governments.
  • Affordable housing: Additional deduction up to Rs. 1.5 lakhs for interest paid on loans taken for an affordable house extended till 31st March, 2021.

Tax Facilitation Measures

  • Instant PAN to be allotted online through Aadhaar.
  • Vivad Se Vishwasscheme, with a deadline of 30th June, 2020, to reduce litigations in direct taxes:
  • Waiver of interest and penalty - only disputed taxes to be paid for payments till 31st March, 2020. Additional amount to be paid if availed after 31st March, 2020.
  • Benefits to taxpayers in whose cases appeals are pending at any level.
  • Faceless appeals to be enabled by amending the Income Tax Act.
  • For charity institutions:
  • Pre-filling in return through information of donations furnished by the done.
  • Process of registration to be made completely electronic.
  • Unique registration number (URN) to be issued to all new and existing charity institutions.
  • Provisional registration to be allowed for new charity institutions for three years. 
  • CBDT to adopt a Taxpayers’ Charter.
  • Losses of merged banks: Amendments proposed to the Income-tax Act to ensure that entities benefit from unabsorbed losses and depreciation of the amalgamating entities.

Indirect Tax

  • Good and Services Tax:
  • Cash reward system envisaged to incentivize customers to seek invoice.
  • Simplified return with features like SMS based filing for nil return and improved input tax credit flow to be implemented from 1st April, 2020 as a pilot run.
  • Electronic invoice to capture critical information in a centralized system to be implemented in a phased manner.
  • Aadhaar based verification of taxpayers being introduced to weed out dummy or non-existent units.  
  • GST rate structure being deliberated to address inverted duty structure.
  • Customs Duties:
  • Customs duty raised on footwear to 35% from 25% and on furniture goods to 25% from 20%.  Basic customs duty on imports of news print and light-weight coated paper reduced from 10% to 5%.
  • Customs duty rates revised on electric vehicles and parts of mobiles.
  • 5% health Cess to be imposed on the imports of medical devices, except those exempt from Basic Custom Duty (BCD).
  • Lower customs duty on certain inputs and raw materials like fuse, chemicals, and plastics.
  • Higher customs duty on certain goods like auto-parts, chemicals, etc. which are also being made domestically. 
  • Trade Policy Measures
  • Customs Act being amended to enable proper checks of imports under FTAs.
  • Rules of Origin requirements to be reviewed for certain sensitive items.
  • Provisions relating to safeguard duties to be strengthened to enable regulating such surge in imports in a systematic way. 
  • Provisions for checking dumping of goods and imports of subsidized goods being strengthened.
  • Suggestions for reviews of exemptions from customs duty to be crowd-sourced.
  • Excise duty proposed to be raised on Cigarettes and other tobacco products, no change made in the duty rates of bidis.
  • Anti-dumping duty on PTA abolished to benefit the textile sector.

CARING SOCIETY

  • Allocation of Rs. 35,600 crore for nutrition-related programmes proposed for the FY21.
  • 28, 600 crore proposed for women specific programs.
  • 85,000 crore proposed for welfare of Scheduled Castes and Other Backward Classes in FY21.
  • 53, 700 crore provided to further development and welfare of Scheduled Tribes.
  • Enhanced allocation of Rs. 9,500 crore provided for Senior citizens and Divyang in FY21.
  • Appointment of a task force is proposed to present its recommendations regarding the Issue about age of a girl entering motherhood in six months’ time.
  • Financial support for wider acceptance of technologies, identified by Ministry of Housing and Urban Affairs to ensure no manual cleaning of sewer systems or septic tanks, to be provided.

Culture & Tourism

  • Rs. 3150 crore proposed for Ministry of Culture in FY 2020-21, while Rs. 2500 crore are allocated for tourism promotion.
  • An Indian Institute of Heritage and Conservation under Ministry of Culture is proposed with the status of a deemed University.
  • 5 archaeological sites to be developed as iconic sites with on-site Museums: Rakhigarhi (Haryana), Hastinapur (Uttar Pradesh), Shivsagar (Assam), Dholavira (Gujarat), Adichanallur (Tamil Nadu).
  • Re-curation of the Indian Museum in Kolkata, announced by Prime Minister in January 2020.
  • Museum on Numismatics and Trade to be located in the historic Old Mint building in Kolkata.
  • Support for setting up of a Tribal Museum in Ranchi (Jharkhand).
  • Maritime museum to be set up at Lothal- the Harappan age maritime site near Ahmedabad, by Ministry of Shipping.
  • State governments expected to develop a roadmap for certain identified destinations and formulate financial plans during 2021 against which specified grants to be made available to the States in 2020-21.

Environment & Climate Change

  • Allocation for Environment & Climate Change is Rs.4400 crore for FY21.
  • Proposal to close the running old thermal power plants with carbon emission above the pre-set norms.
  • States that are formulating and implementing plans for ensuring cleaner air in cities above one million to be encouraged.
  • PM launched Coalition for Disaster Resilient Infrastructure (CDRI) with Secretariat in Delhi. This is second such international initiative after International Solar Alliance (ISA).

Governance

  • Taxpayer Charter to be enshrined in the Statute will bring fairness and efficiency in tax administration.
  • Companies Act to be amended to build into statues; criminal liability for certain acts that are civil in nature.
  • Major reforms in recruitment to Non-Gazetted posts in Government and Public sector banks:
  • An independent, professional and specialist National Recruitment Agency (NRA) for conducting a computer-based online Common Eligibility Test for recruitment.
  • A test-centre in every district, particularly in the Aspirational Districts.
  • A robust mechanism to be evolved for appointment, including direct recruitment, to various Tribunals and specialised bodies to attract best talents and professional experts.
  • Contract Act to be strengthened.
  • New National Policy on Official Statistics to promote use of latest technologies including AI and to lay down a road-map towards modernised data collection, integrated information portal and timely dissemination of information.
  • A sum of Rs. 100 crore allocated to begin the preparations for G20 presidency to be hosted in India in the year 2022.
  • Development of North East region by improving the flow of funds using online portal by the Government. Greater access to financial assistance of Multilateral and Bilateral funding agencies.
  • An amount of Rs. 30,757 crore and Rs 5958 provided for the development of Union Territories of Jammu and Kashmir and Ladakh respectively in FY 2020-21.

 

 

Criticism

  1. proposed to sell a part of its holding in Life Insurer Corporation via Initial Public Offer (IPO).
  • LIC is the biggest institutional investor in the Indian equity markets. Now, there would be independent directors on board and stakeholders who could question the rationale for investments. Since LIC was completely owned by the government, not much questions were raised about its investments.
  • Currently, LIC pays 5% of its surplus to the government and the balance 95% to policyholders. This makes it possible for the company to give a higher bonus on the policies compared to private players, who typically give 10% of their surplus to shareholders and the balance 90% to policyholders. With outside investors becoming shareholders, there could be a demand to tweak the mix between shareholders and policyholders.
  1. Fiscal Deficit: has allowed fiscal deficit to go up to 3.8% of the GDP for the current financial year (2019-20), amid a slowing economy and lower tax collections, compared with 3.3% projected in the previous year’s Budget. The fiscal deficit target for the next year is pegged at 3.5% of the GDP. However, the risk of breaching of the fiscal deficit target still remains; fiscal deficit in absolute terms has already reached 112% of the Budget estimate of Rs5.46 lakh crore.
  2. Low allocation for military upgrade: The allocation for defence in the Union Budget saw only a marginal hike from 2019-20 Union Budget. The hike does not fully cover inflation and currency exchange fluctuations. The allocation stands at Rs 3.37 lakh crore, excluding Rs 1.34 lakh crore for pensions. This scenario is quite troubling for military modernization as India has signed several big defence deals in past years and current allocation is not sufficient for payment of committed liabilities.
  3. ‘Beti Bachao Beti Padhao’ Scheme: While Finance Minister cited an increase in Gross Enrollment Ratio (GER), Unified District Information System for Education (U-DISE) data of 2015-16, 2016-17, show that the GER of girls at elementary and higher secondary levels has seen a decline., while at secondary level it rose only by 0.1%.
  4. Rural Concerns ignored:
  • With rural wages on the decline and consumption falling rapidly in those areas, budgetary cuts in schemes designed to increase rural income such as MGNREGS, will exacerbate the crisis. Most rural assistance recorded poor allocations in the FY21 budget.

  • The Budget falls well short of expectations when it comes to boosting demand
  • The sharp cut in rural spending has come amid a huge fall in rural consumption.
  1. Decline in Gender Budget: The gender budget of the government as a share of the Union Budget has seen a decline of 0.01% this fiscal - dropping from 4.72% last year to 4.71% - in FY 2020-2021. Though the Budget was divided into three themes viz. aspiration, economic development and caring society, women’s issues were primarily confined to the last category.
  2. Decline in Food Subsidy: The proportion of subsidy in the overall budget of FY 2020-21 has come down by 1.5 percentage points, compared to the revised estimates of 2019-20. The drop in subsidy also reflected in a decline of food subsidy. This has raised questions regarding the government’s ability to procure produce from farmers.
  3. New Income Tax slabs: The reforms in individual income tax are clearly disappointing. The best approach to tax reform is to broaden the base, reduce the rates and reduce the number of brackets to make it simpler. Clearly, the main objective of any tax should be to raise revenue. The government could have simply phased out the tax concessions, indexed the brackets for inflation and reduced the rates of tax, with appropriate adjustment in brackets. Instead, it has created six brackets, which takes us back to the pre-1991 era of income taxation.
  4. Increasing dependency of Railways on budgetary support: As the share of internal resources fell due to lesser passenger and freight earnings, the dependence on budgetary support increased. Capital expenditure of the railways accounted for 17% of the total capex of FY21.
  5. Meagre allocation for skill development: The Finance Minister has allocated a meagre ₹3,000 crore for skill development. Skilling will require massive investment and concerted efforts. The Budget could have given tax incentives to companies to provide internships and on-site vocational training to unemployed youth. The country cannot afford to let the world’s largest workforce waste this way.
  6. Startups: Some relief on the tax that startups have to pay and on taxation of the Employee Stock Option Plans is welcome but the reluctance to abolish the angel tax that results in harassment of start-ups and their investors is unfathomable.
  7. No significant increase in allocations regarding health and education: The Budget Estimate for Ayushman Bharat Yojana/Pradhan Mantri Jan Arogya Yojana stays at ₹6,400 crore, the same as last year. The budget for the Prime Minister’s Overarching Scheme for Holistic Nutrition, or POSHAN Abhiyaan, another flagship scheme, sees a meagre increase of ₹300 crore.

As per the critics, the Budget fails to provide any kind of stimulus for the revival of consumer or investment demand. Nor has it been able to contain the deficits which leaves very little scope for further cuts in repo rates by the monetary policy committee. However, it is good that the Finance Minister has recognised the need to revive the dying spirit of the private sector. The decriminalisation of several civil offences by firms under the Companies Act, the abolition of dividend distribution tax, the assurance that tax-related disputes will be considered with compassion might deliver the expected results provided these promises are fulfilled in letter and spirit.

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