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Finance minister Nirmala Sitharaman and her team meets President Ram Nath Kovind before presenting Union Budget 2020
Finance minister Nirmala Sitharaman and her team meets President Ram Nath Kovind before presenting Union Budget 2020|PIB image
OPINION

Budget 2020: Taking long-term view of economic recovery?

Despite being high on expectation, Budget 2020-21 avoids any stimulus measures in the short-term

Manish Pant

Manish Pant

Six months after her maiden budget, Union finance minister Nirmala Sitharaman tabled the proposals for the fiscal 2020-21 in what was the longest such speech delivered in Parliament. In an address lasting 2 hours and 49 minutes, the country’s first full-time woman finance minister opened her famed four-cornered red bahi khatha to reveal the three themes of aspiration, economic development and a care as the main cornerstones of her second budget.

In an oblique reference to the Economic Survey released a day earlier, the finance minister said the three would be consolidated through provision of corruption free and policy-driven good governance, and a clean and sound financial sector. Therefore, the budget upholds the government’s agenda of long-term and wide-ranging systemic reforms, avoiding any short terms fixes or sops along the way.

For the salaried class, the budget proposed some relief in personal income tax through a new and simplified personal income tax regime, wherein income tax rates will be significantly reduced for the individual taxpayers who forego certain deductions and exemptions.

Taxable income slab (Rs.) Existing Tax Rates New Tax Rates

0-2.5 lakh Exempt Exempt

2.5-5 lakh 5% 5%

5-7.5 lakh 20% 10%

7.5-10 lakh 20% 15%

10-12.5 lakh 30% 20%

12.5-15 lakh 30% 25%

Above 15 lakh 30% 30%

Under the new tax regime, substantial tax benefit would accrue to a taxpayer depending upon exemptions and deductions claimed by him. For example, a person earning Rs 15 lakh in a year and not availing any deductions etc, would pay only Rs 1,95,000 as compared to Rs 2,73,000 in the old regime. Thus, his tax burden shall be reduced by Rs 78,000 in the new regime. He would stand to gain from the new regime, even if he was taking deduction of Rs 1.5 Lakh under various sections of Chapter VI-A of the Income Tax Act under the old regime.

The finance minister said she had reviewed all exemptions and deductions that were incorporated in the income tax legislation over the past several decades. Currently more than one hundred exemptions and deductions of different nature are provided in the Act.

“I have removed around 70 of them in the new simplified regime. We will review and rationalise the remaining exemptions and deductions in the coming years with a view to further simplifying the tax system and lowering the tax rate,” she said.

However, the new tax regime for individual taxpayers is optional. A person who is currently availing more deductions and exemption under the Income Tax Act may choose to continue availing them under the old regime. Therefore, benefits of the new and old tax regime were to be determined by an individual tax payer through his own calculations, which some commentators protested as being complicated.

In a major relief to India Inc, the finance minister proposed scrapping of the dividend distribution tax (DDT) to increase the attractiveness of the Indian equity markets and to provide relief to a large class of investors.

Boosting economic growth

In the first Budget of 21st century’s third decade, the finance minister also 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.

Informing the Budget was structured around the overall theme of ‘Ease of Living’, Sitharaman said this was sought to be achieved by through farmer friendly initiatives such as an agriculture credit target of Rs 15 lakh crore for 2020-21, schemes like ‘Kisan Rail’ and ‘Krishi Udaan’ for a seamless national cold supply chain for perishables and expansion of Pradhan Mantri Kisan Urja Suraksha evem Utthan Mahabhiyan (PM KUSUM) to provide 20 lakh farmers for setting up stand-alone solar pumps.

And in what might come as good news for farmers in the country’s Northeastern region, the minister remarked, “KrishiUdaan will be launched by the Ministry of Civil Aviation on international and national routes. This will immensely help improve value realisation especially in Northeast and tribal districts.”

In the health sector, the Budget proposed more than 20,000 empanelled hospitals under Prime Minister Jan Arogya Yojana for poor people and expansion of Jan Aushadhi Kendra Scheme to all districts offering 2,000 medicines and 300 surgeries by 2024.

The infrastructure sector received a boost, with 100 more airports by 2024 to support the Udaan scheme and operation of 150 passenger trains of the Indian Railways to be done through the public-private partnership (PPP) mode.

The finance minister said Rs 99,300 crore and Rs 3,000 crore would be allocated for education and skill development, respectively, in 2020-21. The Central Government would soon be announcing the New Education Policy.

Referring to the theme of Economic Development, the finance minister said that Rs 27,300 crore would be allocated for development and promotion of industry and commerce. An investment clearance cell would be set up to facilitate the same.

The finance minister said that about Rs 22,000 crore had already been provided as support to the National Infrastructure Pipeline (NIP) unveiled on December 31 last year. Development of highways will be accelerated to development of 2,500 km access control highways, 9,000 km of economic corridors, 2,000 km of coastal and land port roads and 2,000 km of strategic highways.

On the new economy, the minister said that a policy to enable private sector to build data centre parks throughout the country would be released. The minister proposed allocation of Rs 6,000 crore for the fibre to home (FTTH) Bharatnet programme in 2020-21. Measures proposed to benefit the start-ups included a digital platform for seamless application and capture of intellectual property rights (IPR)s and setting up of knowledge translation clusters in new and emerging areas.

Other proposals

The finance minister proposed Rs 35,600 crore for nutrition-related programmes for the financial year 2020-21. A Rs 85,000 crore allocation was announced for the welfare of scheduled castes and other backward classes. Similarly, for furthering development and welfare of scheduled tribes, Rs 53,700 crore was proposed for 2020-21. An enhanced allocation of Rs 9,500 crore was proposed for senior citizens and differently abled.

The minister proposed the establishment of an Indian Institute of Heritage and Conservation under Ministry of Culture with the status of a deemed university. In addition, five iconic archaeological sites would be developed at Rakhigarhi (Haryana), Hastinapur (Uttar Pradesh) Shivsagar (Assam), Dholavira (Gujarat) and Adichanallur (Tamil Nadu) with on-site museums.

The finance minister announced setting up of a National Recruitment Agency (NRA) as an independent, professional, specialist organisation for conduct of a computer-based online common eligibility test for recruitment to non-gazetted posts, especially aspirational districts identified by NITI Aayog.

The minister proposed to sell the balance government holding in IDBI Bank to private, retail and institutional investors through the stock exchange. The government also proposed to sell a part of its holding in the insurer, Life Insurance Corporation (LIC), by way of an initial public offer (IPO).

While reiterating the government’s commitment to good governance, the finance minister referred to the Northeast in ensuring smooth access to financial assistance from multilateral and bilateral funding agencies to help introduce innovative and global best practices in the region. “Central government has effectively used an online portal to reduce gestation period of online. This has improved the flow of funds to the Northeast region,” she observed.

Notable tax concessions were also proposed for electricity generation companies, foreign investments, start-ups, cooperatives and micro, small & medium enterprises (MSME)s.

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