- List the main features of Union Budget.
- Show positives of it.
- List negative
- Conclude suggesting some reforms required to achieve 5 trillion economy objective.
The maiden budget of the new NDA government has many interesting features, but it does not have a defining central theme. There were expectations of a big growth push through either tax cuts or large expenditure programmes even if it meant a rise in the fiscal deficit. But the Finance Minister has chosen to be fiscally conservative, opting to play the long-term game, though it could lead to pain in the short term. In the backdrop, the government has set an aspirational goal of achieving 8% growth to reach a $5 trillion economy by 2024.
Main Features of the budget and their positives:
To be fair, Finance Minister Nirmala Sitharaman has a difficult job of balancing the books, particularly when the revenues are not buoyant and demands for expenditure are high.
From that perspective, it is noteworthy that she has tried to show her commitment to the process of fiscal consolidation by keeping the fiscal deficit budgeted at 3.3%.
10-point Vision for the decade:
1. Building Team India with Jan Bhagidari: Minimum Government Maximum Governance.
2. Achieving green Mother Earth and Blue Skiesthrough a pollution-free India.
3. Making Digital India reach every sector of the economy.
4. Launching Gaganyan, Chandrayan, other Space and Satellite programmes.
5. Building physical and social infrastructure.
6. Water, water management, clean rivers.
7. Blue Economy.
8. Self-sufficiency and export of food-grains, pulses, oilseeds, fruits and vegetables.
9. Achieving a healthy society via Ayushman Bharat, well-nourished women & children, safety of citizens.
10. Emphasis on MSMEs, Start-ups, defence manufacturing, automobiles, electronics, fabs and batteries, and medical devices under Make in India.
What needs to be done to make India a 5 trillion dollar economy? What has the government proposed?
Indian economy to become a 3 trillion-dollar economy in the current year. But government has set the target for making India 5 trillion dollar economy. For that it has taken various measures like:
Business establishments with annual turnover more than Rs. 50 crore shall offer low cost digital modes of payment to their customers and no charges or Merchant Discount Rate shall be imposed on customers as well as merchants.
NPAs of commercial banks reduced by over Rs. 1 lakh crore over the last year. Record recovery of over Rs. 4 lakh crore effected over the last four years. Provision coverage ratio at its highest in seven years. Domestic credit growth increased to 13.8%.
Rs. 70,000 crore proposed to be provided to PSBs to boost credit; Steps to be initiated to empower account holders to have control over deposit of cash by others in their accounts.
Proposals for strengthening the regulatory authority of RBI over NBFCs to be placed in the Finance Bill; Requirement of creating a Debenture Redemption Reserve will be done away with to allow NBFCs to raise funds in public issues; Steps to allow all NBFCs to directly participate on the TReDS platform; Return of regulatory authority from NHB to RBI proposed, over the housing finance sector; Steps to be taken to separate the NPS Trust from PFRDA; Reduction in Net Owned Fund requirement from Rs. 5,000 crore to Rs. 1,000 crore proposed.
CPSEs: Target of Rs. 1, 05,000 crore of disinvestment receipts set for the FY 2019-20. Government to offer an investment option in ETFs on the lines of Equity Linked Savings Scheme (ELSS).
Approach shift from women-centric-policy making to women-led initiatives and movements.
Women SHG interest subvention program proposed to be expanded to all districts; Overdraft of Rs. 5,000 to be allowed for every verified women SHG member having a Jan Dhan Bank Account; One woman per SHG to be eligible for a loan up to Rs. 1 lakh under MUDRA Scheme.
New National Education Policy to be brought.
National Research Foundation (NRF) proposed.
Rs. 400 crore provided for “World Class Institutions”, for FY 2019-20, more than three times the revised estimates for the previous year.
‘Study in India’ proposed to bring foreign students to study in Indian higher educational institutions.
Draft legislation to set up Higher Education Commission of India (HECI), to be presented.
Stand-Up India Scheme to be continued for the period of 2020-25. The Banks to provide financial assistance for demand based businesses.
Electricity and clean cooking facility to all willing rural families by 2022.
1,25,000 kilometers of road length to be upgraded over the next five years under PMGSY III.
Scheme for Promotion of Innovation, Rural Industry and Entrepreneurship’ (ASPIRE) consolidated.
Jal Jeevan Mission to achieve Har Ghar Jal (piped water supply) to all rural households by 2024.
‘Angel tax’ issue resolved- start-ups and investors filing requisite declarations and providing information in their returns not to be subjected to any kind of scrutiny in respect of valuations of share premiums.
Funds raised by start-ups to not require scrutiny from Income Tax Department.
Tax rate reduced to 25% for companies with annual turnover up to Rs. 400 crore.
What are the challenges in teh budget that will hinder the target of achieving 5 Trillion Dollar economy:
The revival of the economy requires the revival of the investment climate.
A recent OECD study has shown that corporate taxes in India are very high amounting to almost 48% when the dividend distribution tax and surcharges are taken account of. The Budget in 2015-16 promised to bring the basic rate down to 25%.
This was implemented for companies with a ₹250 crore turnover in the 2018 Budget; the present Budget increases it to ₹400 crore.
Although these companies cover 90% of the number of companies, their tax payment is less than 10-15%.
It is important to note that if large investments have to be attracted, then the reduction should have been general and the scaffolding approach can only disincentivise the companies to grow bigger and better.
This only discourages the companies from becoming larger.
While the Economic Survey is eloquent about the need to transform the ‘dwarfs into giants’, the various measures taken in the Budget to incentivise the MSMEs amount to reiterating that ‘small is beautiful’.
Most of the measures taken to raise additional revenues are by way of cesses and surcharges.
The increase in income tax for people with more than ₹2 crore and ₹5 crore is by way of additional surcharge.
Similar is the case with additional tax on petrol and diesel.
Critics opine that this is clearly to exclude the additional revenue raised from the divisible pool and deny the share of the tax to the States.
Hopefully, the Finance Commission which is deliberating on the devolution will take note of the issue. On any case, such measures do not promote cooperative federalism.
Budget 2019-20 is a bold vision but it needs push from all sectors of the economy to achieve the target of 5 trillion dollar economy set by the GoI. In nutshell India needs simplification of procedures, incentivizing performance, red-tape reduction, making the best use of technology and accelerating mega programmes and services initiated and delivered so far. Thus the road ahead is difficult but not impossible.