Finance Minister Nirmala Sitharaman on July 6, unveiled the Union Budget 2019—the first for the Modi 2.0 government—detailing tax reforms for the super-rich, plans for PSU and PSB recapitalisation, and additional cess on fuel, besides other measures to boost the economy.
Job creation across all sectors was also a key focus area of the Budget, Hindustan Times reported, but Sitharaman’s speech made no mention of it. She did elucidate on a number of proposals to boost e-mobility, Indian space programme, start-ups and Make in India initiative as the government looks to turn the country into a $5-trillion economy by 2024-2025.
The government is also planning to ease local sourcing norms for FDI in single brand retail and will announce a scheme to bring mega-manufacturing plants in advanced technology areas.
“The Budget’s aim was to lay out the five-year target, 10-year vision, and various ways in which we can achieve it through measures for rural and urban, youth, among other things,” Sitharaman said in the Lok Sabha on Friday.
Following her presentation, Prime Minister Narendra Modi addressed Parliament: “The Budget for New India is one of hope, and it is a Budget that will boost India’s development in the 21st century.”
“This Budget will make industries and industrialists stronger, strengthen education, ensure women empowerment, and take even initiatives like space and related research to the common man. This Budget is a Green Budget in which environment, electric mobility, and the solar sector has been at the forefront. The country has left disappointments behind and is now progressing. This Budget is one of hope, faith, and desire (“Aasha, Vishwas, Akansha”) and will prove an important link in the making of a ‘New India’,” PM Modi said.
Notably, the FY20 fiscal deficit target this year was brought down to 3.3% from 3.4%, CNBC-TV18 reported. Targeted revenue from Goods and Services Tax (GST) has been set at Rs 6.6 lakh crore, including CGST of Rs 5.26 lakh crore.
The government expects Rs 57,480 crore in dividends from state-owned companies by the end of FY20.
Customs duty has been raised on 75 items. The government on Friday imposed 10% import duty on newsprint and 5% on printed books. There was no import duty on newsprint so far.
Over Rs 17,800 crore has been earmarked for the Ministry of External Affairs in the 2019-20 Budget, an increase of more than Rs 2,800 crore over the previous fiscal, with a massive jump in aid allocation for Maldives, Mauritius, and African nations.
Banking sector repair
In her maiden Budget speech, Sitharaman announced a fund infusion of Rs 70,000 crore into public sector banks to strengthen them by enhancing lending capacity and bolstering their capital base. NBFC financing will also be taken up by empowering the RBI to deal with the sector as it deems fit, Sitharaman said, referring to the Finance Bill tabled in Parliament.
“The whole approach is to ensure that the government has responded comprehensively to the NBFC issue, and if we had done that without understanding the regulatory shortcomings, it would not have done justice This is why some powers have been passed on to the RBI. Likewise, the recapitalisation is going to help banks fund their credit expansion,” Sitharaman said of the capital injection awaiting PSBs.
Aditya Narain of Edelweiss Securities told CNBC-News18, “Initiatives for NBFCs are a good and much-needed intervention. The efficacy of the implementation of these measures now needs to be seen. Bank recap is essentially good for the system but merely getting additional capital won’t make investors interested in banks. It depends a lot on how the recapitalisation is used for growth.”
Consumption, taxes, and investment
In a populist move, additional surcharges have been levied on personal income for individuals with income between Rs 2 crore and Rs 5 crore, so that they will pay an effective tax of 39% this point forward. Those who earn over Rs 5 crore will pay an effective peak tax of 42.7%—higher than peak tax rates in other countries, such as the US.
Companies with turnover up to Rs 400 crore will have to pay 25% tax.
The Budget also slashed personal income tax rates as was expected, exempting those who earn below Rs 5 lakh per annum from paying taxes.
The Budget further proposed incentives to National Pension System (NPS) subscribers, by increasing the limit of exemption to 60% of payment on final withdrawal from NPS. The rate is 40% now.
Sitharaman also outlined how housing and rental markets will become more affordable. Set-top boxes, camera modules, and mobile phone charges are set to become cheaper as well. However, the hike in excise duty on petrol and diesel by Rs 1 is bound to hurt consumers.
According to NITI Aayog chairman Rajiv Kumar, the Budget has some substantial measures for attracting private investments.
He also commended the government for rolling out incentives for sunrise industries in a first. For example, start-ups will no longer be subject to any scrutiny with respect to valuation.
Infrastructure and development
Hailed as a “bottoms-up inclusive Budget“, the Budget speech, however, did not disclose the allocations to important programmes like MGNREGA, the mid-day meal scheme, healthcare, etc. and to vulnerable sections like the SC, ST, minorities, and women, as pointed out by former finance minister P Chidambaram. Many Opposition parties have termed the Budget insipid, accusing the government of catering to capitalists.
Despite claims that the Budget is tailored to bolster agricultural economy, the allocations that include the formation of a Farmer Producer Organisation (FPO) have been rather piecemeal, especially in light of rising farmer suicides and agitation.
Healthcare allocations were paltry and found no mention in Sitharaman’s speech, save for cheaper kidney transplantations in the future.
Coming to the positives, the government has allocated Rs 3,422.55 crore for rail passenger amenities—a total 200% rise from that allocated last fiscal—to improve the quality of travel and services. Delhi Metro notably received a Rs 400-crore grant.
An amount of Rs 400 crore for building world-class institutions in the country was also sanctioned in the Budget.
To drive the government’s transparency agenda, PAN and Aadhaar cards have been declared equally efficient and may be interchangeably used while filing IT returns or applying for a passport.
A 2% tax has been levied on cash withdrawal exceeding Rs 1 crore per annum from a bank account, to discourage the practice of making business payments in cash and boost the cashless economy.
As expected, electric vehicles have been made cheaper, but no mention has been made of improving their charging infrastructure—a key challenge in popularising this mode of transport.
Jal Shakti Ministry, which is in charge of the government’s mission to provide clean drinking piped water to every household, has notably received grants worth Rs 28.261 crore. If implemented in a timely manner, the Har Ghar Jal scheme could effectively ease the impending water crisis and be Modi’s ticket to 2024.
Prarthana Mitra is a Staff Writer at Qrius