Whatever your thoughts on the recently announced Budget, there was one thing everybody unanimously agreed on. The FM’s speech was long, at just under 19000 words and creeping up on three hours. While long on time, the budget did seem to be more focused on short-term gains intended to inflict a life-saving jab into the ailing heart of the Indian economy.
One thing is for certain, the headline-grabbing goal of turning India into a $5 trillion economy in the next 5 years is not exactly on the express track.
Here are our takeaways from the announcement:-
Populist not Reformative
With the economy flagging at near-historic lows, what was needed was an equally historic reformative budget, a la 1991. That is not the case, unfortunately. Given that the government is lowering the allocation to the FCI (Food Corporation of India) (more on that below), it is actually as populist a budget as can be.
With news schemes being launched faster than the existing being effectively implemented, this is a very safe budget.
Tax System Rejigged
In the new system, there has been a minor rejig in the slabs, with the introduction of three new slabs. Those who maximized their deductions, such as HRA, LTA and provisions under 80C will have to forego these for a less tedious filing, and more disposable income in their hands according to the government, if they so choose. So they do have the choice to switch to the new tax code, or continue with the old.
What should not be a choice is the participation in the taxation, with large swathes of the population still not under the ambit. It is 2020 and less than 10% of the country files their taxes. It remains to be seen how this will be tackled.
Smokers and tobacco users will be prepared to smoke their wallets However, duty rates on bidis remain the same. Imported products will be more expensive such as footwear and furniture.
The abolition of the long-term capital gains tax on selling shares has not been realised, the Sensex responded by dropping close to 1000 points. The dividend distribution tax of 15% plus charges however, has been done away with. Recipients of dividends will be taxed as earlier at the rate applicable.
Fiscal Deficit
The government will continue to have to recapitalize public sector banks to mitigate the effects of bad loans. This means the deficit goes up.
The government was expected to increase the allocation towards Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). The allocation to MGNREGS in 2020-21 stands at a now lower figure of ?61,500 crore.
In contrast, the Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) scheme gets an allocation of ?75,000 crore in 2020-21, higher than before in 2019-20. Land-owning farmers seem to be coming out on top as against the the poorest of the poor seeking work under MGNREGS.
The lowering of FCI (Food Corporation of India) subsidy allocation means that the FCI will borrow from the financial system to make up for the difference between the prices allocated to farmers and the subsidy it receives from the government. With this difference close to 2 trillion rupees, this is not an amount that can be adjusted within the next few months for sure, so we are not sure how it will help stem the deficit.
To sum up, the government has taken steps in the right direction, but not the kind of bold steps needed to bail a buckling economy. The budget is safe and conservative, which is not what was expected in certainly trying conditions, especially when India is faced with grave economic and social circumstances as in the current climate.
Long story short, as the FM’s ‘target’ audience, the millennials, would say, Budget 2020 was quite ‘meh.’