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We Wish You all a Happy and Safe Holi              March 2020 Edition of Power Politics is updated.
Issue:March' 2020


A Budget for everybody

S. Narendra

Finance Minister Nirmala Sitharaman with 'Bahi-Khata' ahead of the
presentation of the Union Budget 2020-21.

The Union finance minister Nirmala Sitharaman deserves a flower bouquet for her 2020-21 Union budget. It seems to contain flowers of many varieties and fragrances deservedly offering a mixed experience. She was at pains to reassure that the Indian economy was on a sure footing and her budget would put it back on fast-track.
She made more than 30 announcements relating to government policy and programme initiatives that would go to touch farmers, MSME, youth,women, businesses across the old and new economy for backing up this assurance.
Agriculture and rural development featured prominently in the budget with an allocation of Rs2.83 lakh crore. It unveiled a 16-point agenda for fulfilling the prime minister’s announcement to double farmers’ incomes by 2022. The prime minister’s Kusum scheme that incentivizes farmers to switch to solar power for energizing irrigation wells would be further expanded and encouraged to use their available fallow land for generating and selling solar power to the power grid. This is a welcome idea but it is not clear how it would benefit the small farmers who own two hectares or less but constitute the bulk of land holders.

There was an invitation to the states to undertake changes in the outdated laws and rules coming in the way of farmers’ enterprise and prosperity. An old idea of setting up rural godowns for storing grains floated during the Janata government in 1978 has been revived in this budget. Emphasis on organic farming and an appeal for district-wise specialisation in crops figured in her budget. Both ideas could have very significant implications with regard to yields, incomes and for the environment.
A welcome proposal mooted is to engage youth in coastal areas in fish processing and marketing.Each of the 16- points requires a lot of detailed action at the state level.
For dealing with the massive unemployment problem, the budget has some long term plans, mainly aimed at improving the employability of the educated through job skill-sets. These include a New Education Policy, permitting select institutions to offer fullfledged online degree programmes, setting up of new institutions dedicated to provide on the job skills, engineers to be seconded to Panchayats, expanding opportunities for training in para-medical professions. The finance minister expects the Rs 100 lakh crore infrastructure project pipeline launched last year and the construction sector to unlock the job market.
While the budget moves on this front are very laudable, they do not hold much immediate promise for over 12 million youth who enter the job market each year.
The budget states that a new policy would be announced to give a push for entrepreneurship and manufacturing activity, especially in electronics,domestic medical devices production. For the accelerated development of the new (digital) economy , the budget proposes the setting up of private sector Data center parks, a R 8000 crore mission on Quantum computing technology, expansion of the technology cluster scheme. The budget also proposes funding to support startups.

On the income tax front, there are fresh initiatives to simplify the compliance process, reduce face – to- face encounters with tax authorities, and extend tax concessions for encouraging investment. For Individual's with an income of less than Rs 15 lakh, the budget offers a choice.The taxpayer can choose to claim permissible tax exemptions or forego them and pay a new lower rate.

The finance minister said that the latter with an income of Rs 15 lakh would save Rs 78000. The tax concessions enjoyed by both the builders and buyers of affordable housing are continued. The foreign sovereign wealth funds investing in select infrastructure projects have been offered attractive tax exemptions.

While the super rich may pay a little more tax, the changes in the Dividend Distribution Tax spares the dividend paying firm from the tax burden.New customs duties have been introduced to protect certain domestic production facing unfair competition from exporters.

As said before, the budget tries to nudge the economy on many fronts.It is in the nature of a work in progress. The sense of urgency and focus needed for kickstarting a stalled economy is missing.

Key facts

This budget was presented against a very somber backdrop of a slowing economy ( nominal GDP growth at 7.5 per cent and 4.5 per cent in real terms). In the first eight months of FY 2020-21, the government expenditure was about Rs18.20 lakh crore, while earning tax and non-tax revenue of Rs 10.12 lakh crore, a gap of over Rs 8 lakh crore between revenue and expenditure.
The FM however, tried to give some cheerful news on Inflation claiming that it had been contained to around 4.5% during 2014-2019 with a robust economic growth rate of 7.4% over the period. The other good news from her were as follows:

  • Central Government’s debt has reduced to 48.7% of GDP as of March, 2019 from 52.2% of GDP earlier in March,2014 with India being the 5th largest economy of the world.
  • Insolvency and Bankruptcy Code, 2016 has helped in recovering the economy from the NPA crisis and banks have been cleaned up and re-capitalized.
  • GST has helped in increasing the efficiency of the logistics sector as the turnaround time of trucks decreases by 20% due to less documentation requirements.
  • In the last 2 years, 60 lakh new taxpayers have come into existence due to GST with 40 crore returns filed and 800 crore invoices uploaded.
  • 271 million people have been raised above poverty over the period of 2006- 2016, while FDI was elevated to $284 Billion during 2014-2019 from the US $190 Billion during 2009-14.

1970 And 2020 Union Budgets.

Both presented by lady finance ministers. But separated by the intervening five decades. The finance minister Nirmala Sitharaman could not complete her budget speech . 50 years back, prime minister Indira Gandhi presenting the budget as the first lady finance minister, could not formally complete her budget presentation, as she forgot to move the mandatory Finance Bill giving effect to her taxation proposals.

Indira Gandhi Indira Gandhi’s 1970 budget was historic in more ways than one. Stooping to conquer the c o m m a n d i n g heights of the economy, it unrolled a detailed agenda for inclusive growth under the title : ‘growth with social justice’. It was singularly focused on the development of farming (largest sector then), rural development and poverty alleviation. This budget had followed the government’s nationalization of 14 commercial banks a few months before. This budget was remarkable because of its steep increases in corporate taxes.
It further went on to propose the introduction of Urban Land Ceiling Act, conversion of loans to private firms extended by development banks into equity. There was an agenda for nationalisation of coal, textile, general insurance and other industries. This was also the budget that ushered in an era of import substitution, with big tariff walls. It can also be given credit for inculcating the spirit of ‘self-reliance’ (swadeshi) or attacked as inward looking. This was a very consequential budget totally honed to the prevailing polarizing politics centered on the persona of the prime minister. The opposition was on the back foot; so also the economy, which was reeling under consecutive droughts.

Coming to the present one by Nirmala Sitharaman, one notices an emphasis on wealth creators, a pronounced pro- businesses stance, with offers of tax concessions for them. Also there is a zeal for promoting ‘swadeshi’. It reasserts the government’ s commitment to push up agriculture and rural development. A 16 - point agenda for farming is unveiled aiming at fulfilling the prime minister’s promise to double farmers incomes by 2022.

Unlike Mrs Gandhi’s budget that was focused on the small and marginal farmers who constitute the bulk of agriculturists, the proposals in 2020 budget are less focused. The agriculture sector growth rate hovers between 3- 4 per cent a year. How its growth rate will be doubled, trebled for doubling farmers’ incomes is not explained. Her announcement on increasing bank credit to 15 lakh crore rupees for farming for the year would not have been possible without Gandhi’s bank nationalisation.

A big contrast in Sitharaman budget is its reliance on big disinvestment in PSUs, including that in IDBI, LIC.

The budget of 50 years ago deservedly had attracted much criticism. Yet it had an unabashed clear motto and direction- ‘garibi hatao’ under a state dominated economy . The motto of the present one is different, in tune with the times and lofty. It shows a preference for wealth creators, less government, an export –led open economy in a world that is closing trade borders. And the budget introduces customs levies to protect domestic industry. The signals that emanate are mixed.

Mrs Gandhi hesitatingly announced a budget deficit (gap between revenue and expenditure) of Rs 550 crore. In Nirmala Sitharaman budget, this exceeded Rs 700,000 crore (as per the figures released by the Controller General of Accounts).