Indian Union Budget 2020
Indian Union Budget 2020
Indian Union Budget 2020
Assignment 1
MACROECONOMICS
School Of Management
Presidency University
Bangalore.
Submitted by : Dhaniyal
Jeevesh
Ganga
Krishna
Ismail
Introduction
The Honorable Finance Minister Sitharaman’s second full term budget pursued the goal
of providing ‘ease of living’ to all citizens, through three broad themes, viz. Aspirational
India, Economic Development and Caring India. With India now being the 5 th largest
economy of the world, the government has made several policy announcements to
leapfrog the nation to the next level of health, prosperity and well-being.
With a view to doubling farmers’ income by 2022, amongst other things, government
has adopted 16 action points to indicate its focus. The government has also made
several policy announcements viz. to develop five new smart cities in collaboration with
states in public-private partnership (PPP) mode, commitment to the infrastructure sector
and to further digitalization for e.g. by building data centre parks throughout the country.
To further the government’s commitment to the welfare of women, this budget provides
INR28,600 crore for programmes that are specific to women.
Several measures have been proposed to boost the financial sector to pursue the
government’s target of reaching a USD5 trillion economy.
For personal taxpayers, the government has provided an optional rate cut package
under the simplified personal income tax regime albeit at the cost of foregoing
reductions and exemptions. A widely-anticipated change on the direct tax front: the
abolishment of the Dividend Distribution Tax came through. This is set to benefit foreign
as well as domestic shareholders.
The new dispute resolution scheme viz. ‘Vivaad Se Vishwas’ could help in reducing
litigation in direct taxes where there are almost half a million direct tax cases currently
pending resolution in various appellate forums.
In the domain of indirect tax, chiefly customs law, a number of measures have been
taken for facilitating the ease of doing business in India. However, an increase in
customs duties points to a growing trend of protectionism, which finds echoes in many
parts of the world today.
It is hoped that there will be relentless execution of the good policy intent to ensure that
India achieves its cherished target of becoming a USD5 trillion economy by 2024.
Economic Indicators
Economic growth projected at 5 percent in FY 2020
The Union Budget 2020-21 has been presented amid an economic slowdown, coupled with
rising food inflation. Economic activity has been losing momentum for the past five quarters,
with questions on whether the current economic headwinds have bottomed out or will stay
longer. Three of the four growth engines— private consumption, private investment, and
exports—have slowed down significantly. Government expenditure growth has been doing the
heavy lifting over the past few quarters as private demand has taken a breather. Several cyclical
and structural factors, such as low rural wages and tightening lending conditions, have
weakened growth. This slowdown has affected several core sectors, including auto, real estate,
and manufacturing. India continues to face global headwinds due to policy uncertainties, falling
growth and trade volumes, and technological changes across the world. Geopolitical tensions
leading to oil price fluctuations may add to economic woes. Leading economic indicators
suggest the economic slowdown may be tapering with green shoots visible in a few quarters of
the economy. The Economic Survey 2020 expects growth to rebound in H2 of FY2021 and
annual growth to be in the range of 6-6.5 percent.
Fiscal space, inflation, and currency valuation causing concerns
The fiscal deficit crossed 114.8 percent of the annual budget target in the first eight months,
indicating stress on government finances. The fiscal deficit for FY 2020 was revised to 3.8
percent of the GDP, up from the earlier budget target of 3.3 percent. The government used the
escape clause provided under the FRBM Act to allow the relaxation of target. The FY 2021 fiscal
deficit target is pegged at 3.5 percent of GDP.
Consumer price inflation averaged 4.1 percent in 2019-20 (April to December) and stood at 7.3
percent in December, primarily because of rising food prices, although core prices remained
below 4 percent. Domestic prices are further influenced by rising global food prices. The
Thalinomics analysis in the Economic Survey suggests that food prices have come down since
early 2000, boosting consumer affordability.
The exchange rate touched 72 rupees per dollar twice in early January. While factors such as
slowing economic growth and a rising fiscal deficit weigh on sentiments, the recent geopolitical
tensions and their possible impact on oil prices and the economy may have added to its
vulnerability.
Government security yield rates have come down markedly to 6.6 percent in January 2020
from its peak (above 8 percent) in September 2018. However, yield rates have seen an uptick in
the past two months over concerns regarding the economic slowdown. This may raise financing
costs for private-sector borrowers. Sectors with high capital market borrowing, such as power
and telecom, may get affected.
The current account deficit narrowed to 1.5 percent of GDP in H1 FY 2020 from 2.1 percent in
H1 FY 2019, due to a contraction in the merchandise trade deficit. It fell to 0.9 percent in
December 2019. However, CAD may come under pressure if oil prices increase as India is a net
oil importer. Every US$10 a barrel rise in crude oil prices is estimated to expand CAD by 0.4
percent of GDP.
The industrial production index in November suggests a rebound in the industry sector with
manufacturing registering solid growth. On the use based front, the consumer durables and
capital goods indices, which are often tracked to gauge medium-term growth and the strength
of consumer demand, improved on a month-on month basis.
FDI inflows remained strong with a net inflow of US$24.4 billion investments during April-
November 2019. FPI flows were vulnerable, but their share in total investment declined by 6
percent since 2015. This bodes well for the economy because direct investments are more
stable and help create real assets on a long-term basis. The trend may continue as India
embarks on an ambitious infrastructure project to spur economic growth.
NPAs have declined for the first time in 10 years and one of the reasons cited has been quick
resolutions under the IBC Act. After rising to 11.2 percent of the gross advances, the ratio fell to
9.1 percent in September 2019. The economic survey suggested maintaining a health score for
NBFCs that can provide an early warning signal of impending liquidity problems.
Budget 2020 focuses on key sectors
Fiscal expansion can be beneficial if it enhances capital formation. To this end, the Budget 2020
has announced significant outlays in key sectors, such as agriculture, industry, infrastructure,
education, and skill development.
Agriculture
• Allocating INR 2.83 lakh crore for agriculture and allied activities for FY 2021
• Providing farmers insurance (a total of 6.11 crore farmers insured under Fasal Bima)
• Incentivizing farmers to go solar
• Making agriculture credit worth INR 15 lakh crore available.
Digitization
• INR 6,000 crore will be allocated for the BharatNet programme in 2020-21 to further
enhance broadband connectivity in rural areas. The FTTH connection through BharatNet
will link 100,000 gram panchayats this year.
Industry and Infrastructure
• Proposed allocation of INR 27,300 crore for industry and commerce in FY21
− A total of 9,000 km of economic corridor to set up and a total of 12 lots of highway bundles to
be monetised by 2024.
− 100 more airports to be developed by 2025 to make travel easier and support the UDAAN
scheme
Education
• Emphasis on improving skill-sets; a total of INR 3,000 crore to be given for skill
development
• The FM allocated INR 99,300 crore for education.
Start-ups
Corporate tax
Individual Tax
• An individual/HUF tax payer can opt for simplified regime with lower tax rates. The new tax
slab rates under this simplified regime are as follows
2019 :
Increase in customs duty on gold and precious metals to 12.5%.
Levy of a 2% tax deduction at source (TDS) for cash withdrawals in excess of Rs 1 crore
per annum.
Customs duty on steel increased to 7.5% from 5%.
Companies with an annual turnover of Rs 400 crore brought under 25% tax bracket.
Relief on securities transaction tax (STT).
Nil tax on income up to Rs 5 lakh a year.
Nil tax on income between Rs 5 lakh-Rs 6.5 lakh (if the taxpayers made any
investments).
Full tax rebate for taxpayers with an annual income of up to Rs 5 lakh.
Standard deduction increased to Rs 50,000 from Rs 40,000.
Capital gains made from the sale of residential property qualify for exemption under
Section 54 of the Income Tax Act (for two properties bought).
TDS limit on rental income increased to Rs 2.4 lakh from Rs 1.8 lakh.
TDS limit on interest earned from postal savings and bank deposits increased to Rs
40,000 from Rs 10,000.
2020 :
Personal income tax rate cut for individuals for fiscal year 2020-21
Under the new regime, taxpayers will pay 10%, 15%, 20% and 25% for incomes between
Rs 5-7.5 lakh, Rs 7.5-10 lakh, Rs 10-12.5 lakh and Rs 12.5-15 lakh, respectively.
To avail this scheme, which is optional, taxpayers will have to let go of exemptions
The new personal income tax rates will entail estimated revenue foregone of Rs 40,000
crore per year
Dividend Distribution Tax (DDT) removed. Will be applicable to individual investors only.
o Aspirational India in which all sections of the society seek better standards of
living, with access to health, education and better jobs.
o Economic development for all, indicated in the Prime Minister’s exhortation of
“SabkaSaath, SabkaVikas, SabkaVishwas”.
o Caring Society that is both humane and compassionate, where Antyodaya is an
article of faith.
Sources /References
• Wikipedia
• Budget Documents
• Newspapers
• Articles
• www.pib.gov.in
• www.news18.com
• www.indiabudeget.in
• www.economictimes.com
• www.livemint.in