• India
  • Jul 13
  • Noushad Chengodan

Budget delivers a booster shot for infra

The Union Budget is an annual financial statement of actual and anticipated revenue and expenditure of the government. It is a document comprising a preliminary approved plan of public revenue and expenditure.

In India, the Budget is prepared by the budget division of the finance ministry’s economic affairs department. On September 21, 2016, the NDA government approved the merger of the Railway Budget with the Union Budget, and thus came to an end a 92-year-old practice of separate railway and general Budgets.

Interestingly, there are four criteria by which to evaluate a Budget. Firstly, the vision of the Budget and how it is going to be implemented. That is, the desire to meet the aspirations of the people through higher growth and faster decision-making, pattern of resource mobilisation, etc. Secondly, the capability to diagnose the economy’s ailments and the remedies proposed. Thirdly, the issue of who gains and who loses. Finally, evaluating the positives in the Budget with the negatives.

Budget 2019-20, presented by the Finance Minister Nirmala Sitharaman on July 5, shows the financial accounts for 2017-18, the budget and revised estimates for 2018-19 and the budget estimates for 2019-20.

A vision for the decade

The Indian economy is marching from one stage of development to another; its economy was at approximately $1.85 trillion in 2014 and has reached $2.7 trillion in 2019. Hence, it is well within our capacity to breach the $5 trillion mark in the next few years.

The government’s intent to spend Rs 100 lakh crore on infrastructure over the next five years will spur GDP growth and, if deployed well, can be the definitive push towards the goal of becoming a $5 trillion economy. The Budget maintained its focus on infra development.

According to Sitharaman, “gaon, garib and kisan (village, poor and farmer)” are at the centre of the government’s policies. The Budget recalled the period between 2014 and 2019, which rejuvenated cooperative federalism. Surprisingly, Budget 2019-20 proposes hiking the duty and cess on petrol and diesel by Rs 2 per litre.

In essence, the Budget manifests 10 points that are the vision for the decade…

1. Building physical and social infrastructure

2. Digital India reaching every sector of the economy

3. Pollution-free India with green mother earth and blue skies

4. Make in India with particular emphasis on MSMEs, startups, defence manufacturing, automobiles, electronics, fabs and batteries, and medical devices

5. Water, water management and clean rivers

6. Blue economy

7. Space programmes, Gaganyan, Chandrayan and satellite programmes

8. Self-sufficiency and export of foodgrains, pulses, oilseeds, fruits and vegetables

9. Healthy society - Ayushman Bharat, well-nourished women and children, and safety of citizens

10. Team India with Jan Bhagidari. Minimum government, maximum governance.

Current status of the economy

India will grow to become a $3 trillion economy in the current year. It is now the sixth largest in the world. Five years ago, it was at 11th spot. In purchasing power parity terms, we are in fact the third largest economy already, only next to China and the US. The growth potential of the country remains strong and robust and can be a major source of strength - particularly if the fruits of economic growth are well utilised for the advancement of human lives and the development of human freedom and capabilities. Obviously, India can break the “double-digit growth constraint” in the near future by taking bold steps to realise its limitless potential in terms of physical resources and human resources.

The Budget recognises that investment-driven growth requires access to low-cost capital. It is estimated that India requires investments averaging Rs 20 lakh crore every year. A number of measures are proposed to enhance the sources of capital for infra financing…

• A Credit Guarantee Enhancement Corporation, for which regulations have been notified by the RBI, will be set up in 2019-20.

• An action plan to deepen the market for long-term bonds, including for deepening markets for corporate bond repos, credit default swaps, etc. with specific focus on infrastructure sector, will be put in place.

• It is proposed to permit investments made by FIIs / FPIs in debt securities issued by infrastructure debt fund - non-banking finance companies (IDF-NBFCs) to be transferred / sold to any domestic investor within the specified lock-in period.

A social stock exchange

The Budget admitted the fact that it is essential to take our capital markets closer to the masses and meet various social welfare objectives related to inclusive growth and financial inclusion. The Budget proposes to initiate steps towards creating an electronic fundraising platform - a social stock exchange - under the regulatory ambit of Securities and Exchange Board of India (SEBI) for listing social enterprises and voluntary organisations working for the realisation of a social welfare objective so that they can raise capital as equity, debt or as units like a mutual fund.

Adequate flow of funds at affordable cost is the lifeblood of an economy. It is important to get retail investors to invest in treasury bills and securities issued by the government. Efforts made by the RBI will need to be supplemented with further institutional development using stock exchanges. For this purpose, interoperability of RBI depositories and SEBI depositories would be necessary to bring about seamless transfer of treasury bills and government securities between RBI and depository ledgers and for enabling this. The government will take up necessary steps in this regard in consultation with RBI and SEBI.

New Space India Ltd

India has emerged as a major space power with the technology and ability to launch satellites and other space products at low cost. The time has come to harness this ability commercially. A public sector enterprise called New Space India Limited (NSIL) has been incorporated as a new commercial arm of the space department to tap the benefits of research & development carried out by ISRO. The NSIL will spearhead the commercialisation of various space products, including the production of launch vehicles, transfer of technologies and their marketing.

Ease of living

The government aims to bring greater ease of living for its citizens. Digital payments are gaining acceptance everywhere, including by the government. The use of technology is an effective way to ensure this. The ‘nudge theory’ of economist Richard Thaler, mentioned extensively in the Economic Survey 2018-19, has been put to use by the finance minister to push forward two of the government’s pet themes - digitalisation of money and promoting electric mobility.

• The Pradhan Mantri Shram Yogi Maan-dhan was launched by the PM in Ahmedabad on March 5. The scheme aims at providing Rs 3,000 per month as pension on attaining the age of 60 to crores of workers in the unorganised and informal sectors. About 30 lakh workers have joined the scheme.

• For good quality of life and ease of living, maintaining a cleaner environment and ensuring sustainable energy use is vital. A programme of mass scaling up of LED bulbs for widespread distribution at the household level was taken up, resulting in massive replacement of incandescent bulbs and CFLs.

• To make railway travel a pleasant and satisfying experience, the government will launch a massive railway station modernisation programme this year.

• In terms of fund allocation, agriculture & allied activities received the biggest push (74 per cent hike) among all sectors compared to 2018-19. A huge chunk of this allocation is expected to go towards the PM-Kisan scheme.

• To further improve ease of living, banks will leverage technology, offering online personal loans and doorstep banking, and enabling customers of one public sector bank to access services across all public sector banks.

Naari Tu Narayani

The economy can make progress only with greater female participation. In India’s growth story, particularly the rural economy, the role of women is a key factor. This government wishes to encourage and facilitate this role. Gender analysis of the Budget aimed at examining the fund allocation through a gender lens has been in place for more than a decade. The Budget has proposed to form a broad-based committee with the government and private stakeholders to evaluate and suggest action for moving forward.

The government has supported and encouraged female entrepreneurship through various schemes such as MUDRA, Stand Up India and the self-help group (SHG) movement. In order to further encourage female enterprise, the Budget has proposed to expand the women SHG interest subvention programme to all districts. Furthermore, for every verified female SHG member having a Jan Dhan bank account, an overdraft of Rs 5,000 shall be allowed. One woman in every SHG will also be made eligible for a loan up to Rs 1 lakh under the MUDRA scheme.

Grameen Bharat

The overall allocation for the rural development ministry has increased from Rs 1,12,404 crore in 2018-19 to Rs 1,17,647 crore in 2019-20 - an increase of Rs 5,200 crore.

• Ujjwala Yojana and Saubhagya Yojana have transformed the lives of every rural family, dramatically improving the ease of their living.

• Electricity and clean cooking facility to all willing rural families by 2022.

• Pradhan Mantri Awas Yojana - Gramin aims to achieve ‘Housing for All’ by 2022.

• Eligible beneficiaries to be provided 1.95 crore houses with amenities such as toilets, electricity and LPG connections during the second phase (2019-20 to 2021-22).

• MGNREGS has been allocated Rs 60,000 crore, the same as it was in the interim Budget.

• Except for 2014-15, in all the years since then, actual expenditure on MGNREGS has been more than the budgetary allocation.

Fund allocation for agriculture sector

The Budget has proposed a record allocation of Rs 1,30,485 crore to the agriculture and farmers’ welfare ministry. In 2014-15, the ministry was allocated Rs 31,063 crore. It received Rs 79,026 crore as per revised estimates. The sum represents a 140 per cent jump over the 2018-19 budget estimate of Rs 57,600 crore. This leap is mostly due to the staggering Rs 75,000 crore allocated to the Pradhan Mantri Kisan Samman Nidhi (PM-Kisan). Of the ministry’s budget, 57 per cent is for direct cash assistance to farmers.

Initiatives for reviving MSMEs

The Union Budget gives particular emphasis on micro, small and medium enterprises (MSMEs), which got a boost of 2 per cent interest subvention scheme. The government has introduced a scheme for providing loans up to Rs 1 crore within 59 minutes through a dedicated online portal. Also, Rs 350 crore has been allocated for 2019-20 for the 2 per cent interest subvention for all GST registered MSMEs on fresh or incremental loans.

The finance minister announced the government’s intent to create a payment platform for MSMEs to enable filing of bills and payment on the platform itself to eliminate delays in government payments. The government will extend pension benefits to about 3 crore retail traders and small shopkeepers whose annual turnover is less than Rs 1.5 crore under a new scheme named Pradhan Mantri Karam Yogi Maan-dhan. Enrolment will be kept simple, requiring only Aadhaar and a bank account.

Under the Scheme of Fund for Upgradation and Regeneration of Traditional Industries (SFURTI), 100 new clusters will be set up during 2019-20, enabling 50,000 artisans to join the economic value chain. SFURTI aims to set up common facility centres (CFCs) to facilitate cluster-based development to make traditional industries more productive, profitable and capable of generating sustained employment opportunities. Focused sectors are bamboo, honey and khadi clusters.

The Budget provides a blueprint for the Prime Minister’s vision of a $5 trillion economy, with a focus on ease of doing business for MSMEs and ease of living for citizens. The Budget emphasises on enabling growth for traditional industries and artisans, while offering them business and technology incubation facilities, which is commendable.

Banking and finance sector

Interestingly, the non-performing assets (NPAs) of commercial banks have reduced by more than Rs 1 lakh crore over the past year, a record recovery of more than Rs 4 lakh crore due to Insolvency and Bankruptcy Code (IBC) and other measures introduced over the past four years. The provision coverage ratio is now at its highest in seven years, and domestic credit growth has risen to 13.8 per cent. The government has smoothly carried out consolidation, reducing the number of public sector banks by eight. At the same time, as many as six public sector banks have been enabled to come out of the Prompt Corrective Action framework.

• Public sector banks are now proposed to be further provided Rs 70,000 crore capital to boost credit for a strong impetus to the economy.

• The government will initiate steps to empower account holders to remedy the current situation in which they do not have control over deposit of cash by others in their accounts. Reforms will also be undertaken to strengthen governance in public sector banks.

• Appropriate proposals for strengthening the regulatory authority of RBI over NBFCs are being placed in the Finance Bill.

• NBFCs that do public placement of debt have to maintain a debenture redemption reserve (DRR) and in addition, a special reserve as required by RBI has also to be maintained. To allow NBFCs to raise funds in public issues, the requirement of creating a DRR, which is currently applicable for only public issues as private placements are exempt, will be done away with.

• It is ensured that steps will be taken to allow all NBFCs to directly participate on the TReDS platform.

• The Budget has recommended to return the regulation authority over the housing finance sector from National Housing Bank to RBI.

• It is proposed to set up an expert committee to study the current situation relating to long-term finance and our past experience with development finance institutions, and recommend the structure and required flow of funds through development finance institutions. It is consistent with the intention of the government to invest Rs 100 lakh crore in infrastructure over the next five years.

• Keeping in view the wider interest of the subscribers and to maintain arm’s length relationship of the NPS Trust with PFRDA, steps will be taken to separate the NPS Trust from PFRDA with appropriate organisational structure.

• To facilitate on-shoring of international insurance transactions and to enable opening of branches by foreign reinsurers in the International Financial Services Centre, it is proposed to reduce the net owned fund requirement from Rs 5,000 crore to Rs 1,000 crore.

• The government is considering, in case where the undertaking is still to be retained in government control, to go below 51 per cent to an appropriate level on case-by-case basis. The government has also decided to modify the current policy of retaining 51 per cent government stake to retaining 51 per cent stake inclusive of the stake of government controlled institutions.

• The government is setting an enhanced target of Rs 1,05,000 crore of disinvestment receipts for FY 2019-20. The government will undertake strategic sale of PSUs. The government will also continue to do consolidation of PSUs in the non-financial space as well.

Major direct tax proposals

The tax proposals announced in the Budget are aimed at stimulating growth, incentivising affordable housing and encouraging startups by unleashing the entrepreneurial spirit. It will also be geared towards promoting the digital economy. The new proposals will simplify tax administration and bring greater transparency. The data shows that direct tax revenue has significantly increased over the past couple of years. It has increased by over 78 per cent from Rs 6.38 lakh crore in 2013-14 to around Rs 11.37 lakh crore in 2018-19. It is now growing at a double-digit rate every year.

Currently, the corporate tax at lower rate of 25 per cent is only applicable to companies having an annual turnover up to Rs 250 crore. The Budget has proposed to widen this to include all firms having an annual turnover up to Rs 400 crore. This will cover 99.3 per cent of the companies. Now, only 0.7 per cent of companies will remain outside this rate.

• To make electric vehicles affordable, the government will provide additional income tax deduction of Rs 1.5 lakh on the interest paid on loans taken to purchase electric vehicles. This amounts to a benefit of around Rs 2.5 lakh over the loan period to the taxpayers who take loans to purchase electric vehicles.

• The Budget allows an additional deduction of up to Rs 1.5 lakh for interest paid on loans borrowed up to March 31, 2020 for purchase of an affordable house valued up to Rs 45 lakh. Therefore, a person buying an affordable house will now get an enhanced interest deduction up to Rs 3.5 lakh. This will translate into a benefit of around Rs 7 lakh to the middle class home-buyers over their loan period of 15 years.

• The Budget proposed to give relief in levy of securities transaction tax (STT) by restricting it only to the difference between settlement and strike price in case of exercise of options.

• Another welcome initiative is to make PAN and Aadhaar interchangeable and allow those who don’t have a PAN can to file income tax returns by simply quoting their Aadhaar number and also use it wherever they are required to quote the PAN.

The Budget also gives emphasis to promote digital payments and -ess cash economy by announcing a slew of measures. To discourage the practice of making business payments in cash, the government has decided to levy a TDS of 2 per cent on cash withdrawal exceeding Rs 1 crore in a year from a bank account. Further, there are low-cost digital modes of payment such as BHIM UPI, UPI-QR Code, Aadhaar Pay, certain debit cards, NEFT, RTGS, etc. that can be used to promote a less-cash economy.

Revenue mobilisation and income tax

The government has taken several measures in the past to alleviate the tax burden on small and medium income-earners as those having an annual income up to Rs 5 lakh are not required to pay any income tax. In view of rising income levels, those in the highest income brackets need to contribute more to the nation’s development. It is proposed to enhance surcharge on individuals having taxable income from Rs 2 crore to Rs 5 crore and Rs 5 crore and above (super-rich) so that effective tax rates for these two categories will increase by around 3 per cent and 7 per cent respectively.

Individuals whose taxable income does not exceed Rs 5 lakh for FY 2019-20 will continue to avail the tax rebate and thereby will pay zero tax. According to the government, this increase in the surcharge is expected to earn the government an additional Rs 12,000 crore a year. The government estimates that it will collect Rs 5.69 lakh crore from income tax in FY 2019-20, which is 7.5 per cent higher than the Rs 5.29 lakh crore revised estimate for collections in 2018-19.

Resource allocation

The budgeted expenditure for 2019-20 has been pegged at Rs 27.86 lakh crore, a 13.4 per cent increase over the revised estimates for 2018-19. The estimated total revenue receipts this fiscal is Rs 19.62 lakh crore, which implies a 25.56 per cent growth compared to the actual receipts of Rs 15.63 lakh crore in 2018-19. This is an extremely ambitious projection, especially given the ongoing slowdown in the economy.

In the highest outlay ever for the space department, the Budget has set aside Rs 12,473.26 crore - a 15.6 per cent hike compared to the previous fiscal’s outlay of Rs 10,783 crore. The allocation for children has shown a marginal increase of 0.05 per cent with a grant of Rs 91,644.29 crore.

The finance minister has proposed a capital expenditure of Rs 1,60,175.64 crore for the railways ministry. This is the highest-ever allocation for the national transporter, surpassing last year’s Rs 1,48,528 crore. The outlay comprises Rs 65,837 crore from budgetary support, Rs 267.64 crore from the Nirbhaya Fund, Rs 10,500 crore from internal resources and Rs 83,571 crore from extra budgetary resources. While Rs 7,255 crore has been allocated for the construction of new lines, gauge conversion received Rs 2,200 crore, doubling Rs 700 crore, rolling stock Rs 6,114.82 crore and signalling and telecom received Rs 1,750 crore. The allocation for passenger amenities has been increased by Rs 1,000 crore to Rs 3,422 crore.

The allocation for defence has remained unchanged from the interim Budget. The defence budget for 2019-20 stands at Rs 3.19 lakh crore, excluding defence pensions, which stood at Rs 1.12 lakh crore. This year’s allocation is 6.87 per cent higher than the revised estimates of last year, which stood at Rs 2.95 lakh crore, excluding pensions.

Budget documents show that the government has stuck to the glide path for fiscal deficit, which will be at 3.3 per cent this fiscal. Lauding the government for its commitment to contain fiscal deficit at 3.3 per cent of GDP, former RBI governor C. Rangarajan said India not only needs a high rate of economic growth but also sustained growth with stability.

Budget at a glance

• Achieving a healthy society via Ayushman Bharat, well-nourished women and children, safety of citizens.

• GST rate on electric vehicles (EVs) proposed to be lowered to 5 per cent. Additional income tax deduction of Rs 1.5 lakh on interest on loans taken to purchase EVs.

• Additional deduction of Rs 1.5 lakh on loans up to March 31, 2020 for buying affordable houses, giving Rs 7 lakh benefit to home buyers.

• Proposal to provide Aadhaar cards for NRIs with Indian passports, after their arrival in India, with no waiting period.

• Period of exemption for capital gains arising from sale of house for investment in startups to be extended to March 31, 2021.

• Rs 70,000 crore in recapitalisation for public sector banks.

• Rs 1.05 lakh crore disinvestment target for the year.

• New national educational policy hopes to transform Indian education into one of the best in the world, with focus on bringing in foreign students.

• Rs 50 lakh crore proposed for railway infrastructure.

• By 2022, the 75th year of Independence, every single rural family, except those who are unwilling to take the connection, will have electricity and clean cooking facility.

• Stress on zero-budget farming, which is a form of gardening as a self-sustainable practice, with minimum external intervention.

• Pension benefit will be extended to 3 crore retail traders under the PM Karam Yogi Maan-Dhan scheme. It requires only the Aadhaar number and a bank account.

• Investment by FIIs and FDIs in debt securities in infrastructure debt funds to be allowed. Minimum public shareholding in listed companies can be increased from 25 per cent to 35 per cent.

• Self-sufficiency and export of foodgrains, pulses, oilseeds, fruits and vegetables.

• Emphasis on MSMEs, startups, defence manufacturing, automobiles, electronics, fabs and batteries, and medical devices under Make in India.

• Power at affordable rates to states ensured under ‘One Nation, One Grid’.

• Blueprints to be made available for gas grids, water grids, i-ways and regional airports.

Conclusion

Undoubtedly, Budget 2019-20 outlines an ambitious framework for boosting overall economic and social development, laying greater emphasis on rural and urban infrastructure, e-vehicles, education, research, PPP model and ease of living, which in turn will prove beneficial for the public sector. By committing Rs 100 lakh crore investments in infrastructure over the next five years, the Budget has given a substantial boost to the sector. The effective implementation of the announced proposals will propel India towards achieving its $5 trillion economy goal.

Noushad Chengodan is Assistant Professor of Economics at PSMO College, Tirurangadi. The views expressed here are personal.

Notes