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.

Presented by Finance Minister Nirmala Sitharaman on February 1, Union Budget 2020-21 reflects the financial accounts of 2018-19, the budget and revised estimates of 2019-20 and the budget estimates for 2020-21.

Many stakeholders anticipated expansionary fiscal measures such as tax cuts and expected measures to restore economic growth and the Budget document to set out a clear roadmap for achieving the ambitious target of India becoming a $5 trillion economy by 2025.

Roadmap of Union Budget 2020-21

The finance minister said the Union Budget 2020-21 is aimed at boosting people’s incomes and enhancing their purchasing power. Only through higher growth can a country like India fulfil the needs of its citizens and ensure gainful employment to the youth. This Budget contains measures to open up vistas for a vibrant and dynamic economy with a gentle breeze of new technology. This vibrant India shall be a caring society that shall attend to its weak, the old and the vulnerable / sidelined among its citizens, Sitharaman said.

The policy push gives due importance to inclusive growth, a vital strategy to incorporate the marginalised and the downtrodden segments of society into the beneficiaries of higher economic growth. No doubt, financial inclusion is one of the prerequisites for attaining inclusive growth. The system must avoid leakages / corruption and diversion of funds. Guided by the motto of ‘Sabka Saath, Sabka Vikas, Sabka Vishwas’, the government has scaled up the implementation of schemes and programmes that benefit the poor and the disadvantaged.

Let us list out a few schemes as examples…

* Welfare schemes with Direct Benefit Transfer (DBT) embedded in them

* Sanitation and water as provision of basic needs and as a measure of preventive health care

* Health care through Ayushman Bharat

* Clean energy through Ujjwala and solar power

* Financial inclusion, credit support, insurance protection to vulnerable sections and pension scheme

* Digital penetration with broadband and UPI

* Affordable housing for all through Pradhan Mantri Awas Yojana.

Key themes of the Budget

The government says this Budget is dedicated to providing “ease of living” to all citizens. Union Budget 2020-21 has retained three prominent themes - Aspirational India (a better life for all), economic development for all (yielding more space for the private sector) and creating a Caring Society. Let us examine the outline of aforementioned themes…

* Aspirational India in which all sections of the society seek better standards of living, with access to health, education and better jobs.

* Economic development for all - this would entail reforms across swathes of the economy. Simultaneously, it would mean yielding more space for the private sector. Together, they would ensure higher productivity and greater efficiency.

* Ours shall be a Caring Society that is both humane and compassionate. Antyodaya is an article of faith. It contains enormous programmes targeting the common people.

Agriculture, irrigation and rural development

The government has set a target of doubling farmers’ income by 2022. Some experts pointed out how it is a challenging task to double farmers’ income, given the fall in output prices and the higher cost of farm inputs. The strategy timeframe is from 2016 to 2022. The strategy has three important pillars. One is increasing the total output from agriculture by realising higher productivity. The second is to ensure cost-effectiveness through efficient use of resources. The third is to ensure remunerative prices to farmers.

* The government has provided energy sovereignty through the Pradhan Mantri Kisan Urja Suraksha evem Utthan Mahabhiyan (PM KUSUM) scheme and input sovereignty through Paramparagat Krishi Vikas Yojana.

* The government has provided resilience for 6.11 crore farmers through insurance under the PM Fasal Bima Yojana.

* Focus on cultivation of pulses and expansion of micro-irrigation through Krishi Sinchai Yojana have helped farmers become self-reliant.

* Provision of any annual supplement of income to the farmer directly is done through PM-KISAN.

A 16-point action plan for agriculture

Farmers’ prosperity can be ensured by making farming competitive. For this, farm markets need to be liberalised. Distortions in farm and livestock markets need to be removed. The finance minister has announced a 16-point action plan to realise the goal of doubling farmers’ income. Adopting sustainable cropping patterns and bringing in more technology are integral to this plan. The following action points indicate the government’s focus in this regard…

* Encourage state governments to implement the following model laws: Model Agricultural Land Leasing Act, 2016; Model Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act, 2017; and Model Agricultural Produce and Livestock Contract Farming and Services (Promotion and Facilitation) Act, 2018.

* Comprehensive measures to help 100 water-stressed districts.

* Expand the PM-KUSUM scheme to provide standalone solar pumps to 20 lakh farmers; the government shall help another 15 lakh farmers solarise their grid-connected pumpsets. In addition, a scheme to enable farmers to set up solar power generation capacity on their fallow / barren lands and sell it to the grid would be operationalised.

* The government shall encourage the balanced use of all kinds of fertilisers, including traditional organic and other innovative fertilisers.

* Measures for creating warehousing, in line with Warehouse Development and Regulatory Authority norms. The government will provide viability gap funding for setting up such efficient warehouses at the block / taluk level. This can be achieved where states can facilitate with land and are on a PPP mode.

* As a backward linkage, a village storage scheme is proposed to be run by self-help groups (SHGs). This will provide farmers a good holding capacity and reduce their logistics cost.

* The Indian Railways will set up a Kisan Rail on a PPP mode to build a seamless national cold supply chain for perishables, inclusive of milk, meat and fish. There shall be refrigerated coaches in express and freight trains as well.

* Krishi Udaan will be launched by the civil aviation ministry on international and national routes. This will immensely help improve value realisation, especially in the Northeast and tribal districts.

* Support states that - adopting a cluster basis - will focus on “one product one district” for the horticulture sector.

* Integrated farming systems in rainfed areas shall be expanded. Multi-tier cropping, beekeeping, solar pumps and solar energy production in non-cropping season will be added. The portal on Jaivik Kheti - online national organic products market - will also be strengthened.

* Financing on negotiable warehousing receipts (e-NWR) will be integrated with e-NAM.

* The NABARD refinance scheme will be further expanded. Agriculture credit target for 2020-21 has been set at Rs 15 lakh crore. All eligible beneficiaries of PM-KISAN will be covered under the KCC scheme.

* The government intends to eliminate foot and mouth disease, brucellosis in cattle and also peste des petits ruminants in sheep and goats by 2025.

* The coverage of artificial insemination shall be increased from the current 30 per cent to 70 per cent. The rural employment guarantee scheme to be tapped to develop fodder farms. Further, the Budget envisages measures to double milk processing capacity from 53.5 million MT to 108 million MT by 2025.

* The government proposes to put in place a framework for development, management and conservation of marine fishery resources.

* Youth in coastal areas benefit through fish processing and marketing. By 2022-23, the Budget has proposed to raise fish production to 200 lakh tonnes. Growing of algae, seaweed and cage culture will also be promoted.

* The government will involve youth in fishery extension through 3,477 SagarMitras and 500 Fish Farmer Producer Organisations. The government is targeting fishery exports to touch Rs 1 lakh crore by 2024-25.

* Under the Deendayal Antyodaya Yojana for alleviation of poverty, 58 lakh SHGs have been mobilised. It will be further expanded.

Budget allocation for rural sectors

To boost farm incomes and the rural sector, the finance minister has allocated Rs 2.83 lakh crore and fixed Rs 15 lakh crore target for agriculture credit. More clearly, for the sector comprising agriculture and allied activities, irrigation and rural development, an allocation of about Rs 2.83 lakh crore has been made for 2020-21. This has been divided into two heads - Rs 1.60 lakh crore for agriculture, irrigation & allied activities and Rs 1.23 lakh crore for rural development and Panchayati Raj.

Interestingly, allocations to the rural development ministry also saw a marginal increase, from Rs 1.19 lakh crore to Rs 1.22 lakh crore, with the largest chunk (Rs 61,500 crore) reserved for the Mahatma Gandhi National Rural Employment Guarantee Act.

Wellness, water and sanitation

The Budget has drafted a holistic vision of health care that translates into wellness of the citizen. Mission Indradhanush has been expanded to cover 12 such diseases, including five new vaccines. The Fit India movement is a vital part of the fight against noncommunicable diseases arising from lifestyle issues.

Here are some major proposals in this area…

* Under the PM Jan Arogya Yojana (PMJAY), there are more than 20,000 empanelled hospitals. We need more in Tier-2 and Tier-3 cities for poorer people under this scheme.

* A viability gap funding window has been proposed for setting up hospitals in the PPP mode. In the first phase, those aspirational districts will be covered where currently there are no Ayushman empanelled hospitals. This would also provide large-scale employment opportunities to youth. Proceeds from taxes on medical devices would be used to support this vital health infrastructure.

* Using machine learning and AI in the Ayushman Bharat scheme, health authorities and the medical fraternity can target diseases with an appropriately designed preventive regime.

* The Budget has proposed to strengthen the TB Harega Desh Jeetega campaign in a bid to banish tuberculosis by 2025. The government plans to expand the Jan Aushadhi Kendra Scheme to all districts offering 2,000 medicines and 300 surgical items by 2024.

* The Budget has allocated Rs 69,000 crore for the health sector, including Rs 6,400 crore for the PM Jan Arogya Yojana (PMJAY).

* The total allocation for Swachh Bharat Mission is about Rs 12,300 crore in 2020-21.

* The government has approved Rs 3.60 lakh crore for Jal Jeevan Mission - which aims to provide piped water supply to all households.

Provisions for education and skills

The Budget document has called for greater inflow of finance into the education system to attract talented teachers and build better labs. Therefore, steps would be taken to enable sourcing external commercial borrowings and FDI so as to deliver higher quality education. Students in the general stream (vis-à-vis services or technology stream) need their employability improved. The document assures that the New Education Policy will be announced soon.

* The Budget has set aside Rs 99,300 crore for the education sector and Rs 3,000 crore for skill development for 2020-21.

* The finance minister has assured that steps will be taken to attract external commercial borrowings and FDI in the education sector.

* About 150 higher educational institutions will start apprenticeship embedded degree / diploma courses by March 2021.

* The government proposes to start a programme whereby urban local bodies would provide internship opportunities to fresh engineers for a period up to one year.

* India should be a preferred destination for higher education. Hence, under the Study in India programme, Ind-SAT is proposed to be held in Asian and African countries.

* A National Police University and a National Forensic Science University are being proposed in the domain of policing science, forensic science, cyber-forensics, etc.

* The Budget has also proposed to attach medical colleges with district hospitals on PPP model to deal with the shortage of doctors.

* The government will encourage large hospitals with sufficient capacity to offer resident doctors Diploma and Fellow of National Board (DNB / FNB) courses under the National Board of Examinations.

Measures for commerce and industry

The Budget endeavours to boost economic activity and growth by giving stimulus to private investments, private consumption and exports. The Budget recognises the knowledge, skills and risk-taking capabilities of youth. He is no longer a job-seeker. He is a creator of jobs. The Budget recognises that it would be difficult to kick-start growth without an improvement in business sentiment. There are a number of policy announcements that would boost private investment. The fact is that the best way to boost consumption is to increase quality jobs in the formal economy.

These include the following measures…

* The abolition of Dividend Distribution Tax, the exemption on interest, dividends and capital gains for investment in infrastructure projects by sovereign wealth funds (that will help to tap into global pools of capital).

* It guarantees an amnesty scheme for direct taxes on similar lines to the indirect tax. The scheme has been labelled Vivad se Vishwas. It provides for complete waiver of interest, penalty and prosecution proceedings if the disputed tax amount is paid by March 31.

* The incorporation of a charter of commitments incorporated in the direct tax statute, which promises a tax-friendly environment. This is similar to the tax charter found in developed countries like Canada.

* The relaxation in the limits of foreign portfolio investment in corporate bonds from 9 per cent to 15 per cent (of the outstanding value of the bonds). This will increase investments in the Indian bond market.

* On the consumption side, the government has given relief for taxpayers whose incomes are up to Rs 15 lakh.

* It is proposed to develop five new smart cities in collaboration with states in PPP mode.

* India needs to boost domestic manufacturing and attract large investments in the electronics value chain. Here, the Budget proposes a scheme focussed on encouraging the manufacture of mobile phones, electronic equipment and semiconductor packaging.

* India imports a significant quantity of technical textiles worth $16 billion every year. To reverse this trend and to position India as a global leader in technical textiles, a National Technical Textiles Mission is proposed with a four-year implementation period from 2020-21 to 2023-24 at an estimated outlay of Rs 1,480 crore.

* The Budget provides about Rs 27,300 crore for the development and promotion of industry and commerce for 2020-21.

New proposals for infrastructure

The Budget has proposed to set up a project preparation facility for infrastructure projects.  This programme would actively involve young engineers, management graduates and economists from our universities. The key highlights in this regard include…

* Accelerated development of highways will be undertaken. This will include development of 2,500 km access-control highways, 9,000 km of economic corridors, 2,000 km of coastal and land port roads and 2,000 km of strategic highways.

* Delhi-Mumbai Expressway and two other packages would be completed by 2023. Chennai-Bengaluru Expressway would also be started.

* More Tejas Express type trains will connect iconic tourist destinations.

* It is proposed to expand the national gas grid from the current 16,200 km to 27,000 km.

* The Budget has allocated Rs 1.7 lakh crore for transport infrastructure, including 100 airports and Rs 22,000 crore for the power and renewable energy sector in 2020-21.

* The allocation for the road transport and highways ministry has gone up from Rs 83,015 crore in 2019-20 to Rs 91,823.2 crore in 2020-21.

* The Sagarmala project that aims to exploit India’s waterways and coastline has seen a doubling of allocation from Rs 98 crore to Rs 211 crore.

* The allocation for the shipping ministry has seen an increase of 18 per cent from Rs 1,523 crore last year to Rs 1,800 crore this fiscal.

Caring for Society: Women & Child, Social Welfare

The Budget has systematically categorised the Caring for Society theme into three segments - women, child and social welfare; culture and tourism; and environment and climate change.

* The Budget has allocated Rs 35,600 crore for nutritional related programmes. Under the Poshan Abhiyaan launched in 2019, 6 lakh anganwadi workers have been equipped with smartphones to provide nutritional updates for 10 crore households.

* The Budget has allocated Rs 85,000 crore for schemes to benefit Scheduled Castes and Other Backward Classes and Rs 53,700 crore for Scheduled Tribes. It has also allocated Rs 9,500 crore for the Divyang programme for the benefit of senior citizens.

* In a bid to boost tourism, the Budget has proposed the setting up of an Indian Institute of Heritage and Conservation and to bestow it with the status of a deemed university.

* Five new archaeological sites will be developed in Rakhigarhi (Haryana), Siva Sagar (Assam), Hastinapur (Uttar Pradesh), Adichanallur (Tamil Nadu) and Dholavira (Gujarat).

* The government will support the setting up of a tribal museum in Ranchi, Jharkhand.

* The shipping ministry will set up a maritime museum at the site of Sindhu-Saraswati civilisation in Lothal, Gujarat.

* The Budget has allocated Rs 4,400 crore to combat air pollution and to ensure clean air in cities with around 1 million population.

Key proposals for the financial sector

* The finance minister has said that a clean, reliable and robust financial sector is required for achieving the ambitious target of becoming a $5 trillion economy.

* The government is also expected to restructure personal income tax rates and slabs to facilitate additional cash flow in the hands of individuals to boost consumption.

* The Deposit Insurance and Credit Guarantee Corporation has been permitted to increase deposit insurance coverage for a depositor to Rs 5 lakh from the current Rs 1 lakh.

* To strengthen cooperative banks, amendments to the Banking Regulation Act are proposed for increasing professionalism, enabling access to capital and improving governance and oversight for sound banking through the RBI.

* The limit for NBFCs to be eligible for debt recovery under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act is proposed to be reduced from Rs 500 crore to asset size of Rs 100 crore or loan size from the existing Rs 1 crore to Rs 50 lakh.

Disinvestment target

* The disinvestment target for 2020-21 has been pegged at a three-fold increase of Rs 2.1 lakh crore as against the revised estimate of Rs 65,000 crore.

* It may be recalled that the Budget estimate for disinvestment receipts in 2019-20 was pegged at Rs 1.05 lakh crore. This has now been brought down to Rs 65,000 crore at the revised estimate stage.

* The latest target of Rs 2.1 lakh crore includes the Rs 90,000 crore that the government expects to mop up from the divestment of its stake in public sector banks and financial institutions.

* It was announced in the Budget that the government would look to completely exit from IDBI Bank and also do a partial sale of stake in Life Insurance Corporation through the initial public offering route.

Fiscal management

* Revised estimates of expenditure for 2019-20 are at a level of Rs 26.99 lakh crore and the receipts are estimated at Rs 19.32 lakh crore.

* Receipts for 2020-21 are estimated at Rs 22.46 lakh crore and the level of expenditure has been kept at Rs 30.42 lakh crore.

* It is estimated a fiscal deficit of 3.8 per cent in RE 2019-20 and 3.5 per cent for BE 2020-21.

* Net market borrowings for 2019-20 would be Rs 4.99 lakh crore and for 2020-21, it would be Rs 5.36 lakh crore.

New slabs for personal income tax

This Budget has proposed a new and simplified personal income tax regime wherein income tax rates will be significantly reduced for individual taxpayers who forgo certain deductions and exemptions. A detailed description of new and existing slabs is given below…

* Under the new regime, an individual shall be required to pay tax at the reduced rate of 10 per cent for income between Rs 5 lakh to Rs 7.5 lakh against the current rate of 20 per cent.

* For income between Rs 7.5 lakh to Rs 10 lakh, an individual will have to pay tax at the reduced rate of 15 per cent against the current rate of 20 per cent.

* Similarly, for income between Rs 10 lakh to Rs 12.5 lakh, the taxpayer will pay at the reduced rate of 20 per cent against the current rate of 30 per cent.

* Income between Rs 12.5 lakh to Rs 15 lakh will be taxed at the reduced rate of 25 per cent against the existing rate of 30 per cent.

* Incomes above Rs 15 lakh will continue to be taxed at the rate of 30 per cent.

* Those earning up to Rs 5 lakh shall not pay any tax either under the old or new regime.

* The proposed tax structure will provide significant relief to taxpayers and more so to those from the middle class.

The new tax regime shall be optional for taxpayers. An individual who is currently availing more deductions and exemption under the Income Tax Act may choose to avail them and continue to pay tax in the old regime.

Policy initiatives for corporates and startups

* Currently, domestic manufacturing companies have an option to pay income tax at the rate of 15 per cent if they do not claim certain deductions under the Act. This benefit has been extended to domestic companies engaged in electricity generation.

* Currently, companies have to pay a tax of 15 per cent on dividends distributed by it to shareholders. This has been removed and the dividend income will now be taxable in the hands of the recipient.

* Startups are allowed to get a full tax waiver on profits for any three consecutive years out of their first seven years, if they are incorporated between April 1, 2016, and March 31, 2021, and their turnover does not exceed Rs 25 crore.

* The waiver has been extended to startups for any three years out of their first 10 years. In addition, the turnover threshold has been increased from Rs 25 crore to Rs 100 crore.

The Budget has assumed a nominal GDP growth rate of 10 per cent (i.e., real growth plus inflation) in 2020-21. The nominal growth estimate for 2019-20 was 12 per cent. Note that the government is estimated to breach its budgeted target for fiscal deficit (3.3 per cent) in 2019-20 and the medium-term fiscal target of 3 per cent in 2020-21. This does not include off-budget borrowings (0.9 per cent of GDP in 2020-21).

Among the top 13 ministries with the highest allocations, the highest percentage increase is observed in the ministry of communications (129 per cent), followed by the ministry of agriculture and farmers’ welfare (30 per cent) and the ministry of home affairs (20 per cent).

Concluding remarks

In essence, Union Budget 2020-21 shows India’s development path, which is intertwined with investments in social infrastructure, strengthening the manufacturing sector, fostering employability and creating gainful employment which are capable of ensuring inclusive growth. The Budget contains policy initiatives in which the Centre is committed to improving the outcomes in education and skilling, and to provide employment and affordable health care to all to reap the benefits of India’s demographic dividend.

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

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