Many Aspirations and Budget 2020

Union Budget alone cannot shape which way the economy steers. There’s a lot more to this. For example, when the parliament enacted the bankruptcy law, The Insolvency and Bankruptcy Code 2016, it was a sure boost for both ailing banks that were demanding an uncomplicated and fast way to recover dues and corporates that are struggling due to a variety of reasons, including sectoral slowdown. In this regard, one must also note the enactment of law that frees up Jammu and Kashmir from the shackles of opportunistic politics and policy paralysis. With clampdown on terror activities and prospects for companies to start new ventures in the newest Union Territory, economic activity is set to see an upward movement, thereby delivering on expectations ranging from employment for local youth to expansion in factory output. In this light, the Union Budget that is set to be presented in less than a month by the Finance Minister shall be seen as a key event, if not a landmark one.

Expectations are huge and why not? Discussions on the upcoming budget have already become prime time news and economic experts have proposed innumerous measures. The talk of the town is a reduction in personal tax rates, higher spending by the government on education and other social sectors and abidance of fiscal prudency, a highlight of the BJP-government budget for long. That corporate tax rates have already been cut through an executive order is taking the discussion away from what corporates need from the budget of 2020. The government is set to consider a plethora of wide-ranging concerns, including a below-expectation collection of GST and inflationary forces, which have lately seen an upward trend owing to rise in food prices. With the government duly acknowledging a slowdown in economic activity in the country, one can expect that the key concerns won’t be brushed under the carpet.

What then will be the announcement? What will distinguish the upcoming budget from government’s previous endeavours and will the new one infuse positivity in the market? Although no one can precisely tell what is going through the mind of policymakers, let us find out what the expectations are and how the government can deliver on them.

Cut in personal income tax

One thing is sure, that the opposition and even the worst of the critics of the government will think twice before criticizing the finance minister for reducing personal tax rates or tweaking slabs for the benefit of taxpayers. That only a small fraction of the population pays this tax is a key point to be considered. At the same time, tax revenue from personal income tax was just shy of INR 5 lakh crore in the last fiscal year and this highlights the significance of this revenue source. In the last budget, the government went for a higher levy on super-rich and surcharge was hiked for individuals pocketing more than INR 2 crore in a year.

Now given the reduction in effective corporate tax rate from 35 percent to 25.17 percent announced in September last year, the government seems to have little elbow room for cutting personal tax rates. Since direct tax has a share of around 55 percent in total tax revenue of the government of India, and the other half made up by indirect tax is already subdued, the government cannot afford to lose revenue from personal tax. However, the government has shown figures that tell compliance has improved manifold in the recent past for personal tax and this advance in compliance can become a basis for some relaxation to taxpayers. The economy has slowed down and the GDP growth rate has come down to below-5 percent. Economists agree that the problem is not from the supply side but the demand side, which has remained weak for quite a long time. A dip in sale of passenger vehicles, along with many other events, tells that people are left with less money to spend.

This makes a perfect case for a reduction in personal tax rates. The government has already made income upto INR 5 lakh tax-free. This time, the government can cut a few percentage points from tax rates levied on income above INR 5 lakh. This relaxation can be extended to all income groups, including the super-rich who pay as high as 43 percent tax on earnings above INR 5 crore. People left with more money in their hand are likely to spend more and hence, the demand side will see a boost. This is simple economics. But the picture becomes complex when one looks at the latest inflation numbers that reflect a 7.35 percent growth in inflation in December 2019. This is no mean figure. In fact, the prices of vegetables have risen sharply and this can further dent the aspiration of the middle class to have any relaxation in tax rates.

Still, the government can rely on a better harvest of food products in the upcoming season and place its bet on lowering rates for boosting demand in the consumer products category and other important factory products. That car and two-wheeler manufacturers and their retailers are cutting jobs has highlighted the stress in the job sector. A boost in demand of these products is the only savior, which can come by giving more spending power in the hands of the middle-class populace.

Divestment

Cutting government stake in public sector companies has been one area where the performance of Modi-led government has been sub-par. The one-time crown of India’s aviation sector, Air India, has been up for sale but no buyer seems to take interest, given the burden it brings that far outweighs benefits arising out of Air India’s assets. In the last year’s budget, the divestment target was around INR 1 lakh crore and with only two and a half months to go, the government is likely to miss it by a generous margin. While the cabinet committee on economic affairs gave clearance for stake sale in Bharat Petroleum (BPCL), Container Corporation (Concor) and other PSUs late last year, the realization will not likely happen in the fiscal year ending 2020. Given that the Modi-government exceeded expectations for strategic divestment in previous fiscal years, the present shortfall, coming amidst mounting pressures on the revenue side of the budget, will only exacerbate the problems.

Now that the government is ready to sell stake in above-mentioned undertakings, which may materialize in the current or next fiscal year, the target for FY2021 needs to be more ambitious than ever. And there are a variety of reasons for the same. While one argument in favour of divestment is that the government should have a lesser role in the functioning of companies, the other and in fact a more substantial one is that PSUs have been lagging behind their private sector peers on multiple counts. There is a strong case of having less PSUs and privatising many of them. The uptick in production of Balco and Hindustan Zinc only when they went into private hands can be a compelling reason why Budget 2020 can aspire to generate more revenue from stake-sale activities.

When one makes a quick comparison between public and private players in the same field, the case for PSU stake-sale becomes even stronger. JSW Steel Ltd had a four-fold jump in its output in the last decade when SAIL could only manage 7 percent growth in production. In the crude oil sector, Cairn India has been way ahead of its public sector rival ONGC; in mining, NMDC stands nowhere when compared with Vedanta’s mining arm. Coal India has been performing below-par and this has led to increase in import of coal, something that has hurt India’s trade account.

Budget 2020 can address multiple concerns with a single stroke. By setting the bar high for divestment in the next fiscal, the government can not only have a sure source of revenue to make up for the shortfall due to cut in corporate tax, the efficiency that will come by way of privatisation will see better management of these firms, and better placed companies will generate more job opportunities besides raising demand for credit to undertake expansionary activities.

Fiscal Prudence- Now or suspended

Reining in fiscal deficit is a good thing. One cannot spend more than what is earned. But this simple lesson of finance cannot hold much value when the economy of a country like India is facing downward pressures. And this is what made the British economist, John Keynes, special. Keynesian economics tells us why governments should spend more at a time when recessionary pressures have gripped the economy. Yes, India isn’t facing recession in technical terms, subdued factory output and below-expectation GDP growth can severally hurt India’s socio-economic fabric. As a developing nation, India still has a sizeable population below the poverty line. Lifting millions out of poverty has long been the electoral call of all political parties but is it possible to do so without loosening the purse strings?

India has treaded a safe and desirous path under the Modi government and has made fiscal prudence the guiding policy when it comes to preparing the union budget. But at the same time, one must note that the economy, local and global, wasn’t facing tough time as it is now. GST collections have yet to mature and since companies are holding back on private investment, thereby not allowing expected increase in direct tax collection, fiscal prudence may seem to make sense. However, it was the Keynesian model suggesting higher government spending that helped the US and European countries leave behind the economic crisis of late 2000s. Restricting government spending can have its share of drawbacks and in a country where infrastructure spending hasn’t matched the needs to this day, fiscal deficit can be a savior than a demon.

From steel industry to unemployed youth, increased government spending can lead to cheers on multiple counts. Infrastructure spending on roads and highways and ports and healthcare can fairly compensate for dull private investment. Banks are already under pressure due to non-performing assets (although credit growth has seen a spike in recent past and NPAs have gone down) and fresh lending for corporates isn’t coming in the desired quantum. Earmarking more funds for infrastructure development, even when it means pressure on fiscal deficit count, can be the most defining aspect of Budget 2020.

The economy hasn’t benefited much from the fiscal discipline resorted to by the Modi-government due to multiple reasons. Trade war between US and China has hurt India’s export sector and slowing economies across the world, from China to Germany, have meant less demand for India’s output. And unless this shrinking demand is reversed, a boost in the economy cannot be expected. Infrastructure sector of India has great appetite for investment and with government spending more money, a spike in jobs and eventual surge in public spending can be expected. The right step is to sideline the fiscal prudence thing for at least 2 to 3 fiscal years and embark on a journey of higher spending.

Special incentives to new technologies

Special Economic Zones (SEZs) were created in India to boost exports and minimize the redtape. They delivered well and states with the maximum number of SEZs – Tamil Nadu, Telangana and Maharashtra – are enjoying the financial benefits that came along. The union budget for FY2021 cannot overlook the fact that India needs to establish newer industries in order for the economic activity to see revival. Present technologies have reached their maturity and the revenues from these activities have stabilized.

Now’s the need to allow private investment in new-age tech, for example, artificial technology and non-fossil fuel driven vehicles. What was done with SEZ by allowing them duty-free imports and 100 percent tax exemption for a number of years is to be repeated with new industries that are established in areas that are set to see substantial demand in coming years. Take for example the electric vehicle industry. China is leading the way from manufacturing of lithium cells and batteries to exploration of rare earth metals. It is for a reason that China can stare the United States in the eye, without blinking. They are advancing fast on new-age tech and at the same time India has become importer of many of these coveted technologies. It wasn’t until ISRO developed the lithium-ion cell technology a few years ago that we could even make a cell powering an electric vehicle, and even today, the technology has yet to be adopted by the industry.

Union Budget 2020 can be the enabler for new-age industries. Special incentives to companies engaged in these technologies can be allowed and labour laws and other impediments can be eased. A further cut in corporate tax rate for these companies or even levying a zero-rate tax for initial 3 to 4 years can be done through Budget 2020.Indeed, this can have a toll on the revenues of the government but for companies in their infancy, these are much-needed support systems that will allow them to tap credit and generate jobs.

Budget 2020, as mentioned earlier, will be one policy action among many others that are taken throughout the year to cheer up economic activity in the country. As expected, various sectors have their own set of demands. For example, the gems and jewellery industry is looking forward to reduction in import duty on gold and realtors are eying an amendment in Section 43CA of the IT Act (penalty for lowering prices). In the banking sector, recapitalisation of public sector banks will be expected and how the finance ministry deals with the problems of the NBFC sector will be noted.

To summarize, it won’t be bad for the government to shun fiscal prudency for some time given the need to revive economic growth through infrastructure development. Personal income tax rates can be lowered marginally in order to allow the middle class to spend more, thereby addressing the demand weakness in the Indian economy. Divestment needs to be rethought as a way to generate revenue and simultaneously bring efficiency in PSUs and tax holidays must be a part of Budget 2020 for enterprises in new-age tech.

(The article “Many Aspirations and Budget 2020” published in magazine Uday India in January 18, 2020 English edition)

91 thoughts on “Many Aspirations and Budget 2020

  1. Ravi Kumar

    Government hasnt met divestment targets for 2019-20 yet and it is quite possible that the final figures of 2019-20 fiscal year will show high fiscal deficit and high borrowing by the government.

    Reply
  2. Anmol Makkar

    One, the finance minister should not make any shock announcement in budget 2020 which is then reversed like the last year’s budget. Focus should be on reviving demand by bringing down CGST on capital goods.

    Reply
  3. Prakhar Gupta

    India has been hiding the real picture of fiscal deficit and experts have warned that deficit is as high as 4 per cent. Those advocating more spending should keep this in mind.

    Reply
  4. Kunal Parkar

    It has been recently reported that Modi government has saved thousands of crores by digitising the PDS. Same way, more and more services can be digitised so that reveue loss can be prevented.

    Reply
  5. Harsh Gupta

    Tax and surcharge on high networth individuals should not be lowered and the revenue from this source should be deployed to the health and education sector of the country.

    Reply
  6. Adarsh Kumar

    Germany is slowing and they are also too much worried about containing deficit. Experts have warned that unless Germany spends on infrastructure it will be difficult for them to expand. Same is with India.

    Reply
  7. Mrinaal Deshpande

    It is true that budget alone cannot revive the Indian economy however since the budget touches every sector of economy and has an impact on all players, it should be wisely drafted.

    Reply
  8. Karan Singh Arora

    BJP government has focussed too much on bringing down deficit and this has been one reason why demand has not picked in economy. Fiscal deficit can be allowed so that economy recovers.

    Reply
  9. Bharat thakre

    Gold imports in India have come down to an alarming level. First, there is low demand due to slowdown in economy and secondly, the import duty is high. Government should lower this duty to lift demand.

    Reply
  10. Durgesh Nagar

    The Budget of this year should bring relief to the middle class by lowering the income tax rate. Corporate taxes have been slashed and it is time now that personal taxes are also reduced.

    Reply
  11. Ajay Lamba

    The next time I read a blog, I hope that it does not fail me as much as this one. After all, I know it was my choice to read, nonetheless I actually thought you would probably have something helpful to talk about. All I hear is a bunch of whining about something that you could fix if you weren’t too busy seeking attention.

    Reply
  12. Gaurav Bajpai

    Nice post. I learn something new and challenging on websites I stumbleupon everyday. It is always interesting to read through content from other authors and practice something from their web sites.

    Reply
  13. Sourav dalan

    it is actually a nice and helpful piece of information. I am satisfied that you just shared this helpful info with us. Please keep us informed like this.

    Reply
  14. Ajay balachandran

    This site definitely has all of the information and facts I needed concerning this subject and did not know who to ask.

    Reply
  15. Shivam Mahendru

    You definitely put a fresh spin on a subject that is been discussed for years. Wonderful stuff, just excellent.

    Reply
  16. Priyanshu Sethi

    I just want to mention I am all new to weblog and truly savored this blog site. Likely I want to bookmark your blog . You actually have terrific articles. With thanks for sharing with us your web site.

    Reply
  17. Arshi Khan

    Way cool. Some extremely valid points. I appreciate you penning this post and the rest of the website is really good.

    Reply
  18. Soumitra Halder

    If some one wishes to be updated with most recent technologies therefore he must be pay a quick visit this site and be up to date all the time.

    Reply
  19. Chaitra chaitu

    Just finished reading your article and wanted to congratulate you on your compelling abilities. Good luck for the future work.

    Reply
  20. Harshavardhan gangavathi

    I need to to thank you for this wonderful read.. I certainly loved every little bit of it. I have got you book-marked to look at new stuff you post…

    Reply
  21. Brijesh Tagade

    Great task on this publish. I enjoy the way you displayed your info as well as the way a person achieved it significant and also obvious to be aware of. Thanks a great deal.

    Reply
  22. Hetram Kumawat

    Hurrah, that is what I was seeking for, what a material. present here at this web site, thanks Dr gupta for this post.

    Reply
  23. Cronin D'almeida

    Absolutely wonderful, well done everyone, what a great achievement. Here is to the future and success for everyone. Thank you all for your hard work, we know it will be ongoing and trust that you will get the appreciation and credit of putting such brilliant articles on the worldwide web. Looking forward to seeing it grow.

    Reply
  24. Pushkar Gogte

    Rarely do I come across a blog that is both educative and amusing, and without a doubt, you’ve hit the nail on the head.

    Reply
  25. Fahad faiz

    I appreciate you finding the time and effort to put this information together. I once again find myself personally spending a significant amount of time both reading and commenting.

    Reply
  26. Sarthak Agarwal

    Just spent a few very enjoyable minutes looking at the site. Excellent. Well done. Overall very good: clean, easy to navigate, informative and, importantly, interesting.

    Reply
  27. Lokesh Saluja

    I do not even know how I ended up here, however I assumed this publish was great. I do not recognize who you are however certainly you are going to a well-known blogger in the event you are not already. Cheers.

    Reply
  28. Ananth Aditya

    Thank you for the introduction to the new website. I will be re-visiting it many times, but on a fast run-through it looks really great.

    Reply
  29. Aman Das

    I am very happy to find this web site. I wanted to thank you for your time due to this fantastic read. I definitely liked every little bit of it and i also have you saved to fav to see new information in your site.

    Reply
  30. Munish Bansal

    Just wanted to say how much we appreciate the tremendous amount of hard work and effort you all put in to producing this website. It is a great credit to everyone and I am sure will be a great success.

    Reply
  31. Niranjan singh

    Hi, all the time i used to check weblog posts here in the early hours in the break of day, because i enjoy to learn more and more.

    Reply
  32. Saamarth Gupta

    I have read so many posts about the blogger lovers however this paragraph is in fact a fastidious paragraph, keep it up.

    Reply
  33. Kamlesh Kumar

    After looking into a handful of the blog articles on your website, I seriously like your technique of writing a blog. I added it to my bookmark site list and will be checking back in the near future.

    Reply
  34. Christopher Mergu

    Hi there. I simply would like to give you a big thumbs up for your great information you have got right here on this post. I will be returning to your website for more soon.

    Reply
  35. Shivansh Gupta

    What I have seen so far is brilliant and everyone involved should be congratulated. I can see me spending the rest of the evening perusing the site. Just when I thought I would like an early night.

    Reply
  36. Suresh raisamy

    I quite like reading an article that can make men and women think. Also, thank you for permitting me to comment.

    Reply
  37. ALI AHMED khan

    I just want to say I am just all new to blogging and site-building and absolutely enjoyed this web site. Likely I want to bookmark your site . You actually come with amazing writings. Bless you for sharing your web page.

    Reply
  38. Ashish Khalkho

    I wonder how come you get to know that this is the exact information that I have been looking for. Thanks a ton man.

    Reply
  39. Shreemantika Aich

    it is very straightforward to find out any topic on net as compared to books, as I found this article at this web site.

    Reply
  40. Anshul Aggarwal

    I blog often and I really thank you for your content. This great article has truly peaked my interest. I am going to book mark your website and keep checking for new information about once per week.

    Reply
  41. Saimadhav Heblikar

    Spot on with this write-up, I absolutely believe that this amazing site needs much more attention. I will probably be returning to read through more, thanks for the advice.

    Reply
  42. Prema Awasthi

    I read this article completely about the comparison of most up-to-date and preceding technologies, it is remarkable article.

    Reply
  43. Kevin baby

    This is undoubtedly the most clean and clear form of writing that have seen so far. Congrats to attain this level.

    Reply
  44. Shubham Agarwal

    An intriguing discussion is definitely worth comment. I do believe that you ought to publish more on this issue, it may not be a taboo matter but typically people do not speak about such topics. To the next. Cheers..

    Reply
  45. Manjunath Gangadhar

    My family always say that I am killing my time here at net, however I know I am getting know-how all the time by reading such good articles.

    Reply
  46. Gautam Bansal

    You ought to take part in a contest for one of the most useful blogs online. I am going to highly recommend this blog.

    Reply
  47. Asif Jalal

    I am often to blogging and i really appreciate your content. The article has actually peaks my interest. I am going to bookmark your web site and keep checking for brand new information.

    Reply
  48. Graham Owaisi

    Your article will surely be a great help to a lot of people. An outstanding blend of thinking and good writing.

    Reply
  49. Deepank Devate

    Quality posts is the important to be a focus for the people to visit the web page, that is what this web site is providing.

    Reply
  50. Satin Kriplani

    Remarkable! Its actually remarkable piece of writing, I have got much clear idea on the topic of from this paragraph.|

    Reply
  51. Raj Gaurav Dubey

    Hi there to every one, since I am really eager of reading this weblogs post to be updated daily. It contains fastidious stuff.

    Reply

Leave a Reply to Bharat thakre Cancel reply

Your email address will not be published. Required fields are marked *