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Mainstream, VOL LVIII No 12, New Delhi, March 7, 2020

Central Budget 2020-2021: Creates an Aura of Development but Mars Corresponding Allocations

Monday 9 March 2020

by S.S. Sangwan

The Budget 2020-21 has been presented by the Finance Minister (FM), Government of India (GOI), under the prevailing conditions of slowdown in the economy, stagnant GST collections, widening trade deficit, increasing committed expenditure for salaries, pensions and subsidies. Above all, the FM is bounded by Fiscal Responsibility and Budget Management (FRBM) Regulations of keeping the fiscal deficit at 3.3 per cent of the Gross Domestic Product (GDP). The general perception indicates lack of demand and hence, the FM in the beginning of her Budget speech (BS) states that the Budget is oriented to boost income and purchasing power of the people. Accordingly, the broad sector and scheme-wise allocations in the Budget 2020-21 are discussed in this paper.

Agriculture, Irrigation and Rural Development

In addition to the ongoing schemes likePM Fasal Bima Yojana, Krishi Sinchai Yojana, the PM-KISAN., the Budget has focussed on 16 action points.

The Budget 2020-21 has allocated Rs 1.60 lakh crores for implementing the 16 action points related to Agriculture, Irrigation and allied activities. All the listed 16 points appear as felt needs at the ground level but the Budget has an element of camouflage for their implementation. First, it is difficult to dovetail broad allocation of the combined sectors with the sectoral allocation in the Budget, for example, agriculture and allied sectors have been allocated Rs 154774 crores as against Rs 1.60 lakh crores in the speech. Second, this allocation is just 2.15 per cent above the Budget estimate (BE) in 2019-20, though, 28.09 per cent above the revised estimates (RE) for 2019-20. The wide gap between BE and RE itself explains the futility of the GOI’s announcement. Third, in the BE, the committed expenditure other than salary is about 70 per cent, namely, Rs 75000 crores for PM-Kisan Samman, Rs 21000 crores for interest subsidy on crop loans and Rs 16000 crores for PMFBY. However, the allocation under PM Krishi Sichai Yojana is Rs 11127 crores which is about 15 per cent above the BE in 2019-20. Moreover, it is hypocrisy that all political parties talk about the distress among small and marginal farmers (S&MFs) but this Budget (like the earlier ones since 2000) has no schemes for such categorises of farmers.

The allocation to Rural Development depart-ment is Rs 120147 crores (less than Rs 1.23 crores) which is just 0.98 per cent of the RE of 2019-20 and 2.00 per cent above the BE of 2019-20. The major rural employment scheme of MGNREGA has been of Rs 61500 crores in 2020-21 as against RE of Rs 71002 crores for 2019-20. This again substantiates the aura syndrome.

Further the Budget talks about incentives to States performing better in implementation of certain Acts (point 1), balanced use of fertilisers (point 4) and adoption of cluster approach for horticulture (point 9) but there is no specific allocation for these incentives except the sub-sector usual grant in aids. Thus, the BS is creating an aura of rural development without accompanying rains in it.

Health, Drinking Water and Sanitation

The BS focuses on safe water and sanitation that would reduce the incidence of disease on the poor. Further to improve the outreach of PM Jan ArogyaYojana, a number of the empanelled hospitals in Tier-2 and Tier-3 cities will be increased under a Viability Gap funding window in the PPP mode theAushadhi Kendra Scheme will be expanded in all districts offering 2000 medicines and 300 surgicals by 2024. The Budget has provided about Rs 69000 crores for the health sector including and Rs 6400 crores for PMJAY. As per expenditure allocation, this sector will get Rs 67484 crores which is 3.82 per cent above BE and 5.72 per cent above RE of 2019-20. It will just neutralise inflation.

To provide piped water supply to all households by 2024, the Jal Jeevan Mission

has been provided Rs 11500 crores for 2020-21 which is 15 per cent above both the BE and RE of 2019-21. It is minuscule against the total approved expenditure of Rs 3.60 lakh crores for this Mission. The Swachh Bharat Mission in Urban and Gramin areas has been provided Rs 12294 crores in 2020-21 which is less than Rs 12644 crores of BE in 2019-20 and the actual Rs 15375 crores in 2018-19.

Education and Skills

The Budget states that the New Education Policy will be announced soon and to improve the quality, the sector will source External Commercial Borrowings and FDI. A “Study in India” programme will be held in Asian and African countries for attracting foreign candidates. About 150 higher educational institutions will start apprenticeship embedded degree/diploma courses by March 2021. Urban local bodies across the country would be involved in providing internship opportunities to fresh engineers for a period of up to one year. Toprovide access to higher education to the deprived, degree level full-fledged online education programme will be started through 100 top ranked institutions. To meet the shortage of qualified medical doctors, the medical colleges will be attached to the existing district hospital in the PPP mode. The States that allow the facilities of the hospital and land for the medical college will receive Viability Gap Funding. The large hospitals will be encouraged to offer resident doctors DNB/FNB courses under the National Board of Examinations.

But the Budget provides for education and skill development of Rs 99,300 crores in 2020-21 which is just 4.07 per cent more than the BE and RE of 2019-20.

Economic Development

The drivers of economic development fixed in the Budget are as under in order of importance.

The main policies and programmes to expedite growth in Industry and Commerce are setting up of an Investment Clearance Cell to provide “end to end” facilitation and support, including pre-investment advisory, information related to land banks and facilitate clearances at the Central and State levels. It will work through a portal. To boost domestic manufacturing and attract large investments in the electronics value chain, a scheme encouraging manufacture of mobile phones, electronic equipment and semi-conductor packaging as well as medical devices will be introduced.To reduce imports of technical textiles from the USA, a National Technical Textiles Mission will be implemented during 2020-24 with an outlay of Rs 1480 crores. To provide more credit to small exporters, a new scheme, NIRVIK, will be launched with higher insurance coverage and less premium. District level export hubs will be developed to synergise policies of the Centre and State GOIs. The Budget provides Rs 27300 crores during 2020-21 which is five per cent less the RE of 2019-20. It again substantiates the aura syndrome without accompanying rains.

Infrastructure

 

A National Logistics Policy will be released to clarify the roles of the Union GOI, State GOIs and key regulators. A single window e-logistics market will be set up for making MSMEs competitive. To create investment opportunities, the GOI will develop 2500 km access control highways, 9000 km of economic corridors, 2000 km of coastal and land port roads and 2000 km of strategic highways. Delhi-Mumbai Express-way would be completed by 2023 and it is proposed to monetise at least twelve lots of highway bundles of over 6000 km before 2024.

In Indian Railways, besides the usual programmes, its operating surplus will be improved by setting up a large solar power capacity alongside the rail tracks on the land owned by the railways and operating 150 passenger trains through the PPP mode. To augment railway revenue, more Tejas type trains will connect iconic tourist destinations and the fares on metro model on the 148 km long Bangalore Suburban transport project. In sea transport, the GOI may corporatise at least one major port and list it on the stock exchanges.

The FM allocates about Rs 1.70 lakh crores for transport Infrastructure in 2020-21. It is about 7.37 per cent above the BE and RE of 2019-20

which indicate more focus on this sector

.

In the electricity sector, to takeDISCOMS out of financial stress, the prepaid smart meters will replace the conventional energy meters in the next three years. The FM provides Rs 22,000 crores to power and renewable energy sector in 2020-21. Under oil and gas, the Open Acreage Licensing Policy will be promoted to involve private sector and CPSEs. The national gas grid will be expanded from 16200 km to 27000 km.

Initiatives to use New Technologies

 

As the Analytics, Fintech and Internet of Things (IOT) are changing our living styles, the Budget proposes the following steps to take its advantage:

a. To bring out a policy to enable private sector to build Data Centre parks across the country to enable our firms to skilfully incorporate data in every step of their value chains.

b. To link all Gram Panchayat(GP) level “public institutions” such as Anganwadis, health/wellness centres, GOI schools, PDS outlets, post offices and police stations with

digital connectivity

; the Bharatnet will link 100000 GPs during 2020-21 with a provision of Rs 6000 crores.

c. The mapping of India’s genetic landscape will be undertaken for the next generation medicine, agriculture and for bio-diversity management; two new national level Science Schemes will be launched to create a comprehensive database.

d. Quantum technology is opening up new frontiers in computing, communications, cyber security with widespread applications. An outlay of Rs 8000 crores has been provided over a period five years for the National Mission on Quantum Technologies and Applications.

Caring Society

This theme covers Women and Child, Social Welfare; Culture, Tourism and Climate Change.

Under women and child and social welfare the Budgetprovides Rs 53876 crores for the year 2020-21 which is about six per cent above the BE of 2019-20. The Budget makes routine allocations for the development and welfare of SCs and OBCs, STs and senior citizens and divyang within big figures, but it is also an aura as it is difficult to dovetail with sector/scheme allocations.

Culture and Tourism

It is proposed to develop five archaeological sites as iconic sites with on-site Museums at Rakhigarhi (Haryana), Hastinapur (Uttar Pradesh), Shivsagar (Assam), Dholavira (Gujarat) and Adichanallur (Tamil Nadu). A few other museums at Kolkata, Ranchi, and Ahmedabad will be set up as tourism sites. The Budget provides Rs 5650 crores for culture and tourism which is eight per cent above the BE of 2019-20, though the RE is much lower.

Environment and Climate Change

In large cities with population above one million, central GOI will provide incentives to the States that are implementing plans for ensuring cleaner air. Budget allocation for this purpose is Rs 3100 crores for 2020-21 which is Rs 4.91 per cent above the BE of 2019-20.

Governance

To ensure implementation of schemes and programmes grouped under

aspirational India, Economic Development and Caring India,

the Budget proposes to enshrine in the statutes a “taxpayer charter”. Further, the GOI intends to set up a National Recruitment Agency (NRA) as an independent, professional, specialist organisation for conduct of a computer-based online Common Eligibility Test for recruitment to Non-Gazetted posts in the GOI and banks with a test-centre in every district. Robust mechanism will be evolved for appointment in tribunals and specialised bodies. These may be good initiatives.

Financial Sector

 

The four amalgamated banks (10 earlier) may approach capital market to raise additional capital instead of the GOI’s contribution which is already very high in the capital of PSBs.

To infuse public confidence in banks, the Deposit Insurance and Credit Guarantee Corpo-ration will increase Deposit Insurance Coverage from Rs one lakh to Rs five lakh per depositor. To improve Cooperative Banks, they will be more under the control of the RBI by amending, the Banking Regulation Act. The asset limit for the NBFCs to be eligible for debt recovery under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 is to be reduced from Rs 500 crores to Rs 100 crores or loan size from Rs 1 crore to Rs 50 lakhs. The sinking IDBI bank will be sold to private, retail and institutional investors through the stock exchange.

Amendments would be made in Pension Fund Regulatory Development Authority of India Act (PFRDAI) to facilitate separation of NPS trust for GOI employees from PFRDAI. It would also enable establishment of a Pension Trust by the employees other than the GOI to motivate citizens to plan for their old age.

To ease the working capital credit problem of the MSMEs, a scheme will be launched to provide for subordinate debt by banks and it would count as quasi-equity, guaranteed through the Credit Guarantee Trust for Medium and Small Entrepreneurs by increasing its corpus.

To facilitate export bymid-size companies such as pharmaceuticals, auto components and others, it is proposes to support for technology upgradations, R&D, business strategy, etc. A scheme of Rs 1000 crores will be anchored by EXIM Bank together with SIDBI.

Source of Infrastructure Financing

The GOI has Rs 103 lakh crore National Infra-structure projects in the Pipeline. The Budget has provided about Rs 22,000 crores which will cater for equity support to Infrastructure Finance Companies such as IIFCL and a subsidiary of NIIF. They would in turn leverage it to create a financing pipeline of more than Rs 100000 crores from national and international finance.

Disinvestment: GOI also proposes to sell a part of its holding in LIC by way of Initial Public Offer.

Direct Tax—Killing two Birds with one Arrow

Under mounting demand to reduce personal income tax (IT), the Budget has reduced tax ratesin slabs above Rs 5 lakhs in intervals of Rs 2.5 lakhs upto Rs 15 lakhs. But this tax benefit will accrue to the taxpayer who will not claim exemptions and deductions due to savings, standard deduction, etc. The new tax regime may not be beneficial to those earning upto Rs 12 lakhs. Moreover, it is a disincentive to saving so as to increase consumption which is badly required to boost the slowing economy. The new rates are kept optional to silence criticism. Even the revenue forgone due to the reduced rates may be lower than the stated Rs 40,000 crores. Similarly, the Dividend Distribution Tax (DDT) paid @15 per cent by companies has been replaced with tax in the hands of the recipient which will be more than 15 per cent on an average. Under corporate tax, lower rate of 15 per cent will be applicable to domestic companies in manufacturing and power sectors. To attract foreign investment in these sectors, 100 per cent tax exemption to them in the income from interest, dividend and capital gains, if invested before March 31, 2024 with a minimum lock-in period of three years.

The Budget also encourages charitable institutions by easing the process of claiming deduction for donation to them. The IT Department will register them online and a unique registration number (URN) shall be issued to them. Even provisional registration for three years will be made for those which have to start their charitable activities

Reducing the Pendency of IT cases.

 

The Budget proposes faceless appeals on the lines of faceless assessment. A

Vivad Se Vishwas’

scheme is proposed wherein a taxpayer would be required to pay only the amount of the disputed taxes and will get complete waiver of interest and penalty provided he pays by March 31, 2020. Taxpayers with pending appeals can benefit from this scheme. An amendment in the IT Act will be made to mandate the Central Board of Direct Taxes (CBDT) to adopt a Taxpayers’ Charter. Instant

PAN through Aadhaar

without filling the detailed application form.

Indirect Tax

The Budget refers tothe September, 2019 decision whereby corporate tax was reduced to 22 per cent which is among the lowest in the world. The tax on cooperatives shall also be brought at par with the corporate tax. Amalgamated banks will also take the benefit of unabsorbed losses and depreciation with amendment of the IT Act.

The custom exemptions have been withdrawal on 80 items, namely, agro and animal-based products (milk products, raw sugar, wine, dry fruits, Soya protein/fibres); metal item of lead, zinc and tin; machinery for roads/metro, electricity and electronic items. Further, basic custom duty (BCD) has been increased on house hold and kitchen appliances, footwear, stationery items, cigarettes, toys, furniture, electrical vehicles and cellular phones, etc. If one goes through the complete list, it indicates that the proposals are in the right direction to check import bill, especially on luxury items and encourage MSMEs.

Certain necessary changes in the Central GST, 2017 have also been proposed to facilitate trade, consumer and improve compliance in payment.

Fiscal Management

Despite revenue constraints, the FM has tried to adhere to thefiscal discipline as per the FRBM Act. The RE of Expenditure for the Financial Year 2019-20 are Rs 26.99 lakh crores against estimated receipts of Rs 19.32 lakh crores. Assuming nominal growth of 10 per cent in GDP for year 2020-21, the estimated receipts will be Rs 22.46 lakh crores for the year 2020-21 and the committed expenditure will be Rs 30.42 lakh crores. Accordingly, estimated fiscal deficit will be 3.8 per cent in RE 2019-20 and 3.5 per cent for BE 2020-21 as against the GOI’s abiding commitment of 3.3 per cent for the year 2019-20 and 3 per cent for the 2020-21 Budget estimates. The deviation of 0.5 per cent has been justified as per Section 4 (3) of the FRBM Act when there are structural reforms in the economy. It is to be noted that interest payment will take 83 per cent and 88 per cent of borrowings during 2019-20 and 2020-21

 The revenue deficit would be Rs 4.99 lakh crores for the year 2019-20 and Rs 5.36 lakh crore for the year 2020-21, that is, 2.4 per cent and 2.7 per cent of the GDP, respectively. It may be a matter of satisfaction that a good part of the borrowings for the financial year 2020-21 would go towards Capital expenditure which has been scaled up by more than 21 per cent. That should spur growth impulses in the economy.

Overall Comments

Given the precarious situation of the slowing economy, increasing trade deficit, stagnant tax, increasing committed expenditures and requirements to adhere to FRBM regulations, the FM has tried creating an aura in her extensive presentation but the allocations are like a management expert instead of a leader with a vision. The increase in allocations for the stressed agriculture and rural sector may hardly neutralise the inflation. Allocations for the main rural employment schemes of MGNREGA and PMGSY are just around the BE of 2019-21. The Budget boast as incentive driven but the amount for incentives has not been specified. The strategies for health and its allocation may be considered satisfactory but the much hyped water and sanitation have got limited funds. Similarly, strategies for education and skill are in the right direction, though allocations may just neutralise inflation.

For economic development, the allocation for transport Infrastructure in 2020-21 are about 7.37 per cent above the BE and RE of 2019-20 which indicate continued focus on this sector since 2015. Increasing operating surplus of railways by setting up a large solar power capacity alongside the rail tracks and more Tejas type train for tourist places are good moves to augment revenue. But the running of 150 passenger trains through the PPP mode may be resisted by the employees. Similar protest may be in corporatising ports. Expediting the ongoing installation of the prepaid smart meters may be considered a right step to reduce rampant theft in the electricity sector.

The linking of all Gram Panchayat level “public institutions” with digital connectivity through Bharatnet will improve governance in rural areas. Its allocation may also be considered satisfactory.

Under the theme

caring society,

the Budget has given due allocation for Women and Child, Social Welfare and Culture and Tourism and cleans air in cities above one million population.

To mobilise the resource of Infrastructure, the GOI is again depending on foreign bonds and international finance. The GOI will also sell a part of its holding in the LIC by way of Initial Public Offer (IPO). However, the GOI could not dare revive the wealth tax and estate duty for resource mobilisation and reducing the menace of alarming inequality.

The changes in the Direct Tax may be considered a smart move. To meet the mounting demand to reduce personal IT, the Budget has reduced tax ratesin slabs from Rs 5 lakhs to Rs 15 lakhs. It may not benefit taxpayers upto Rs 12 lakhs while it is a disincentive to saving which will boost demand for reviving the slowing economy. The

Vivad Se Vishwas’

scheme will also help the GOI in mobilising immediate revenue and also give relief to litigants who will be required to pay only the amount of the disputed taxes and will get complete waiver of interest and penalty provided one pays by March 31, 2020. Instant PAN through Aadhaar will encourage more tax returns.

Under Indirect Tax, withdrawals of BCD exemptions on 80 items and increases in BCD on import of number non-essential items may be a step in the right direction to check import bill especially on luxury items and encourage MSMEs.

Despite revenue constraints, the FM has tried to adhere to thefiscal discipline as per the FRBM Act, though some assumption like 10 per cent growth in GDP and higher tax revenue are doubtful.

To sum up, the longest Budget has tried to create an aura for reviving the economy, but it lacks the matching allocation in most of the sectors especially agriculture and rural development.

Dr Sangwan is a former Professor, State Bank of India Chair at CRRID, Chandigarh and General Manager, NABARD.

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