Context: The Finance Minister presented the Budget 2020-21 on February 1, 2020. The budget focused on enhancing the purchasing power of citizens and boosting their incomes. It has also given importance to technology and innovation to increase the employment of the youth.
What is the Union Budget?
- The Union Budget is also known as the Annual Financial Statement.
- Article 112 of the Constitution of India lays down that it is a statement of the estimated expenditure and receipts of the Government for a particular year.
- The Budget keeps the account of the finances of the government for the fiscal year (from 1st April to 31st March).
- The Budget is presented on 1st February (until 2016, it was presented on the last working day of February) so that it can materialize before the commencement of the new financial year which starts on 1st April.
- In 2017, a 92-year-old tradition was broken when the railway budget was merged with the Union Budget and presented together.
- The Budget has to be passed by the Lok Sabha before it can come into effect
- The Union Budget is divided into Revenue Budget and Capital Budget.
- In the Union Budget, the disbursements and receipts of the government comprise the various types of government funds in India namely:
- the Consolidated Fund of India,
- the Contingency Fund and
- the Public Account.
- The Economic Survey of India is released ahead of the presentation of the Budget. This document is prepared under the guidance of the Chief Economic Advisor and is presented for discussion in both Houses during the Budget session.
- Borrowings and other liabilities are known as Fiscal Deficit.
- Fiscal Deficit= Total Expenditure– Total Receipts excluding borrowings.
- Higher the fiscal deficit, the higher will be the market borrowings.
- However, borrowing is not always a bad idea- if the borrowed money is used for productive purposes.
- For example, if the borrowed money is used to build capital assets like factories, roads, railways, etc– that is productive.
- We have already seen that investments like those in National Infrastructure Pipeline would result in better employment opportunities as well.
- Apart from market borrowings, other debt receipts like Securities against Small Savings, Other Receipts (Internal Debts and Public Account), Draw Down of Cash Balance, etc. are also proposed to be widely used this time.
- Spending on the revenue side does not create any new assets.
- Revenue expenditures take place after a fixed asset had been put into service and simply keeps the asset in working order.
- Revenue expenditure is used for day-to-day expenses of running the government machinery like salary, pension, interest payments, etc.
- Ideally, a government system should be efficient enough to generate surplus income from the resources on which it gives a salary, pension, etc so that the additional revenue can be used for capital expenditure.
- However, in the case of India, the government machinery is not generating enough income to even to meet their salary or pension.
- To understand the case better, consider a government project to collect a particular tax.
- If the salaries, pension, and administrative expenses of the project are Rs.30 crores, and if the project is able to collect only Rs.24 crores as tax, running this project results in a loss of Rs.6 crore rupees.
The Theme of the Union Budget: Ease of Living
There are three prominent themes of the Budget under Ease of Living:
- Aspirational India– better standards of living with access to health, education and better jobs for all sections of the society use of Living underlined by the three themes of Union Budget 2020-21.
- Economic Development for all– “Sabka Saath, Sabka Vikas, Sabka Vishwas”. 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.
- Caring Society– that is both humane and compassionate; Antyodaya as an article of faith.
These three broad themes are held together by two factors:
- Corruption free, policy-driven Good Governance.
- Clean and sound financial sector.
Governance- Corruption free, policy-driven Good Governance.
An important aspect of both ease of living and ease of doing business is fairness and efficiency of tax administration. The government wishes to enshrine in the statutes a “taxpayer charter” through this budget.
- There has been a debate about building into statutes, criminal liability for acts that are civil in nature.
- Hence, for Companies Act, certain amendments are proposed to be made that will correct this.
- Similarly, other laws would also be examined, where such provisions exist and attempts would be made to correct them.
- The Government intends to introduce major reforms in recruitment to Non-Gazetted posts in governments and public sector banks.
- At present, candidates have to appear for multiple examinations conducted by multiple agencies at different points of time, for similar posts. This places an enormous burden on time, effort and cost of young people.
- To mitigate their hardship faced, it is proposed to set up a National Recruitment Agency (NRA) as an independent, professional, specialist organization for the conduct of a computer-based online Common Eligibility Test for recruitment to NonGazetted posts.
- A test-center in every district, particularly in the Aspirational Districts would be set up.
- For speedy disposal of commercial and other disputes, the Government has constituted various Tribunals and specialized bodies.
It is proposed to evolve a robust mechanism for appointment including direct recruitment to these bodies to attract best talents and professional experts.
- A stable and predictable business environment is a key objective of the government. There is also a strong argument for ensuring that contracts are honored.
India has a sound framework related to the Contracts Act. The government shall deliberate upon strengthening it.
- There is a growing need for the Indian Statistical system to meet the challenges of real-time monitoring of our increasingly complex economy. Data must have strong credibility.
- The proposed new National Policy on Official Statistics would use the latest technology including AI.
- It would lay down a road-map towards modernized data collection, integrated information portal and timely dissemination of information.
- The North-Eastern region has a very high priority in the Government’s Developmental agenda.
- The government is ensuring smooth access to financial assistance from multilateral and bilateral funding agencies to help introduce innovative and global best practices.
- Central Government has effectively used an online portal to reduce the gestation period of online. This has improved the flow of funds to the northeast region.
- Fo the Union Territories of Jammu & Kashmir and Ladakh an amount of 30,757 crores has been provided for the Financial Year 2020-21. An amount of 5,958 crores has been provided for the Union Territory of Ladakh.
- Structural Reforms:
- The structural reforms include the recapitalization of banks through IBC (Insolvency and Bankruptcy Code).
- Under GST, an average household saves 4% of its savings.
- In the year 2019-20, 60 lakh new taxpayers were added, 40 crores of returns filed, 800 crore invoices uploaded and 105 e-way bills have been generated.
- GST helped in reducing the turnaround time for trucks by 20%.
- Under this, the state and national permits including road tax, fitness certificate pollution certificate for trucks were removed.
- Digital Revolution:
- Shift to Direct Bank Transfer: During 2018-19, 7 lakh crore transferred through DBT.
- Next wave:
- Digital Governance.
- Improve the physical quality of life through the National Infrastructure Pipeline.
- Disaster Resilience.
- Social Security through Pension and Insurance penetration.
- Inclusive Growth:
Governance guided by “Sabka Saath, Sabka Vikas, Sabka Vishwas” with focus on:
- Preventive Healthcare: Provision of sanitation and water
- Healthcare: Ayushman Bharat
- Clean energy: Ujjawala and Solar Power
- Financial Inclusion Credit support and Pension Financial Inclusion, Credit support and Pension
- Affordable Housing
- Digital penetration
Financial Sector- Clean and sound financial sector.
- A clean, reliable and robust financial sector is critical to the economy.
- In our efforts to achieve the USD 5 trillion economy, the financial architecture should keep evolving and move from strength to strength.
- In the last few years, the Government of India has infused about 3,50,000 crore by way of capital into Public Sector Banks for regulatory and growth purposes.
- Governance reforms would be carried out in these banks so that they become more competitive.
- A few among them will be encouraged to approach the capital market to raise additional capital.
- A robust mechanism is in place to monitor the health of all Scheduled Commercial Banks and that depositors’ money is safe.
- To strengthen the 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.
- Deposit Insurance Coverage to increase from 1 lakh to 5 Lakh per depositor.
- The limit for NBFCs to be eligible for debt recovery under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002 is proposed to be reduced from 500 crores to asset size of 100 crores or loan size from existing 1 crore to 50 lakh.
- In the last few years, the government has taken concrete steps to bring our banking system to be robust. However, there is a need for greater private capital.
- Accordingly, it is proposed to sell the balance holding of Government of India IDBI Bank to private, retail and institutional investors through the stock exchange.
- There is a need to take further steps to bring in transparency and greater professionalism in Public Sector Banks. The government will take appropriate measures.
- To help easy mobility while in jobs, the government wishes to infuse into the Universal Pension coverage with auto-enrolment; also, the government wishes to place such mechanisms that can enable interoperability and provide safeguards for the accumulated corpus.
- Regulating the role of PFRDAI requires strengthening.
- Necessary amendments would be carried out in the Pension Fund Regulatory Development Authority of India Act that will also facilitate separation of NPS trust for government employees from PFRDAI.
- This would also enable the establishment of a Pension Trust by the employees other than the Government.
- MSMEs are vital to keep the wheels of the economy moving. They also create jobs, innovate and are risk-takers. Several measures for the MSMEs have been taken in the past few years. There are more steps proposed in this budget also.
- The government proposes to make necessary amendments to the Factor Regulation Act 2011.
- This will enable NBFCs to extend invoice financing to the MSMEs through TReDS, thereby enhancing their economic and financial sustainability.
- Working capital credit remains a major issue for the MSMEs. It is proposed to introduce a scheme to provide subordinated debt for entrepreneurs of MSMEs.
- This subordinate debt to be provided by banks would count as quasi-equity and would be fully guaranteed through the Credit Guarantee Trust for Medium and Small Entrepreneurs (CGTMSE). The corpus of the CGTMSE would accordingly be augmented by the government.
- More than five lakh MSMEs have benefitted from the restructuring of debt permitted by RBI in the last year.
- The restructuring window was to end on March 31, 2020. The government has asked RBI to consider extending this window till March 31, 2021.
- An app-based invoice financing loan product will be launched. This will obviate the problem of delayed payments and consequential cash flow mismatches for the MSMEs.
- Many mid-size companies are successful domestically but not in export markets.
- For selected sectors such as pharmaceuticals, auto components, and others, we propose to extend handholding support– for technology upgradations, R&D, business strategy, etc.
- A scheme of 1000 crores will be anchored by EXIM Bank together with SIDBI. Both these institutions would contribute 50 crores each.
- This 100 crore would be achieved towards equity and technical assistance. Debt funding of 900 crores from banks would be made available.
Three components of Aspirational India:
- Agriculture, Irrigation, and Rural Development
- Wellness, Water, and Sanitation
- Education and Skills
Agriculture, Irrigation, and Rural Development
More than Rs 2.83 lakh crore would be spent on Agriculture, Rural Development, Panchayati Raj, Irrigation, and allied activities as farmers and rural poor continue to remain the key focus of the Government.
- Doubling Farmers Income:
- Reiterating the commitment of doubling farmers’ income by 2022, Government has already provided resilience for 6.11 crore farmers insured under PM Fasal Bima Yojana.
- Moreover, comprehensive measures for one hundred water-stressed districts, proposal to expand PM-KUSUM to provide 20 lakh farmers for setting up stand-alone solar pumps and for another 15 lakh farmers to solarise their grid-connected pump sets.
- The Scheme will enable farmers to set up solar power generation capacity on their fallow/barren lands and to sell it to the grid.
- Resource efficiency is the first step in doubling farmer’s income and keeping this in mind, the Finance Minister further stressed to encourage balanced use of all kinds of fertilizers and Zero Budget Natural Farming (ZBNF).
- Integrated farming systems for rainfed areas shall be expanded.
- Multi-tier cropping, beekeeping, solar pumps, 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) has crossed more than`6000 crore. This will be integrated with e-NAM.
- Deen Dayal Antyodaya Yojana for the alleviation of poverty, to be expanded. Half a crore households are mobilized with 58 lakh SHGs already.
- Agriculture Credit:
- Non-Banking Finance Companies (NBFCs)and cooperatives are active in the agriculture credit space. The NABARD re-finance scheme will be further expanded.
- Agriculture credit target for the year 2020-21 has been set at Rs 15 lakh crore. All eligible beneficiaries of PM-KISAN will be covered under the KCC scheme.
- Storage and Logistics:
- India has an estimated capacity of 162 million MT of Agri warehousing, cold storage, reefer van facilities, etc.
- NABARD to map and geo-tag agri-warehouses, cold storages, reefer van facilities, etc.
- Warehousing in line with Warehouse Development and Regulatory Authority (WDRA) norms:
- Viability Gap Funding for setting up such efficient warehouses at the block/taluk level.
- Food Corporation of India (FCI) and Central Warehousing Corporation (CWC) to undertake such warehouse building.
- As a backward linkage, a Village Storage scheme is proposed to be run by the SHGs. This will provide farmers with a good holding capacity and reduce their logistics costs. Women, SHGs shall regain their position as “Dhaanya Lakshmi”.
- To build a seamless national cold supply chain for perishables, inclusive of milk, meat, Indian Railways will set up Kisan Rail– through PPP arrangements. There shall be refrigerated coaches in express and freight trains as well.
- To help improve value realization especially in North-East and tribal districts Krishi Udaan will be launched by the Ministry of Civil Aviation.
- Animal Husbandry:
- Recognizing the contribution of animal husbandry sector in farmer’s income, the government aims to eliminate Foot and Mouth disease, brucellosis in cattle and also peste des petits ruminants (PPR) in sheep and goat by 2025.
- Coverage of artificial insemination to be increased from the present 30% to 70%.
- MNREGS will be dovetailed to develop fodder farms.
- Milk processing capacity from 53.5 million MT to 108 million MT by 2025 to be facilitated.
- Blue Economy:
- The government proposes to put in place a framework for the development, management, and conservation of marine fishery resources.
- On the Blue Economy, raising of fish production to 200 lakh tonnes is proposed by 2022-23.
- Youth in coastal areas benefit from fish processing and marketing. They will be involved in fishery extension through 3477 Sagar Mitras and 500 Fish Farmer Producer Organisations.
- Fishery exports hoped to be raised to Rs 1 lakh crore by 2024-25.
- The horticulture sector with its current production of 311 million MT exceeds the production of food grains.
- For better marketing and export, the government proposes supporting States which, adopting a cluster basis, will focus on “one product one district”.
- Following the spirit of Co-operative Federalism, the Finance Minister also proposed to encourage those states governments who undertake the implementation of:
- 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.
Wellness, Water and Sanitation
- Dwelling on the Wellness, Water and Sanitation theme, Rs 69,000 crore is being provided for Health care.
- A very focused safe water (Jal Jeevan Mission) and comprehensive sanitation program (Swachch Bharat Mission) have been launched to support the health vision. That would reduce the disease burden on the poor.
- Rs. 6400 crore (out of Rs. 69,000 crores) is being provided for PM Jan Arogya Yojana (PMJAY):
- More than 20,000 hospitals already empanelled under PM Jan Arogya Yojana (PMJAY).
- Aspirational Districts with no Ayushman empanelled hospitals to be covered in the first phase. This would also provide large scale employment opportunities for 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 disease with an appropriately designed Preventive regime.
- There is a shortage of qualified medical doctors, both general practitioners as well as specialists. In order to meet this requirement;
- It is proposed to attach a medical college to an existing district hospital in PPP mode.
Those states that fully allow the facilities of the hospital to the medical college and wish to provide land at a concession, would be able to receive Viability Gap Funding.
- National Board of Examination imparts PG medical qualifications; Diploma and fellow of National Board (DNB/FNB).
The Government will, therefore encourage large hospitals with sufficient capacity to offer resident doctors DNB/FNB courses under the National Board of Examinations.
- It is proposed to attach a medical college to an existing district hospital in PPP mode.
- Expansion of Jan Aushadhi Kendra Scheme to all districts offering 2000 medicines and 300 surgical by 2024 are some of the other wellness measures in the Budget.
- On sanitation front, Rs.12, 300 crores is allocated for Swachh Bharat Mission in 2020-21:
- Commitment to ODF-Plus in order to sustain ODF behaviour.
- Emphasis on liquid and greywater management.
- Focus also on Solid-waste collection, source segregation, and processing.
- Rs. 3.60 lakh crore approved for Jal Jeevan Mission:
- Rs. 11,500 crores are allocated for the year 2020-21.
- The focus will be on:
- Augmenting local water sources,
- recharging existing sources, and
- promoting water harvesting and desalination.
- Cities with a million-plus population to be encouraged to achieve the objective during the current year itself.
- Mission Indradhanush has been expanded to cover 12 diseases, including five new vaccines.
- FIT India movement is a vital part of the fight against Non-communicable diseases coming out of lifestyle issues.
- “TB Harega Desh Jeetega” campaign to end Tuberculosis by 2025.
Education and Skills
The third and the final item under Aspirational India is Education and Skills. By 2030, India is set to have the largest working-age population in the world. Not only do they need literacy but they need both job and life skills.
- On Education and Skill front, Rs 99,300 crore is being allocated in 2020-21 and Rs 3000 crores for skill development.
- New Education Policy will be announced soon.
- Students in the general stream (vis-à-vis services or technology stream) need their employability improved. About 150 higher educational institutions will start apprenticeship embedded degree/diploma courses by March 2021.
- In order to provide quality education to students of deprived sections of the society as well as those who do not have access to higher education, it is proposed to start a degree level full-fledged online education programme.
- This shall be offered only by institutions that are ranked within the top 100 in the National Institutional Ranking framework.
- Initially, only a few such institutions would be asked to offer such programmes.
- The Government aims to make a preferred destination for higher education. Hence, under its “Study in India” programme, Ind-SAT is proposed to be held in Asian and African countries.
It shall be used for benchmarking foreign candidates who receive scholarships for studying in Indian higher education centers.
- A National Police University and a National Forensic Science University are being proposed in the domain of policing science, forensic science, cyber-forensics, etc.
- It is felt that our education system needs a greater inflow of finance to attract talented teachers, innovate and build better labs.
- Therefore steps would be taken to enable sourcing External Commercial Borrowings and FDI so as to able to deliver higher quality education.
- The government proposes to start a programme whereby urban local bodies across the country would provide internship opportunities to fresh engineers for a period of up to one year.
- There exists a huge demand for teachers, nurses, para-medical staff and caregivers abroad. However, their skill sets, many a time, do not match the employer’s standards and therefore need to be improved.
- Keeping this in mind, it is proposed that special bridge courses be designed by the Ministries of Health, Skill Development.
Industry, Commerce, and Investment
Referring to the theme of Economic Development, the Finance Minister said that Rs 27300 crore would be allocated for development and promotion of Industry and Commerce for the year 2020-21.
- Entrepreneurship has always been the strength of India. Even today, young men and women have given up greener pastures elsewhere to contribute to India’s growth.
- They are risk-taking and come up with disruptive solutions to festering challenges. Equally, established old industries are resetting themselves in a changing global and domestic situation.
- With an aim to support the Entrepreneurs, Investment Clearance Cell will be set up to provide “end to end” facilitation including pre-investment advisory, information related to land banks and facilitate clearances at Centre and State level. It will work through a portal.
- There is a case for maximizing the benefits of three separately developing economic activities:
- the upcoming economic corridors;
- the revitalization of manufacturing activities; and
- Technology and the demands of aspirational classes.
India can benefit from their convergence. Hence, it is proposed to develop five new smart cities in collaboration with States in PPP mode.
Such sites would be chosen that offer the best choices in terms of the aforementioned principles.
- India needs to manufacture Networked products. That will make it a part of global value chains. This, in turn, gets more investment and generates more employment for our youth.
- The electronics manufacturing industry is very competitive and India has shown its cost advantages.
- The potential of this industry in job creation is immense.
- India needs to boost domestic manufacturing and attract large investments in the electronics value chain.
- For this, the government has proposed a scheme focussed on encouraging the manufacture of mobile phones, electronic equipment, and semiconductor packaging.
- With suitable modifications, this scheme can be adapted for the manufacture of medical devices too.
- India imports a significant quantity of technical textiles worth US$ 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 1480 crore.
- To achieve higher export credit disbursement, a new scheme, NIRVIK is being launched to support mainly small exporters, which provides for higher insurance coverage, reduction in premium for small exporters and simplified procedure for claim settlements.
- Government e-Marketplace (GeM) is moving ahead for creating a Unified Procurement System in the country for providing a single platform for procurement of goods, services, and works.
- It is proposed to take the turnover of GeM to Rs 3 lakh crores. 3.24 lakh vendors are already on this platform.
- It is proposed to digitally refund to exporters, duties, and taxes levied at the Central, State and local levels, such as electricity duties and VAT on fuel used for transportation, which are not getting exempted or refunded under any other existing mechanism.
- This Scheme for Reversion of duties and taxes on exported products will be launched this year.
- In the Infrastructure sector, as highlighted by the Prime Minister that Rs 100 lakh crore would be invested over the next 5 years, National Infrastructure Pipeline has launched on 31st December 2019 of Rs 103 lakh crore.
- It consists of more than 6500 projects across sectors and is classified as per their size and stage of development.
- These new projects will include housing, safe drinking water, access to clean and affordable energy, healthcare for all, world-class educational institutes, modern railway stations, airports, bus terminals, metro and railway transportation, logistics and warehousing, irrigation projects, etc.
- The National Infrastructure Pipeline envisions improving the ease of living for each individual citizen in the country.
- It’s also will bring in generic and sectoral reforms in the development, operation, and maintenance of these infrastructure projects.
- A huge employment opportunity exists for India’s youth in construction, operation, and maintenance of infrastructure.
- National Skill Development Agency will give a special thrust to infrastructure-focused skill development opportunities.
- The government proposes to set up a project preparation facility for infrastructure projects.
This programme would actively involve young engineers, management graduates and economists from our Universities.
- It is also proposed to direct all infrastructure agencies of the government to involve youth-power in start-ups.
They will help in rolling out value-added services in quality public infrastructure for citizens.
- A National Logistics Policy will be released soon, it will clarify the roles of the Union Government, State Governments and key regulators.
- It will create a single-window e-logistics market and focus on the generation of employment, skills and making MSMEs competitive.
- Allocation of Rs 1.70 lakh crore proposed for transport Infrastructure in 2020-21.
- Accelerated development of highways will be undertaken.
- This will include the development of 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 Expressway and two other packages to be completed by 2023. Chennai-Bengaluru Expressway also to be started.
- It is proposed to monetize at least 12 lots of highway bundles of over 6000 Km before 2024.
- Indian Railways aims to achieve electrification of 27000 Km of tracks.
- Four station re-development projects and operation of 150 passenger trains would be done through the PPP model.
- The process of inviting private participation is underway. More Tejas type trains will connect iconic tourist destinations.
- High-speed trains between Mumbai to Ahmedabad would be actively pursued.
- Similarly, 100 more airports would be developed by 2024 to support the Udaan scheme. Air fleet numbers expected to go up from the present 600 to 1200 during this time.
- Our sea-ports need to be more efficient. Technology has to used to improve performance.
- A governance framework keeping with global benchmarks needs to be put in place.
- This government would consider corporatizing at least one major port and subsequently, its listing on the stock exchanges.
- Inland Waterways received a boost in the last five years.
- The Jal Vikas Marg on National Waterway-1 will be completed.
- Further, the 890 Km Dhubri-Sadiya connectivity will be done by 2022.
- Developing waterways has its impact on the eco-system on both the banks of the river. Our Prime Minister has conceptualized “Arth Ganga”.
- Plans are afoot to energize economic activity along river banks.
- Similarly, allocation of Rs 22,000 crore proposed for power and renewable energy sector in 2020-21.
- Taking electricity to every household has been a major achievement.
- However, the distribution sector, particularly the DISCOMS are under financial stress. The Ministry intends to promote “smart” metering.
- A further measure to reform DISCOMs would be taken.
- In the upstream sector of oil and gas, the Open Acreage Licensing Policy (OALP) is a success having awarded 1,37,000 sq km for exploration to the private sector and to the CPSEs.
- City gas distribution rights are also awarded.
- It is proposed to expand the national gas grid from the present 16200 km to 27000 km.
- To deepen gas markets in India, further reforms will be undertaken to facilitate transparent price discovery and ease of transactions.
- The new economy is based on innovations that disrupt established business models.
- Artificial intelligence, Internet-of-Things (IoT), 3D printing, drones, DNA data storage, quantum computing, etc., are re-writing the world economic order.
- India has already embraced new paradigms such as the sharing economy with aggregator platforms displacing conventional businesses.
- The government has harnessed new technologies to enable direct benefit transfers and financial inclusion.
- It is now a cliché – “data is the new oil” and it is true that Analytics, Fintech, and the Internet of Things (IoT) are changing the way we deal with our lives.
- To take advantage of this, the Government has proposed:
- To bring out soon a policy to enable the private sector to build Data Centre parks throughout the country.
It will enable our firms to skilfully incorporate data in every step of their value chains.
- The Government's vision is that all “public institutions” at Gram Panchayat levels such as Anganwadis, health and wellness centers, government schools, PDS outlets, post offices, and police stations will be provided with digital connectivity.
So, Fibre to the Home (FTTH) connections through Bharatnet will link 100,000-gram panchayats this year.
It is proposed to provide 6000 crores to the BharatNet programme in 2020-21.
- Expanding the base for knowledge-driven enterprises is necessary. Intellectual property creation and protection will play an important role.
Several measures are proposed in this regard, which will benefit the Startups.
- A digital platform would be promoted that would facilitate seamless application and capture of IPRs.
- Also, in an Institute of Excellence, a Centre would be established that would work on the complexity and innovation in the field of Intellectual Property.
- Knowledge Translation Clusters would be set up across different technology sectors including new and emerging areas.
- For designing, fabrication and validation of proof of concept, and further scaling up Technology Clusters, harboring such testbeds and small scale manufacturing facilities would be established.
- Mapping of India’s genetic landscape is critical for next-generation medicine, agriculture and for biodiversity management. To support this development, the government will initiate two new national level Science Schemes, to create a comprehensive database.
- The government proposes to provide early life funding, including a seed fund to support ideation and development of early-stage Start-ups.
- Quantum technology is opening up new frontiers in computing, communications, cybersecurity with wide-spread applications.
- It is expected that lots of commercial applications would emerge from theoretical constructs that are developing in this area.
- It is proposed to provide an outlay of 8000 crores over a period of five years for the National Mission on Quantum Technologies and Applications.
- To bring out soon a policy to enable the private sector to build Data Centre parks throughout the country.
In the third theme, the budget focuses on Women & Child, Social Welfare; Culture and Tourism and also on Environment and Climate Change.
Women & Child, Social Welfare
- “Beti Bachao Beti Padhao” has yielded good results.
- The gross enrolment ratio of girls across all levels of education is now higher than boys.
- At the elementary level, it is 94.32% as against 89.28% for boys,
- At the Secondary level, it is 81.32% as compared to 78 % for boys,
- At higher secondary level girls have achieved a level of 59.70 % as compared to 57.54 % for boys.
- The budget provides for about 28,600 crores for programs that are specific to women.
- The health of the mother and child are closely correlated. Nutrition is a critical component of health.
- There is a proposal to provide 35600 crores for nutrition-related programmes for the financial year 2020-21.
- To improve the nutritional status of children (0-6 years), adolescent girls, pregnant women, and lactating mothers, our Prime Minister launched a “Poshan Abhiyan” in 2017-18.
- More than six lakh Anganwadi workers are equipped with smartphones to upload the nutritional status of more than 10 crore households.
- Women’s age of marriage was increased from fifteen years to eighteen years in 1978, by amending erstwhile Sharda Act of 1929.
- As India progresses further, opportunities open up for women to pursue higher education and careers.
- There are imperatives of lowering MMR as well as the improvement of nutrition levels.
- The entire issue about the age of a girl entering motherhood needs to be seen in this light.
- For this, the government has proposed to appoint a task force that will present its recommendations in six months’ time.
- The government is working towards the goal that there shall be no manual cleaning of sewer systems or septic tanks.
- Suitable technologies for such tasks have been identified by the Ministry of Housing and Urban Affairs.
- The Ministry is working with urban local bodies for the adoption of these technologies.
- The government will now take this to its logical conclusion through legislative and institutional changes.
- Financial support for the wider acceptance of such technologies will be provided.
- In furthering this government’s commitment towards the welfare of Scheduled Castes and Other Backward classes, a budget provision of about 85,000 crores for 2020-21 is provided.
- In furthering the development and welfare of Scheduled tribes, the government has provided in the Budget for the year 2020-21 an amount of about 53,700 crores.
- This government is mindful of the concerns of senior citizens and Divyang. Accordingly, an enhanced allocation of about 9,500 crores is being provided for 2020-21.
Culture & Tourism
- The government proposes to establish an Indian Institute of Heritage and Conservation under the Ministry of Culture; it shall have the status of a deemed University to start with.
- Acquisition of knowledge in disciplines such as museology and archaeology are essential for collecting and analyzing scientific evidence of such findings and for dissemination through high-quality museums.
- Currently, the lack of trained manpower is a handicap for both these disciplines. This also affects tourism.
- Five archaeological sites would be developed as iconic sites with onsite Museums. They are- Rakhigarhi (Haryana), Hastinapur (Uttar Pradesh) Shivsagar (Assam), Dholavira (Gujarat) and Adichanallur (Tamil Nadu).
- The Prime Minister in January 2020 announced the re-curation of the Indian Museum in Kolkata, which is the oldest in the country.
- In the historic Old Mint building Kolkata, a museum on Numismatics and Trade will also be located.
- Four more museums from across the country shall be taken up for renovation and re-curation so that a world-class experience can be offered to visitors.
- The government shall also support setting up of a Tribal Museum in Ranchi (Jharkhand).
- A maritime museum would be set up at Lothal- the Harrapan age maritime site near Ahmedabad, by the Ministry of Shipping.
- The Government has proposed to provide 3,150 crores for the Ministry of Culture for 2020-21.
- India has moved up from rank 65 in 2014 to 34 in 2019 in the Travel & Tourism Competitive Index (World Economic Forum).
- Foreign exchange earnings grew 7.4% to 1.88 lakh crores for the period January to November 2019 from 1.75 lakh crores.
- The growth of tourism directly relates to growth and employment.
- States have a critical role to play. The State governments are encouraged to develop a roadmap for certain identified destinations and formulate financial plans during 2021 against which specified grants will be made available to the States in 2020-21.
- For the purpose of tourism promotion, the government has allocated 2,500 crores for 2020-21.
Environment & Climate Change
- In September 2019, the Prime Minister has launched the Coalition for Disaster Resilient Infrastructure (CDRI) with its Secretariat in Delhi.
- This global partnership is the second such international initiative after the launch of the International Solar Alliance in 2015.
- This Global Partnership will help in addressing a number of Sustainable Development Goals (SDGs), as also the aims of the Sendai framework.
- It will enhance climate change adaptation with a focus on disaster-resilient infrastructure.
- India submitted its Nationally Determined Contribution, under the Paris Agreement in 2015 on a “best-effort” basis, keeping in mind the development imperative of the country. Its implementation effectively begins on 1st January 2021.
- The government's commitments as action will be executed in various sectors by the Departments/Ministries concerned through the normal budgeting process.
- There are yet, thermal power plants that are old and their carbon emission levels are high.
- For such power plants, the government proposes that utilities running them would be advised to close them if their emission is above the pre-set norms. The land so vacated can be put to an alternative use.
- In large cities having a population above one million, clean air is a matter of concern.
The government proposes to encourage such States that are formulating and implementing plans for ensuring cleaner air in cities above one million.
- Parameters for the incentives would be notified by the Ministry of Environment, Forests and Climate change. Allocation for this purpose is 4400 crore for 2020-21.
- On Financial Markets, about the deepening of the bond market, certain specified categories of Government securities would be opened fully for non-resident investors, apart from being available to domestic investors as well.
- The government also proposes to expand by floating a new Debt-ETF consisting primarily of government securities.
- This will give retail investors access to government securities as much as giving an attractive investment for pension funds and long-term investors.
- To address the liquidity constraints of the NBFCs/HFCs, post the Union budget 2019-20, the government formulated a Partial Credit Guarantee Scheme for the NBFCs.
- About 22,000 crores have already been provided, as support to Infrastructure Pipeline. This would cater for equity support to Infrastructure Finance Companies such as IIFCL and a subsidiary of NIIF.
- They would leverage it, as permissible, to create a financing pipeline of more than 1,00,000 crore. This would create a major source of long term debt for infrastructure projects and fulfill a long-awaited requirement.
- IFSC, GIFT city has the potential to become a center of international finance as well as a center for high-end data processing.
- GIFT IFSC has an approved Free Trade zone for housing vaults. It already has 19 insurance entities, 40 banking entities.
- It has also provided for setting up of precious metals testing laboratories and refining facilities.
- With the approval of the regulator, GIFT City would set up an International Bullion exchange(s) in GIFT-IFSC as an additional option for trade by global market participants.
- This will enable India to enhance its position worldwide, create jobs in India and will lead to better price discovery of gold.
- On Disinvestment, the Finance Minister said that listing of companies on stock exchanges discipline a company and provides access to financial markets and unlocks its value.
- It also gives an opportunity for retail investors to participate in the wealth so created.
- The government now proposes to sell a part of its holding in LIC by way of Initial Public Offer (IPO).
- On Fiscal Management, the Finance Minister said that the 15th Finance Commission has given its first report pertaining to Financial Year 2020-21.
- In the spirit of co-operative federalism, the Government in substantial measure accepted the recommendations of the Commission.
- The commission would submit its final report to the President during the latter part of the year, for five years beginning 2021-22.
- The Finance Minister also announced to transfer to the GST Compensation Fund balances due out of the collection of the years 2016-17 and 2017-18, in two installments.
- Hereinafter, transfers to the fund would be limited only to the collection by way of GST compensation cess.
- The government has estimated nominal growth of GDP for the year 2020-21, on the basis of trends available, at 10%.
- Accordingly, receipts for the year 2020-21 are estimated at Rs. 22.46 lakh cr and, keeping in mind commitment of the Government towards various schemes and need for improvement in the quality of life, level of expenditure has been kept at Rs 30.42 lakh cr.
- A good part of the borrowings for the financial year 2020-21 would go towards Capital expenditure of the Government that has been scaled up by more than 21%.
- A fiscal deficit of 3.8% in RE 2019-20 and 3.5% for BE 2020-21 is estimated. This estimation is consistent with the Government’s abiding commitment to macroeconomic stability.
Personal Income Tax and Simplification of Taxation
- In order to provide significant relief to the individual taxpayers and to simplify the Income-Tax law, the Finance Minister has proposed to bring a new and simplified personal income tax regime.
- Income tax rates will be significantly reduced for the individual taxpayers who forego certain deductions and exemptions.
- The proposed changes in tax slabs are listed in the following table:
|Taxable Income Slab (Rs.)||Existing Tax Rates||New Tax Rates|
|Above 15 Lakh||30%||30%|
- Surcharge and cess shall be continued to be levied at the existing rates.
- 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.
- The new personal income tax rates will entail estimated revenue foregone of Rs. 40,000 crore per year.
- Measures have been initiated to pre-fill the income tax return so that an individual who opts for the new regime would need no assistance from an expert to file his return and pay income tax.
- Currently, more than one hundred exemptions and deductions of different nature are provided in the Income Tax Act. Around 70 of them have been removed in the new simplified regime.
- The remaining exemptions and deductions would also be reviewed and rationalized in the coming years, with a view to further simplifying the tax system and lowering the tax rate.
Dividend Distribution Tax
- Currently, companies are required to pay Dividend Distribution Tax (DDT) on the dividend paid to its shareholders at the rate of 15% plus applicable surcharge and cess, in addition to the tax payable by the company on its profits.
- In order to increase the attractiveness of the Indian Equity Market and to provide relief to a large class of investors, the Finance Minister has proposed to remove DDT and adopt the classical system of dividend taxation, under which the companies would not be required to pay DDT.
- The dividend shall be taxed only in the hands of the recipients at their applicable rate.
- In order to remove the cascading effect, the Finance Minister has proposed to allow a deduction for the dividend received by holding company from its subsidiary.
- The removal of DDT will lead to estimated annual revenue foregone of Rs. 25,000 crore. This will further make India an attractive destination for investment.
Concessional Tax Rate for Electricity Generation Companies
- New provisions were introduced in September 2019, offering a concessional corporate tax rate of 15% to the newly incorporated domestic companies in the manufacturing sector which start manufacturing by 31st March 2023.
- In order to attract investment in the power sector, it has been proposed to extend the concessional corporate tax rate of 15% to new domestic companies engaged in the generation of electricity.
Tax Concession for Foreign Investments
To incentivize investment by Sovereign Wealth Fund of foreign governments, the Finance Minister has proposed to grant 100% tax exemption to their interest, dividend and capital gain income in respect of the investment made in infrastructure and other notified sectors before 31st March 2024 and with a minimum lock-in period of 3 years.
- During their formative years, Start-ups generally use Employee Stock Option Plan (ESOP) to attract and retain highly talented employees.
- Currently, ESOPs are taxable as perquisites at the time of exercise.
- In order to give a boost to the start-up ecosystem, the Finance Minister has proposed to ease the burden of taxation on the employees by deferring the tax payment for five years or till they leave the company or when they sell their shares, whichever is earliest.
- An eligible Start-up having turnover up to 25 crores is allowed a deduction of 100% on its profits for three consecutive assessment years out of seven years if the total turnover does not exceed 25 crore rupees.
- The Finance Minister has proposed to increase this limit to Rs. 100 crore. She has also proposed to extend the period of eligibility for the claim of deduction from the existing 7 years to 10 years.
Concessional Tax Rate for Cooperatives
- Cooperative societies are currently taxed at a rate of 30% with surcharge and cess.
- As a major concession, and in order to bring parity between the cooperative societies and corporates, the Finance Minister has proposed to provide an option to cooperative societies to be taxed at 22% plus 10% surcharge and 4% cess with no exemptions/deductions.
- She has also proposed to exempt these societies from Alternative Minimum Tax (AMT), just like companies under the new tax regime are exempt from the Minimum Alternate Tax (MAT).
Medium, Small and Micro Enterprises
- In order to reduce the compliance burden on small retailers, traders, shopkeepers who comprise the MSME sector, the Finance Minister has proposed to raise by five times, the turnover threshold for audit from the existing Rs. 1 crore to Rs. 5 crores.
- In order to boost a less-cash economy, she has proposed that the increased limit shall apply only to those businesses which carry out less than 5% of their business transactions in cash.
- In the last budget, the Finance Minister had announced an additional deduction of up to one lakh, fifty thousand rupees for interest paid on loans taken for the purchase of an affordable house.
- The date of loan sanction for availing this additional deduction is proposed to be extended by one year, beyond 31st March 2020.
- The income of Charity Institutions is fully exempt from taxation.
- Donation made to these institutions is also allowed as a deduction in computing the taxable income of the donor.
- It is proposed to pre-fill the donee’s information in the taxpayer’s return on the basis of information of donations furnished by the donee.
- In order to claim the tax exemption, charity institutions have to be registered with the Income Tax Department.
- It is proposed to make the registration completely electronic under a unique registration number (URN) to be issued to all new and existing charity institutions.
- In order to impart greater efficiency, transparency, and accountability to the assessment process, a new faceless assessment scheme has already been introduced.
- It is proposed to amend the Income Tax Act so as to enable Faceless appeal on the lines of Faceless assessment.
‘Vivad se Vishwas’ scheme
- Under the proposed ‘Vivad se Vishwas’ scheme, a taxpayer would be required to pay only the amount of the disputed taxes and will get a complete waiver of interest and penalty, provided he pays by 31st March 2020.
- Those who will avail the scheme after 31st March 2020 will have to pay some additional amount. The scheme will remain open till 30th June 2020.
Instant PAN through Aadhaar
In order to further ease the process of allotment of PAN, a system will be launched under which PAN shall be instantly allotted online on the basis of Aadhaar, without any requirement for filling up of detailed application form.
- A simplified GST return shall be implemented from the 1st of April, 2020.
- It will make return filing simple with features like SMS based filing for nil return, return pre-filling, improved input tax credit flow, and overall simplification.
- Dynamic QR-code is proposed for consumer invoices.
- GST parameters will be captured when payment for purchases is made through the QR-code.
- On the Customs side, India has taken a quantum leap in the “Trading Across Border” parameter of Ease of Doing Business rankings by the World Bank. India’s rank has improved from 146 to 68.
- Imports under Free Trade Agreements are on the rise. Undue claims of FTA benefits have posed a threat to the domestic industry.
- In the coming months, Rules of Origin requirements shall be reviewed, particularly for certain sensitive items, so as to ensure that FTAs are aligned to the conscious direction of our policy.
- Labor-intensive sectors in MSME are critical for employment generation. Cheap and low-quality imports are an impediment to their growth.
- Keeping in view the need for this sector, customs duty is being raised on items like footwear and furniture.
- Rate of Duty for footwear is being raised from 25% to 35%, and for “parts of footwear” from 15% to 20%.
- The rate of Duty for specified Furniture goods is being raised from 20% to 25%.
- To give impetus to the domestic industry, and to generate resources for health services, it is proposed to impose a nominal health cess of 5% on imports of specified medical equipment.
- Basic customs duty on imports of newsprint and light-weight coated paper is being reduced from 10% to 5%.
- An increase is proposed in National Calamity Contingent Duty (NCCD) on Cigarettes and Tobacco Products. NCCD on Bidis remains unchanged.