The multi-pronged reforms in Union Budget 2020, writes Kumar Mangalam Birla
The finance minister, Nirmala Sitharaman, had to present this year’s Union Budget in a very challenging context. Slowing economy, falling aggregate demand, and lacklustre credit flows and exports, were all pointing to the need for a sharp fiscal stimulus.
But fiscal space is limited since tax collection was not growing handsomely. It is further constrained by a strict fiscal responsibility law passed by Parliament. Thankfully, that law has an exemption in case of special circumstances. Hence taking recourse to that allowable deviation, the FM presented a budget which has a higher fiscal deficit. The stimulus helps address the growth needs of various stakeholders, such as farmers, urban middle class, corporates and bank depositors.
For instance, there is a significant capital outlay earmarked for agriculture. There is also a detailed 16-point plan to invigorate the agriculture sector. These steps include economic reforms and deregulation, connecting the farm to fork through supply chains, addressing water stress, and reducing price distortions.
Similarly, there is also a boost to the corporate sector by abolition of the dividend distribution tax. Already, corporate taxes had been reduced to 22%, and in fact 15% for new manufacturing companies. This will help make India’s industry competitive.
The budget also points to certain anomalies in our free trade agreements with partner nations, which have led to a surge in imports, to the detriment of domestic industry. Hence some much-needed protectionist measures have been put in place.
The mainly urban middle class gets a boost through a cut in income tax. And bank depositors too can feel assured about their deposits, since the insured amount ceiling has been raised to Rs 5 lakh per depositor.
The budget also makes significant provisions to the ambitious National Infrastructure Pipeline initiative announced recently. In the medium-term, infrastructure spending will be a crucial driver of economic growth for the Indian economy.
Beyond fiscal boost, one of the very significant announcements in the budget was the part sale of shares in the Life Insurance Corporation of India. This is in line with an ambitious disinvestment programme which aims to raise more than Rs 2 lakh crore next year. This helps bridge the fiscal deficit, but more importantly, signals the government’s determination to let private sector have a greater play in the economy. The Union Cabinet has already cleared the disinvestment in a slew of public sector companies. This was a theme discussed in the Economic Survey as well.
The budget also helps address the issue of tax harassment. An important signal in the budget was the enshrinement of the “taxpayer charter” in the statutes of the tax laws. It will lead to less coercive recovery of taxes. This will enhance the element of trust between the taxpayer and the government, Faceless appeals and the introduction of the settlement scheme for direct tax disputes are welcome too. In order to attain fiscal sustainability, the tax net needs to be wider, and tax rates modest. The reduction in corporate income tax announced earlier, and now extended to the power sector, is greatly welcome.
Budget 2020 also has a clear eye on the future and signals a willingness to embrace the new economy. The talk of disruptive tech and the announcement of a National mission for Quantum Technology, with an outlay of Rs 8000 crore over five years, is a modest first step and indicates a desire to compete with economic superpowers on the frontiers that matter.
India’s emergence into a higher growth orbit is something that the world awaits.