Union Budget 2019-2020: Rights, duties and 5 trillion hopes
The Union Budget for 2019-2020 followed the prescription detailed in the Economic Survey presented on Thursday and focused on boosting investment to create a virtuous cycle to power growth, but steered clear of embarking on a rash of spending that could have bloated the fiscal deficit.Updated: Jul 06, 2019 00:25 IST
The Union Budget for 2019-2020 followed the prescription detailed in the Economic Survey presented on Thursday and focused on boosting investment to create a virtuous cycle to power growth, but steered clear of embarking on a rash of spending that could have bloated the fiscal deficit. Many of the spends, including those on defence, have been retained at the same level as in the interim budget presented in February, and overall, the increase in expenditure is 13.4% over the revised estimates (RE) for 2018-19.
It did this by announcing several measures to boost private investment even as it prioritised its own spending in the creation of rural and urban infrastructure that could drive growth, and without rolling back any of the farm and middle-class friendly measures announced in the interim budget in February.
The budget was presented in the context of a five-year low economic growth of 5.8% in the last quarter of 2018-19, a near-moribund investment cycle, and a looming crisis in non-banking finance companies that was threatening to roil the financial sector.
“The finance minister has done well to target the fiscal deficit 10 basis points lower than what was estimated in the interim budget in the backdrop of higher investment requirements. This has been achieved in the backdrop of required momentum to the economy that has been facing several headwinds. A very high reliance has been placed on investments from the private sector,” said Ranen Banerjee, leader-public finance and economics, PwC India.
India’s investment challenge needs to be seen across two dimensions: the source of funds; and the ability to attract them, which is a function of rules and regulations and the ease of doing business. On the sourcing front, the government, by announcing the radical move of seeking external sovereign debt – the finance secretary said this could be between 10-15% of its needs – has lowered the threat of its own borrowing programme crowding others out of the market, effectively freeing up domestic savings for investment. It has also recapitalised banks to the tune of ₹70,000 crore, more than was expected, and announced a sort of one-time guarantee for the purchase of pooled assets of non-banking finance companies by banks.
Some analysts welcomed the idea of tapping external markets, but others said it could expose the government to currency risks.
All of these should make more funds available for investment.
The government has also made efforts to attract more investment – by tweaking foreign direct investment (FDI) rules in sectors such as aviation, insurance, media segments, and single-brand retail; liberalizing some norms for Foreign Portfolio Investors; announcing efforts to deepen the bond market and broaden the equity market (foreign investors are most likely to benefit from both); and moving a category of venture funds from the provisions of the controversial angel tax, a long-standing demand of start-ups.
“The budget delivers on the wish-list of the start-up industry. It’s heartening to see the government follow through several pre-budget consultations held with stakeholders, which held out ‘angel tax’ menace as the major hurdle in the way of unleashing next wave of sizeable investments into this sunrise industry,” said Sumit Singhania, partner, Deloitte India.
With an eye on the future, the budget also articulated India’s intent to become a hub for the manufacturing of new-age products such as Electric Vehicles and batteries and solar equipment by attracting large global technology companies to set up manufacturing facilities here. In a tweet, Mahindra Group chairman Anand Mahindra acknowledged that “these two sectors” (start-ups and large new-age manufacturing projects) have the highest “employment-generation” potential. Interestingly, the budget also announced tax sops for the purchase of EVs.
The budget backed these up with an emphasis on the infrastructure and construction sectors, both of which have the potential to drive growth and generate jobs.
The emphasis on private investment helped the government keep the fiscal deficit down to 3.3%, although the math behind this can be debated. For instance, it assumes a 25% increase in revenue, including an almost similar rise in next-tax revenue and ₹1.05 lakh crore of receipts from disinvestment. In 2018-19, net tax revenue increased by 19% according to budget documents.
“Fiscally though the intent is to reduce the Fiscal Deficit to 3.3% of GDP, this is predicated on high disinvestment revenues and continued buoyant tax collections. The key to success will be diligent implementation of the good intentions,” said Hitesh D Gajaria, partner and head of tax, KPMG in India.
Some of the increase – around ₹12,000 crore – is to come from higher taxes on people earning over ₹2 crore, with those earning between ₹2 crore and ₹5 crore seeing their tax rate go up from around 35.5% to almost 39% and those earning over ₹5 crore to 42.7%.
In a television interview, finance minister Nirmala Sitharaman said people who earn this much have a duty to the country. In her speech she said: “In the first 50 years after Independence we emphasised on Rights. Marking 75 years of our Independence, we should place emphasis on our Duty towards India, without undermining Rights.”
Some of the increase also came from a special additional excise duty and a separate road and infrastructure cess (₹1 each) that make both petrol and diesel dearer by ₹2 a litre.
The higher income tax rates for the super-rich and the fact that the threshold for the lower corporate tax rate of 25% has only been extended to companies with a revenue less than ₹400 crore (the current limit is ₹250 crore) and not all companies may not be to the liking of businessmen, although they will likely find relief in the finance minister’s promise to implement “faceless e-assessment” which makes tax assessments and reviews objective and reduces scope for both discretion and corruption.
The stock markets weren’t impressed by the budget, perhaps driven by the higher income tax for high earners, with BSE’s benchmark Sensex closing 395 points down.
Congratulating Sitharaman on her budget, Prime Minister Narendra Modi said it would be prosperous for the economy, empower the poor, and provide a better future for the country’s young.
The Congress described the budget as insipid. “The Finance Minister’s speech was an unusually opaque exercise. Short sentences that do not explain what they are trying to do. This budget of 2019-20 is a monotonous budget. Has there ever been a budget speech that does not disclose the total revenue, the total expenditure, the fiscal deficit, the revenue deficit, the additional revenue mobilisation or the financial concessions?” said former finance minister P Chidambaram.