Nirmala Sitharaman perceives Aspirational India with a Caring Society
Innovative programmes to intensify public private partnerships, incentives to promote foreign direct investment and further domestic investor interest and massive investments in infrastructure and other projects are among the highlights of the second annual budget of Finance Minister Nirmala Sitaraman in the Indian Parliament last night.
Notwithstanding criticisms from quarters, Ms Sitaraman deserves credit for her approach to fiscal management, taxation and public spending. Budget 2020 is again expansionary, which is in consonance of the needs of the economy as it sits in a challenging space.
Economic Survey highlights
The Budget should also be studied along with the findings of the Economic Survey of India 2019-2020, released a day earlier. It projects the economic growth rate at 6% to 6.4% in the 2020-2021 fiscal year, with industrial and agricultural growth estimated respectively at 2.9% and 2.8%.
The Report said that India is progressing on its holistic approach to Climate Change and that it is on track to achieving its Nationally Determined Contributions under the Paris Agreement in accordance with the principles Common but Differentiated Responsibilities.
Based on the core theme of ‘Aspirational India, Economic Development and a Caring Society,’ her Budget speech spoke about structural reforms undertaken by the Narendra Modi government since 2014 and the tax reliefs that has been given to common people in India.
New Personal Income Tax Regime
Ms Sitaraman proposed a new tax regime, saying that substantial tax benefit will accrue to a taxpayer depending upon exemptions and deductions claimed by them.
Income tax exemption will be lifted to Rs 5 lakh (about $108.500) to those who are willing to forego exemptions. To simplify the tax system and lower tax rates, about 70 of more than 100 income tax deductions have been removed.
For example, a person earning Rs 15 lakh (about $324,350) in a year and not availing any deductions will pay only Rs 195,000 ($4217) as compared to Rs 273,000 ($5900) in the old regime.
“Thus their tax burden shall be reduced by Rs 78,000 ($1687) in the new regime. They would still be gainers in the new regime even if they were taking a deduction of Rs 1.5 Lakh ($3244) under various sections of Chapter VI-A of the Income Tax Act under the old regime,” she said.
Ms Sitharaman said that the new tax regime will be optional and that any person currently availing more deductions and exemptions under the Income Tax Act may choose to avail them and continue to pay tax under the old regime.
The Goods & Services Tax (GST) introduced in July 2017 has often been criticised as ‘excessive, cumbersome and difficult administer,’ while the States said that their share of the tax was less.
Ms Sitharaman said that the scheme has been gradually maturing into a tax that has integrated the country economically.
“It has consolidated numerous taxes and cesses to one tax and facilitated formalisation of economy. It has resulted in the efficiency gains in logistic and transport sectors. The turnaround time for trucks has witnessed a substantial reduction to the tune of 20% due to abolition of check posts in GST. The dreaded Inspector-Raj has also vanished,” she said.
She said that GST regime has accrued benefits to Micro, Small and Medium Enterprises. Claiming that the effective tax incidence on almost every commodity has came down substantially, she said that an annual benefit of Rs One lakh crore (about $21 billion) has been extended to consumers, accounting for 10% reduction in overall tax incidence. An average household now saves about 4% on its monthly spend, at reduced GST rates.
Rise in FDI
Ms Sitharaman said that India is the fifth largest economy in the world.
“India’s Foreign Direct Investment got elevated to the level of US$ 284 billion during 2014-2019 from US$ 190 billion that came in during the years 2009-2014. The Central Government debt that has been the bane of our economy got reduced in March 2019 to 48.7% of GDP from a level of 52.2% in March 2014,” she said.
She said that there was a case for maximising the benefits of three separately developing economic activities: (1) the upcoming economic corridors (2) revitalisation of manufacturing activities and (3) Technology and the demands of aspirational classes.
“We have to 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 aforementioned principles,” she said.
Mr Modi had announced in his Independence Day Speech on August 15, 2019 that his government would invest Rs 100 lakh crore ($210 billion) over the next five years.
Ms Sitharaman said that she launched the National Infrastructure Pipeline at an estimated cost of Rs 103 lakh crore (about $216 billion).
“It consists of more than 6500 projects across sectors and are 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 and projects. 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 development, operation and maintenance of these infrastructure projects,” she said.
Agriculture, Health and Education
The government would provide further incentives to State governments that have implemented 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.
The government’s holistic vision of healthcare would include expansion of the ‘Indradhanush’ scheme to cover 12 diseases, focus on water safety, comprehensive sanitation, more hospitals under the PPP formula and other programmes.
“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. Dialogues have been held with State Education Ministries, Members of Parliament and other stake-holders about Education policy. The New Education Policy will be announced soon,” Ms Sitharaman said.
One critic has said that the Budget has missed several important points, another said that it does not address management of deficits, while a third complained that the Finance Minister has forfeited the efforts to revive the economy. We will discuss these in another analysis.
India’s Finance Minister Nirmala Sitharaman presenting Budget 2020 in Lok Sabha yesterday (February 1, 2020) PTI Picture