Jul 05

[Analysis] Union Budget 2019-20

Today Finance Minister Nirmala Sitharaman tabled the first Union Budget of the NDA-2 government, headed by Prime Minister Narendra Modi. She is India’s first woman full-time finance minister to table the Union Budget in the Parliament. People were expecting that the FM will be hitting 4’s and 6’s in this budget, but she focussed on taking singles. If you give a closer look, you’ll find that the main focus of the budget is on ‘Last Mile Delivery’. It focusses on reaching out to the last person standing in the queue. The budget mainly targets – villages, poor, farmers and Digital India.

Union Budget 2019-20: key announcements

5 Trillion Dollar Economy

India to become a 3 trillion Dollar Economy this year and a 5 Trillion Dollar Economy by 2024-25. To achieve this goal, India requires Investments averaging 300 Billion Dollars every year. While presenting the Union Budget 2019-20, the Finance Minister flagged ten points of the Government’s ‘Vision for the Decade’:

  • Building physical and social Infrastructure;
  • Digital India reaching every sector of the economy;
  • Pollution free India with green Mother Earth and Blue Skies;
  • Make in India with particular emphasis on MSMEs, Start-ups, Defence manufacturing, automobiles, electronics, fabs and batteries, and medical devices;
  • Water, water management, clean rivers;
  • Blue Economy;
  • Space programmes, Gaganyan, Chandrayan and Satellite programmes;
  • Self-sufficiency and export of food-grains, pulses, oilseeds, fruits and vegetables;
  • Healthy society – Ayushman Bharat, well-nourished women & children. Safety of citizens;
  • Team India with Jan Bhagidari. Minimum Government Maximum Governance.

Education and Youth

To prepare India’s youth to also take up jobs overseas, the Finance Minister has said that the Government will increase focus on skill sets needed abroad including language training. The focus would be laid on new-age skills like Artificial Intelligence (AI), Internet of Things (IoT), Big Data, 3D Printing, Virtual Reality and Robotics, which are valued both within and outside the country, and offer much higher remuneration.

Finance Minister Nirmala Sitharaman also said that the government will bring in a new national education policy to transform India’s higher education system to one of the best in the world. The policy aims to introduce major changes in school and higher education and give more focus on research and innovation, for which she proposed to set up the National Research Foundation (NRF). NRF would coordinate and promote research in the country. The Finance Minister also proposed to set up the Higher Education Commission of India (HECI) to regulate the quality of higher education for better academic outcomes. She also allocated ₹ 400 crores for setting up world-class institutes in India. The Government is also in plans to launch ‘Study In India’ Programme to attract foreign students to study in India.

Finance Minister Nirmala Sitharaman also announced a National Sports Education Board for Development of Sportspersons under Khelo India programme. The role of the board would be to popularise sports at all levels and to revive sports culture at the grass-roots level.

Business and Investment

The Government plans to launch a new television channel focussed on nurturing and supporting start-ups, finance minister Nirmala Sitharaman said in her Union Budget 2019-20 speech. The new channel will be introduced under the Doordarshan bouquet. Startup India scheme will be extended until 2025. Startups won’t face Angel Tax scrutiny regarding valuations of share premiums.

Government to examine suggestions of further opening up of Foreign Direct Investment (FDI) in aviation, media and insurance sectors. 100% FDI to be permitted for Insurance subsidiaries. The Government is also in plans to ease FDI in the single-brand retail sector and to merge the NRI-Portfolio Scheme Route with Foreign-Portfolio Scheme Route. Investment by FIIs and FDIs in debt securities in infrastructure debt funds to be allowed. The budget also proposes to increase the statutory limit for FPI investment in a company from 24% to sectoral foreign investment limit. The Government will also host Annual Global Investors Meet in India, using the National Infrastructure Investment Fund (NIIF).

For MSMEs, loans of up to ₹ 1 crore to be given for ease of access. The Finance Minister also announced the allocation of ₹ 350 crores for 2% interest subvention to all GST registered MSMEs for all new and existing loans. The Government is also in plans to launch a portal to boost investment in MSMEs. The Government will also extend pension benefits to 3 crore retail traders and shopkeepers who have an annual turnover of less ₹1.5 crore under Pradhan Mantri Karam Yogi Maan Dhan Scheme.

To boost digital transactions, the budget proposes 2% TDS on Annual cash withdrawals exceeding ₹1 crore. The Finance Minister also announced that firms earning more than ₹50 crores annually can’t impose any charges or Merchant Discount Rate (MDR) on customers using digital payment methods.

Finance Minister Nirmala Sitharaman in her budget speech also announced that companies with an annual turnover of ₹400 crores will now attract 25% corporate tax. Earlier the turnover threshold was ₹250 crore. With this move, 99.3% of the companies will now come under the 25% corporate tax bracket.

Agriculture and Rural India

The budget proposes to set up 10,000 new Farmer producer Organizations to ensure economies of scale for farmers over the next five years. Finance Minister Nirmala Sitharaman also announced innovative pilots of Zero Budget Farming to be replicated across the country for doubling farmers income. Pradhan Mantri Matsya Sampada Yojana to establish robust fisheries management framework to address critical gaps in the value chain.  Dairying through co-operatives to be encouraged by creating infrastructure for milk procurement, processing and marketing. 100 new clusters for traditional industries will be set up to enable 50,000 artisans to join the economic value chain.

More than 5.6 lakhs villages have become open-defecation free with the construction of more than 9.6 crores toilets. The budget also proposes to expand Swachh Bharat to solid waste management in every village. The Government is also in plans to set up 80 Livelihood Business Incubators and 20 Technology Business Incubators to develop 75000 skilled entrepreneurs in agro-rural industry sectors.

The Union Budget 2019-20 also proposes upgradation of 1,25,000 km of road length over the next five years under the Pradhan Mantri Gramin Sadak Yojana – III. Estimated cost for the project is ₹ 80 crore. 1.95 crore houses to be provided during 2019-20 to 2021-22, under phase two of Pradhan Mantri Awas Yojana – Gramin. FM also assured that every willing household in rural India will have electricity and cooking gas by 2022. The Government is in plans to ensure willing household in rural India gets piped water supply by 2024. The new Jalshakti Ministry shall look at the management of water resources and water supply in an integrated and holistic manner. Jal Jeevan Mission will focus on creating local infrastructure for rainwater harvesting, groundwater recharge and management of household water for reuse in agriculture.

Transportation

The Union Budget 2019-20 proposes to launch a massive programme for modernization of railway stations. Railways to get up to ₹ 50 Lakh Crore till 2030, for modernization. Higher investment in suburban railways through a Special Purpose Vehicle (SPV) like Rapid Regional Transport System (RRTS). She also proposed public-private partnerships to unleash faster development, completion of tracks and passenger freight services.

FM also mentioned that schemes such as Sagar Mala, UDAN have given a massive push to the connectivity. In the second phase of Bharat Mala, states will receive assistance in building state highways. The budget also proposes to reduce the GST rate on e-Vehicles to 5%.

Women Empowerment – Naari Tu Narayani

The Union Budget 2019-20 shifted from women-centric policies to women-led initiatives. Women Self Help Groups (SHG) interest subvention programme will run in all districts. Overdraft facility of ₹ 5,000 for every member having a Jan Dhan Account. One woman in every SHG will be eligible for a loan of up to ₹ 1 lakh under the MUDRA Scheme.

Middle Class

No Change in existing Income Tax Slab. The budget proposes an additional deduction of up to ₹ 1.50 lakhs for interest paid on loans for the purchase of a house of value up to ₹ 45 lakhs. They are also eligible for an additional deduction of up to ₹ 1.50 lakhs on interest paid on loans taken to purchase electric vehicles. Now, you can also use your Aadhaar card to file your Income Tax returns, even in the absence of a PAN card. They are now interchangeable.

Excise duty and cess each on petrol and diesel were hiked by ₹ 1 per litre. Import duty on gold and precious metals are hiked to 12.5%. Imported automobile parts, books and video cameras will also get costlier.

Analysis: Union Budget 2019-20

The total estimated expenditure for the Government is ₹ 27,86,349 crore and the total estimated income is ₹ 27,35,290 crore. The difference between income and expenditure is ₹ (-) 51,059 crore. This is also known as fiscal deficit. A lower fiscal deficit indicates a healthy economy. For the year 2019-20, the Government aims to maintain the fiscal deficit at 3.3% of the GDP. In the Intermin Budget 2019-20, the fiscal deficit was set at 3.4% of the GDP. Now let’s have a look at the income and expenditure of the government:

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In her Budget speech, FM had also announced that people who are earning above ₹ 2 crore anually will have to pay additional cess of 3%, and those who are earning above ₹ 5 crore anually will have to pay an additional cess of 7%. This is a ‘Robin Hood’ move where the ‘super rich’ will have to pay to more taxes and the state will use it for the uplift of the weaker sections.

In my view, the Union Budget 2019-20 was tabled with a long term objective to fulfil the ‘Vision for the Decade’. We also saw that taxes and duties on petrol and diesel were hiked and at the same time, the FM had also announced a GST cut and an income tax deduction of up to ₹ 1.5 lakhs on loans used to purchase electric vehicles. With this move, the Government wants you to ‘Go Green’.

The focus on Research and Development on higher education is a welcome move. You’ll find that the developed countries spend a lot on Research and Development. To promote digital transactions, FM had introduced a few measures. This budget is aimed at building a New India.

The most notable part of the Budget 2019-20 was Finance Minister Nirmala Sitharaman discarded the traditional briefcase, went for Bahi Khata for presenting her speech. A move to get rid of the British hangover.

Read about the Economic Survey 2019-20.

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