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March 31, 2020
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Union Finance Minister Nirmala Sitharaman’s second Budget speech on February 1 sought to make up in length and breadth for what it couldn’t deliver in the form of an effective stimulus for India’s fast-slowing economy.Interspersed with some feel-good decisions such as lower personal income tax rates and a hike in the deposit insurance cover for bank depositors (from ₹1 lakh to ₹5 lakh) were some bold decisions like listing the Life Insurance Corporation of India and abolishing the Dividend Distribution Tax.A caring societyMs. Sitharaman expounded on three themes — Aspirational India (a better life for all), Economic Development for all (yielding more space for the private sector) and creating a Caring Society — in her record-breaking speech of more than two and a half hours, aimed at boosting incomes and purchasing power. Inflation, she said, was well-contained and the economy’s fundamentals remained strong. Falling oil prices may help India, but several domestic and global headwinds remain, including the on-going coronavirus scare, that the Budget didn’t touch upon. To boost farm incomes and the rural sectors, the Finance Minister allocated ₹2.83 lakh crore and fixed ₹15 lakh crore target for agriculture credit. Another ₹1.7 lakh crore spending was planned for transport infrastructure and ₹40,740 crore allocation was made for the energy sector. To boost farmer incomes (to be doubled by 2022 as per the government’s timeline), 16 new and renewed measures were put forth.The allocation will mean the government will miss its deficit target for the third year in a row, pushing shortfall to 3.8% of GDP in the current fiscal as compared to 3.3% previously planned. The fiscal deficit target for the coming fiscal year starting April 1 has been fixed at 3.5%.Watch | Highlights of Union Budget 2020-21Taking a cue from the Economic Survey, which dwelt at length on India’s ancient economic prowess, Ms. Sitharaman cited the guilds of Saraswati-Sindhu civilisation and the Harappan seals (of 3300 BCE) and commerce and trade-related words deciphered from Indus hieroglyphs that show India has been rich in skills and trade for millennia.The Minister also accepted the Survey’s call for loosening fiscal strings, taking a 0.5% deviation from fiscal deficit targets under the Fiscal Responsibility and Budget Management law to end 2019-20 with a 3.8% deficit and a promise to attain a 3.5% deficit in the coming year.But the breach may not deliver much bang for the buck and the numbers may be hard to meet, economists reckon. The Survey’s suggestion for a more aggressive approach to disinvestment was heard too, with a massive target of ₹2.1 lakh crore — 223% higher than the revised estimates for the current year. Any slip ups on this front would make the deficit target untenable.The Budget deferred taxes for ESOPs in the hands of employees which will be an important decision for the employees to own shares in the employer without getting worried about organising cash to pay taxes. This will also provide greater flexibility to the employers and employees in the structuring of their employment prospects. One proposal that could be become contentious was tax being imposed on Indian citizens abroad if they are not taxable in their home country.More borrowingsProposed market borrowings for the coming year have been raised to ₹5.36 lakh crore, following a ₹26,000 crore hike in this year’s borrowing plan from ₹4.73 lakh crore to ₹4.99 lakh crore. The impact of lower tax rates on demand creation may not be too high, and removing tax exemptions that spur financial savings could dent an already falling savings rate. Ms. Sitharaman expects 10% nominal GDP growth in 2020-21, which suggests she doesn’t share the Survey’s optimism about returning to 6%-6.5% real GDP growth. The 15th Finance Commission, whose report was tabled in Parliament on Saturday, expects 11% nominal growth in 2020-21.Stockmarket veterans saw no significant growth boost in the Budget, with the Sensex closing nearly 2.43% down or 988 points to close below 40,000 points.“Today being a Saturday, I’m not sure if every aspect of the stock market is open today,” said Ms. Sitharaman in response to the stock market collapse. I think that many of the things we’ve said in the Budget would definitely have a positive impact on the stock market. I will reserve my comments till Monday.”(With inputs from PTI)

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