e C o N o M i S t S s P e A k – 2020 INDIA UNION BUDGET

The Union Budget for FY 2020-21 was announced on 1 February, 2020, to herald a decade of growth and prosperity, says the national portal of India. According to experts it has been one of cheers and tears. The Edition takes an analytical view of the financial policies declared by the government of India for the new fiscal. Eminent Indian and international economists reviewed the budget and expressed their views to KAUSHIK BHOWMIK. An exclusive report.

Video Courtesy: PMO INDIA

Professor, London School of Economics and Political Science – LSE
. He can be reached at maitreesh@gmail.com

The Budget could have:

Been more transparent about the actual deficit which is much higher than the reported 3.7% of GDP figure because of the massive unpaid bills to public sector entities like the Food Corporation of India.

Increased overall expenditure given the acute need to provide a stimulus and response d if it didn’t want to do that (in net terms it was a contractionary budget) it could have protected the expenditure that would directly benefit the rural poor such as MGNREGS

Stopped announcing hundreds of small projects with fancy names and minor budgets which don’t achive much and are a waste of public resources, such as tourist areas to be developed

Avoided a turn towards protectionism via raised import tariffs.

Associate Professor, Delhi School of Economics. He can be reached at prkghosh@gmail.com

The lower tax rates are in return for giving up deductions, so it more or less washes out. Rather weak as a stimulus and makes the tax regime more complicated.

Corporate or dividend tax cuts are unlikely to translate into a spending spree. The rich have higher savings rates and the real consbtraints on investment at the moment are credit and business sentiment.

The government did not take up what many had advised – increased outlay on MGNREGA to boost rural demand. That would have been the most effective instrument for delivering a stimulus. There is little doubt that we are in a cyclical downturn, if not a recession, so a strong stimulus was very much needed.

The projected fiscal deficit is misleading because it includes all the estimated receipts from disinvestment. You can’t sell the same assets over and over again.

The government was in a bind – whether to stick to fiscal discipline or to deliver a stimulus for an economy facing strong headwinds. The budget looks indecisive in the face of what is admittedly a tough predicament.

Professor, Indian Institute of Management, Lucknow and Assistant Adviser, Reserve Bank of India
. He can be reached at kbhattacharya@iiml.ac.in

Given the slowdown, a fiscal stimulus was badly needed. Fiscal deficit is apparently well within control, so one could afford it.

No serious attempt to address the problems of the informal sector in the budget. This sector is still reeling under the twin impacts of demonetisation and GST.

There is too little on the education front. More money for primary education and schools is urgently needed. The good news is the announcement of a New Education Policy. Hope it gives more emphasis on primary education.

INR 3.6 lakh crore on water sanitation and pipeline project is good news. Solarisation alongside railway tracks is a commendable idea and long overdue.

In railways, an entire train may not be given to the private sector. However, a good practice would be to give select compartments of all trains to the private sector through a competitive bidding process so that the selected player operates and maintaines those coaches/compartments.

One more fact not directly related to the budget, but relevant: Integrity of data collection and dissemination – one should not tinker with it!

Former Director, National Institute of Public Finance and Policy (NIPFP) and Member, Fourteenth Finance Commission. He can be reached at mgrao48@gmail.com

Need for more realistic projection of revenues and expenditures. The tax revenue projections even for 2019-20 (RE) are still overestimates and for 2020-21, the assumed buoyancy may not materialise. Same is the case with disinvestment receipts.

Expenditures have not been adequately funded. The much talk about suburban rail in Bangalore sees only Rs. 1 crore allocation. Even the Finance Commissions revenue deficit grants accepted by the FM are funded by only 50 per cent.

There was no need to complicate individual income tax structure to six brackets. What was required was to index the brackets for inflation, remove the concessions and exemptions and restructure the rates in a revenue neutral manner.

There was no need to dwell so much on agriculture, irrigation and rural development. The increase allocation to these sectors is not large and the initiative for reform has to be taken by the States.

The changes in customs duty are completely retrograde. They take us back to the pre-1991 era of protection and import substitution.

Professor of Economics at Jadavpur University. He can be reached at swapnendu@hotmail.com

The direct tax structure has been messed up once again. Very few will opt for the new tax scheme as there will be no exemptions and therefore effectively there is no tax cut. This will not spur demand which was badly needed. A simplified reduced tax structure was needed that could have led to increased demand and enhanced compliance.

Increased exemption in direct tax was needed for home buyers to perk up the real estate sector.

Encouraging rural welfare schemes (like MNREGA) that will put money directly in the hand of the poor. The poor do not save much. This could have led to increased demand once again.

No point in reducing corporate tax as the corporate sector is sitting with a lot of money and not investing. Could have devised a scheme that links corporate tax exemptions with increased investment.

Increased customs duty on various imports that will encourage the inefficient domestic industry. Could have done the reverse that would have forced the domestic industry to increase quality and become competitive internationally.

Boost exports, devising incentive schemes/rebates for those who are exporting more. Without increased exports reaching the 5 trillion mark is a pipe dream.

Professor of Economics at Indian Institute of Technology, Kanpur. He can be reached at skmathur@iitk.ac.in

The main highlight of this budget is of reducing taxes (direct taxes) which may help increase aggregate demand in the economy and take care of the massive unemployment prevalent in the Indian economy.

The budget had nothing on how fourth generation technologies like automation, robotics, artificial intelligence, 3D printing, driver less cars, among others would have it’s impact on future employment in India. Will skilled labour be substituted by machines. The present budget have no direction regarding the possible impact of disruptive technologies.

The budget is also quiet about the impact of possible immigration taking place from surrounding neighboring countries on wages, employment, development and output mix in the economy.

The budgtary outlay for MNEREGA program has gone down and so are the budgetary outlays for fertilizers and food subsidies. This may have an impact on the livelihood of a common man stationed in the agricultural sector

Railway projects, infrastructural project, sales of Air India and other PSUs are also constrained by delays, bureaucratic hurdles and lack of buyers to purchase PSUs sales.

NPAs and bank credit are also issues yet to be adequately addressed in the budget. Protectionism is on the rise as average import tariff have gone up. It seems that the made in India program has directly contested the law of comparitive advantage as propagated by David Ricardo.

Total factor productivity is future for sustaining growth in India rather than factor accumulation alone. This requires digitalization and infrastructure development at the core. Regulations regarding e-commerce, 5G issues and data localization should be unwavering, firm and calibrated keeping national sovereignty and privacy in mind.

Professor of Economics at University of Surrey (UK) and Institute of Labour Economics (Germany). She can be reached at S.pal@surrey.ac.uk

Defying all efforts, the country is suffering from a serious lack of credit, investment and employment (especially among youth) accompanied by falling demand and consumption as GDP growth rate keeps declining for the six consecutive quarters. Many experts urged the government to go for an expansionary fiscal policy without worrying about the fiscal deficit. Both the Economic Survey released on 31 January and the Finance Minister’s (FM’s) speech delivered on 1 February, however, brushed aside these issues saying that the economic fundamentals are strong in the country. Nevertheless, the FM’s speech has broadly touched upon some of the required issues, which was promising to start with.

The highlight of the FM’s speech was the announcement of enhanced income tax rebate for the middle-income group. First, the option of choosing between the new and the old tax regime is likely to create confusion; the new rate structure for those who are willing to let go off existing tax deductions has six slabs, plus surcharges. Moreover, the government’s claim of projected gains is somewhat exaggerated when savings from these deductions and exemptions become taxable. It is therefore not clear to what extent these tax rebates will revive consumption and demand.

The income tax rebates however failed to touch most in the farm sector that has been in distress for the last few years and has been in dire need of enhanced support since 2016 demonetisation. While the budget gave a 16-point programme of support to agriculture (to integrate the agricultural sector into the financial and market system including Dhanyalakshmi for women self-help group, Krishi Udaan scheme to provide civil aviation facilities to make air transportation of agricultural produce possible, or comprehensive measures for one hundred water stressed districts), it failed to see the linkages between ecological conditions, land holding size, livelihoods and the larger economy. Progress has been limited to promote farmer-producer organisations that help collectively address challenges of improved access to investment, technology, inputs and markets. Although the Economic Survey criticizes the periodic agricultural loan moratorium (which only benefits large farmers and creates a range of problems), no solution was offered as to how best to resolve the problems of agricultural profitability in the face of the climate crisis. No new allocation was announced to improve the overall living and livelihood opportunities of a majority of farmers including families affected by agriculture related suicides. MNREGA allocations were reduced by over 13%, quite a baffling step considering its effectiveness to improve rural well-being. Further the success of the flagship PM-KISAN scheme has been limited: only about 27% of eligible farmers have been able to get the full benefit from the scheme so far. There is therefore no guarantee that the mere introduction of the new fancy schemes would necessarily double farmers’ income by 2024 in the face of climate crisis and the Economic Survey remains silent about this.

This budget has very little to tackle the sheer scale of the skills shortage. The FM proposed to provide about 99,300 crore for education sector in 2020-21, which marks a 5% increase from last year. Given that the current inflation rate is 4.5%, the spending on this account is likely to remain about the same. Further, as student numbers expand every year, spending per student will fall in all likelihood – there is therefore no guarantee that this additional spending would effectively contribute to improved quality of education of our youths. Second, the budget has earmarked Rs 141 crore for college and university scholarships, 60% down from the 2019-20 allocation of Rs 356 crore. This is going to wreck the dreams of many poor students to pursue higher education. Finally, as the public sector fails to cater to increased demand for higher education from aspirational youths, the budget has welcome private money including FDI in higher education. While country’s private higher education institutions have met the desperate demand for college places from India’s youths, they are costly and known for delivering junk education (with a very few exceptions though), often failing our youths.

To a large extent, the budget announcements have been a reflection of the tight fiscal space (direct consequence of their economic mismanagement) the government is operating under. Both direct and indirect tax revenues are down considerably and projected earnings from divestment remain uncertain, thus limiting their capacity to for a spending spree. First, actual tax revenue in 2018-19 fell short of the estimated amount by 10%, which can be traced to a shortfall in corporation tax (about 20%) and taxes on commodities and services that includes GST (around 12%), among others. Nevertheless next year’s estimated tax revenue has been set 9% higher than this year’s actual revenue. Second, the projected earnings from divestment remain uncertain. In 2019-20, the govt was only able to raise Rs. 65000 crore as against the target disinvestment plan of 105000 crore (a staggering 38% shortfall), which was largely due to its failure to complete the privatisation of some of the big companies. Yet the government plans to raise Rs 120,000 crore in 2020-21- it is highly ambitious. The total disinvestment proceeds in 2020-21 are budgeted at Rs 2.1 trillion, up 223 per cent over Rs 65,000 crore in 2019-20. It may help the government to limit the size of the budgeted fiscal deficit for the time being, even though it is unlikely to be materialised. Traditionally, there is always some discrepancy between budget estimates, revised estimates and actuals over the years, but such differences were relatively minor. The magnitudes of the current gap between the projected and revised estimates seriously question the credibility of the government announcements.

Under the circumstances, predicting a growth rate of 6-6.5% for the financial year 2020-21 seems rather irresponsible, which was matched by equally, if not more, irresponsible analysis of the Economic Survey using Wikipedia data and computing the cost of a thali in different regions to show that all is well with rural/urban consumption.

To conclude, the budget has not gone far enough to revive the rural demand or education and skills creation of the youth. It has failed to please the industry and the market alike. Numbers provided in the budget and the accompanying Economic Survey appear unreliable, making it a rather futile exercise.

Senior Economist at Centre for Disease Control and Prevention (Public institution under US federal government), USA. He can be reached at puskinray@gmail.com

Found the budget mixed.. Don’t think it will help India in current recession.

Need to increase the demand.. And changes in taxation as it has been proposed will hardly be of help. Rather it might have a negative effect on inflation. Tax should have been increased to finance deficit and then increase the Govt expenditure.

Add to that the import duties.. Perfect recipe for Cost Push Inflation. But on the other hand increase in infrastructure spending will help.

Proposed changes in transportation like that of adding cold compartments for moving perishable items and promoting clean energy is commendable.

However, state banks might face credit crunch that will impede investment but farmers on other hand might be better off with the proposed schemes.

Most of these might help in the long run.. But Indian economy needs to restart the engine of growth.. It’s a big push that is absent in the current budget.

Healthcare is relatively untouched.. And so are some important sectors. Exports need to be promoted and there is no sincere effort towards that.

All in all, this is rather mediocre budget and might be too little to take the economy out of it’s present slump.. Add to that a global slowdown inevitable in the near future.

Associate Professor, Institute For Studies In Industrial Development. She can be reached at anjali.tandon.anjali@gmail.com

The measures seem to command investment driven growth. For instance, the making dividends from mutual funds taxable at individual level, will disincentivise non-institutional investors in favour of corporate buybacks. Greater proportion of profit retention within the firm will lead to capacity utilization from necessary upgrades in technology. This will improve supply dimensions ultimately supporting the consumer.

To some extent, the budget can be referred as transactional in nature, as it attempts to transfer money flows to business, which will then get the growth wheel spinning. But then, the consumer is left behind in stimulating the demand.

The dual tax structures for the individuals, with an option to choose from any one, seem to be FM’s temperature test. As specific categories of taxpayers are already obstruct from switching back from the chosen taxation structure. This has definitely created confusion and also ignorance for the small taxpayers, which would be addressed through sweeping measures in the year to come.

Measure on external front can be considered as trailer of the forthcoming Foreign Trade Policy of the government. Reimbursement of state levies for exporters is much welcome, but only if it is effective and administratively less cumbersome, and quick to realize in the exporters’ kitty. These will provide cushion against duties paid on power and fuel in a WTO compliant manner, a long time need for the exporters.

Exporters, particularly, small ones are likely to benefit from the increased insurance cover and lower premium payments under the proposed Nirvik scheme. The credit guarantee has been set upto 90% of the loss.

The relatively dissmal allocation for skill development as against the higher education allocation calls for a med-term revision. Skill development programmes, such as the bridge courses should be mandatorily designed by the industry rather than the nodal ministry, else the demand-supply wedge of the skill set will only widen. For this, the government should focus to provide skillable workforce to the industry. Hence the focus on improving the standards of schooling would be equally important.

On disinvesment in the PSUs, accountability is of utmost importance. Afterall, that’s what differentiated the managerial performance of the PSU vis-à-vis private sector. The role of public sector in driving domestic demand cannot be discounted ever, more importantly during the periods of low growth.

The budget focuses on AI and digital economy, without directed measures for the medium technology industries. These include rubber and plastic, and chemical industries where profitability has tanked recently, in comparison of other technology segments. Blocking toys and leather imports through duties only prevent the inflows, but does not ensure domestic performance. The house needs to be set in order, ultimately.

Country Director, Tata Centre For Development at University of Chicago Trust. She can be reached at LChaudhuri@uchicagotrust.org

In spite of clear evidence of increase in pollution and further decrease in air quality, the budget 2020-21 makes no provision for additional amount allotted to pollution abatement and climate change action plan.

In health care, allocations for capital intensive schemes and brick and mortar structures seem to have been given primacy. While programs like Pradhan Mantri Swasthya Suraksha Yojana, which is mandated to build super-speciality health care facilities has received 17% additional budget, underspending and poor allocation to National Health Mission, will further affect the feeble and suboptimal health care system in the rural areas. While the budget focused on infrastructure development, no directions were received on how to bridge the gap in doctor patient and nurse ratio. The other major shortcoming is the focus on speculative, private insurer driven health insurance schemes rather than strengthening a system which will provide universal health.

Women, particularly those who are marginalised, did not receive a fair deal in the budget. To be precise, allocation to the Beti Bachao, Beti Padhao scheme, has declined by 21% from ₹280 crore to ₹220 crore, the Ujjwala scheme for providing LPG connections to poor families has been reduced by 59%. Though the budgetary allocation for helplines and shelter for women survivors of violence have marginally increased, no clear provisions for prevention of violence have been made.

The Education sector and skill development have received an allocation of Rs 99,300 and 3,000 crores respectively. However, the amount is abysmal considering the actual need of the sector. Instead of focusing on FDI, a more sustainable approach would have been domestic investment.

Opinions expressed in this article are of the author’s and do not represent the policy of The Edition. The writers are solely responsible for any claim arising out of the contents of their articles. 

Tags: #UnionBudget2020

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