BUDGET 2020 ANALYSIS

We have a crisis ridden economy. Economy has been in the weakest shape for the past many years. Budget 2020-21 has been placed by our FM, Nirmala Sitaraman in the parliament today, the 1st Feb, 2020. Has the budget recognised that our economy is in a crisis and it is a do-or-die situation to wade the nation out of the economic slump? We need to analyse whether the budget has to offer to impact a turn around in the economy.

By the time the presentation of budget ended and fiscal deficit announced to be kept at 3.8% the Indian Stock Exchange, SENSEX plummeted 754.99 points ie 1.85%. Well stock exchange is not the ultimate barometer of economic condition. But the dampened sentiments did take a dip that is reflected in today's trading.

Fund arrangement is really a big challenge before the government to infuse life into the ailing economy. That is why the recourse to PPP or Public Private Partnership has been proposed in many areas of government spendings. 

Government plans to raise funds through LIC IPO ie by selling partial stake in LIC through IPO (Initial Public Offering). It is proposed in the Budget that the government will sell its stake in IDBI Bank to private investors and also amend Banking Regulation Act to strengthen co-op banks. LIC,the most iconic symbol of security, has been one investment destination which had great credibility and investor's confidence due to its sound financial base the Company built over the decades. The government's gambling instinct to make over the poor economy by selling stakes of public institutions to private investors cannot be appreciated as measure to revive economy.

There is a proposal for setting up of medical colleges in existing district hospitals under PPP mode to deal with shortage of doctors. A viability gap funding will be set up for setting up such medical colleges. So again privatisation and making medical education expensive for the benefit of those who are already minting money in the medical education business.

So the government intends to bring PPP model because the government doesn't have the financial resources to fund her own projects and thereby intends to use public investment for funding.

The finance minister also said that the deposit insurance coverage against bank failure will be increased to Rs 5 lakh from Rs 1 lakh. Now the point is who will bear the premium obligation for insurance - the customer or his banker? Banks are already stressed with NPA and declining investment may not bear the premium. Customers will also be further stressed as the Interest rates are already low may be further at loss if they have to pay premium on insurance of their deposits.

New tax regime offers hardly any relief. Multi-slab tax rates have been proposed.  Under the new regime, there are seven tax slabs—there’s no tax for income up to ₹2.5 lakh, 5% for income between ₹2.5 lakh and ₹5 lakh, 10% for income between ₹5 lakh and ₹7.5 lakh, 15% for income between ₹7.5 lakh and ₹10 lakh, 20% for income between ₹10 lakh and ₹12.5 lakh, 25% for income between ₹12.5 lakh and ₹15 lakh, and 30% for income above ₹15 lakh. The new tax slabs and rates are the same for all categories of taxpayers, including senior citizens and super senior citizens.

However, under the new regime, you will have to forego more than the benefit you will derive as you can’t claim many of the deductions and exemptions available now. To start with, you will have to forego the benefit of standard deduction available to salaried individuals, house rent allowance (HRA), deductions under Section 80C, 80D, 24(B) and so on. Overall, out of more than 100 deductions and exemptions that are currently available to taxpayers, about 70 will not be available under the new regime. Note that the new regime is not available to sole proprietors or those having business income.

The new regime will benefit few taxpayers. Only those who are living with their parents, don’t have a home loan or claim other deductions will benefit under the new regime. Those who are living on rent and claiming HRA, and deductions under 80C, 80D and so on might have to evaluate the actual savings before opting for the new regime.

Hence, the new tax regime has lowered the tax rates but makes you let go of most deductions and exemptions. Like always, the devil is in the details and the details in this case don’t look promising. But it is for certain the new tax regime is not going to increase the spending capacity of a tax payer.

There are changes for those working abroad. Indian citizens who are not residents in India and who are not tax residents in any other country, would now be considered tax residents in India and hence would be liable to tax in India on their global income.

Budget’s biggest task is to create employment opportunities. New education policy would be soon announced by the government as claimed by the FM. The FM said Rs 99,300 crore will be allocated for the education sector for FY21, while Rs 3,000 crore in the skill development. She also said that 150 higher education institutions will provide apprentices embedded in the real-time course for in-hand training. 

All these were proposed even in the last budget 2019-20. And in the last 6 years of the government's tenure job creation projects and employment generation remained a neglected priority.

The FM in her Budget 2020 speech has proposed for rationalization of tax treatment of employer’s contribution to recognized provident funds, superannuation funds and national pension scheme. This could turn into a piece of bad news for Central Government Employees, Private Sector workers with big pay cheques if they are earning a high salary.

Even investment in agriculture will not make a news headline. Rs 2.63 lakh crore was budgeted for last FY 2019-20 and Rs 2.90 crore for this FY 2020-21. Hence there is no substantial increase in fund allocation for agriculture sector. Farm leaders are disappointed with no increase in PM Kisan pay out in Budget 2020.

There has been no increase in PM Kisan pay-out to farmers and allocation kept at Rs 75,000 crore similar to the previous year in the Union Budget 2020-21. 

The Budget was expected to provide more money into the hands of farmers which would create more rural demand. More rural demand would lead to more consumption, driving the GDP up. That was the surest way to emerge out of slowdown.