SUMMARY OF UNION BUDGET 2020-21

SUMMARY OF UNION BUDGET 2020-21

Kamaraj IAS Academy | SUMMARY OF UNION BUDGET 2020-21
  • February 18, 2020, 4:21 pm

 

Once known as the world’s fastest growing economy, India is now trying to restart economic growth that has dipped to an 11-year low. A slowdown and rising inflation: these are extraordinary times for the Indian economy. Yet in the 2020 Budget, these extraordinary times did not lead to the extraordinary measures as it was being expected. Like previous budgets under this government, the latest one has adopted a gradualist approach towards reforms.

Themes of the Budget

Aspirational India: in which all sections of society seek better standards of living, with access to health, education and better jobs.

Components: Agriculture Irrigation & Rural development; Wellness, Water & Sanitation; Education & Skills.

Economic Development for all: would entail pervasive economic reforms and yielding more space for the private sector to ensure higher productivity and greater efficiency

Components: Industry, Commerce and Investment; Infrastructure; and the New Economy.

Caring Society: based on Antyodaya, which is both humane and compassionate.

Components: Women & Child, Social Welfare; Culture and Tourism and Environment & Climate Change, Agriculture, Irrigation and Rural Development

Encourage State governments to undertake implementation of model laws already issued by the Central government such as 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

Agriculture, Irrigation and Rural Development

  • Propose to expand PM-KUSUM scheme. In addition, a scheme to enable farmers to set up solar power generation capacity on their fallow/barren lands and to sell it to the grid would be operationalized.

  • Encourage balanced use of all kinds of fertilizers including the traditional organic and other innovative fertilizers.

  • Government will provide Viability Gap Funding for setting up such efficient warehouses at the block/taluk level.

  • As a backward linkage, a Village Storage scheme is proposed to be run by the SHGs.

  • To build a seamless national cold supply chain for perishables goods Indian Railways will set up a “Kisan Rail” and Ministry of Civil Aviation launch Krishi Udaan on international and national routes. 

  • Government will focus on “one product one district” for better marketing and export of the Horticulture sector. Integrated farming systems in rainfed areas shall be expanded.

  • Negotiable Warehousing Receipts (e-NWR) will be integrated with e-NAM.

  • The NABARD refinance scheme will be further expanded. Agriculture credit target for the year 2020-21 has been set at 15 lakh crore.

  • Coverage of artificial insemination shall be increased from the present 30% to 70%. MNREGA to develop fodder farms.

  • Eliminate Foot and Mouth disease,brucellosis in cattle and also peste des petits ruminants (PPR) in sheep and goats by 2025.

  • Raising fish production to 200 lakh tonnes by 2022-23.Raisefishery exports to 1 lakh crore by 2024-25.

  • Sagar Mitras and Fish Farmer Producer Organisations for fishery extension.

Wellness, Water and Sanitation

Set up Viability Gap funding window for setting up hospitals in the PPP mode (Aspirational Districts in first phase).

Using machine learning and AI, in the Ayushman Bharat scheme.

Propose to expand Jan Aushadhi Kendra Scheme to all districts offering 2000 medicines and 300 surgicals by 2024.

Enhance ODF Plus in order to sustain Open Defecation Free behaviour

Education and Skills

  • About 150 higher educational institutions will start apprenticeship embedded degree/diploma courses by March 2021 to improve employability in the general stream (vis-à-vis services or technology stream) students.

  • It proposes to start a programme whereby urban local bodies across the country would provide internship opportunities to fresh engineers for a period up to one year.

  • A degree level full-fledged online education programme shall be offered only by institutions who are ranked within top 100 in the National Institutional Ranking framework.This would provide quality education to students of deprived section of the society as well as those who do not have access to higher education.

  • Under its “Study in India” programme, Ind-SAT is proposed to be held in Asian and African countries. It shall be used for benchmarking foreign candidates who receive scholarships for studying in Indian higher education centres.

  • A National Police University and a National Forensic Science University are being proposed in the domain of policing science, forensic science, cyber-forensics etc.

  • It is proposed to attach a medical college to an existing district hospital in PPP mode to meet shortage of qualified medical doctors.

  • A special bridge course is designed by the Ministries of Health, Skill Development together with professional bodies to match the employer’s standards required for teachers, nurses, paramedical staff and care-givers abroad.

Industry, Commerce and Investment

  • Focus on 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.

  • Proposal to develop five new smart cities in collaboration with States in PPP mode.

  • Proposal of a scheme focussed on encouraging domestic manufacture of mobile phones, electronic equipment and semiconductor packaging.

  • A National Technical Textiles Mission is proposed with a four-year implementation period from 2020-21 to 2023-24 at an estimated outlay of 1480 crore.

  • It proposes to set up an Investment Clearance Cell.

  • A new scheme, NIRVIK, is being launched to achieve higher export credit disbursement. It provides for higher insurance coverage, reduction in premium for small exporters and simplified procedure for claim settlements.

Industry, Commerce, Transport and Investment

National infrastructure pipeline: It aims to bring in generic and sectoral reforms in development, operation and maintenance of these infrastructure projects.

Highways: Accelerated development of highways will be undertaken. This will include development of 2500 Km access control highways, 9000 Km of economic corridors, 2000 Km of coastal and land port roads and 2000 Km of strategic highways.

Railway: Setting up a large solar power capacity alongside the rail tracks, on the land owned by the railways.A proposal is under consideration.

Port: Government would consider corporatizing at least one major port and subsequently its listing on the stock exchanges to make sea-ports more efficient.

Inland Waterways: The Jal Vikas Marg on National Waterway-1 will be completed. Further, the 890 KmDhubri-Sadiya connectivity will be done by 2022.

Airways: One hundred more airports would be developed by 2024 to support the Udaan scheme. It is expected that the air fleet number shall go up from the present 600 to 1200 during this time.

Electricity: To improve the status of DISCOMS, it urges all the States and Union Territories to replace conventional energy meters by prepaid smart meters in the next 3 years.

Oil and Gas: Proposed to expand the national gas grid from the present 16200 km to 27000 km.

Proposal to set up a project preparation facility for infrastructureprojects.It also proposed to direct all infrastructure agencies of the government to involve youth-power in start-ups.A National Logistics Policy will be released soon. It will create a single window e-logistics market and focus on generation of employment, skills and making MSMEs competitive.

New Economy

It is based on innovations that disrupt established business models. It includes Artificial intelligence, Internet-of-Things (IoT), 3D printing, drones, DNA data storage, quantum computing, etc. To take advantage of this government proposes New Economy

To bring out soon a policy to enable private sector to build Data Centre parks throughout the country. This will enable firms to incorporate data in every step of their value chains.

Fibre to the Home (FTTH) connections through Bharatnet will link 100,000-gram panchayats this year. Financial allocation has been provided to the Bharat net Programme.

To expand the base for knowledge-driven enterprises, Intellectual property creation and protection will play an important role. Initiatives have been proposed which will benefit the Start-upsA digital platform would be promoted that would facilitate seamless application and capture of IPRs.

Knowledge Translation Clusters would be set up across different technology sectors including new & emerging areas.

Mapping of India’s genetic landscape is critical for next generation medicine, agriculture and for biodiversity management. To support this development, we will initiate two new national level Science Schemes, to create a comprehensive database.

Proposal to provide early life funding, including a seed fund to support ideation and development of early stage Start-ups.

Proposal to provide an outlay of 8000 crore over a period five years for the National Mission on Quantum Technologies and Applications.

WOMEN AND CHILD, SOCIAL WELFARE

In continuing with our government’s commitment to the welfare of women, the budget provides for about ` 28,600 crore for programs that are specific to women.

Financial support for technologies for cleaning of sewer systems or septic tanks will be provided.

Financial allocation has also been made for Scheduled Castes and Other Backward Classes, Scheduled Tribes and senior citizens and Divyang.

CULTURE AND TOURISM

Five archaeological sites would be developed as iconic sites with onsite Museums. They are: Rakhigarhi (Haryana), Hastinapur (Uttar Pradesh) Shivsagar (Assam), Dholavira (Gujarat) and Adichanallur (Tamil Nadu). Government proposes to establish an Indian Institute of Heritage and Conservation under the Ministry of Culture; it shall have the status of a deemed University.

A maritime museum would be set up at Lothal- the Harappan age maritime site near Ahmedabad, by Ministry of Shipping

Environment & Climate Change

On Environment, States that are formulating and implementing plans for ensuring cleaner air in cities above one million to be encouraged.

Proposed to advise the utilities to close the running old thermal power plants with carbon emission above the pre-set norms. 

PM launched Coalition for Disaster Resilient Infrastructure (CDRI) with Secretariat in Delhi. Second such international initiative after the International Solar Alliance.

Governance

Proposed to set up a National Recruitment Agency (NRA) as an independent, professional, specialist organisation for conduct of a computer-based online Common Eligibility Test for recruitment to Non-Gazetted posts.

It is proposed to evolve a robust mechanism for appointment in various Tribunals and specialised bodies including direct recruitment to these bodies to attract best talents and  professional experts.

Proposed new National Policy on Official Statistics to lay down a road-map towards modernised data collection (including use of AI), integrated information portal and timely dissemination of information.

Financial Sector

Deposit Insurance and Credit Guarantee Corporation (DICGC) has been permitted to increase Deposit Insurance Coverage for a depositor, which is now one lakh to five lakh per depositor.

To strengthen the Cooperative Banks, amendments to the Banking Regulation Act are proposed for increasing professionalism, enabling access to capital and improving governance & oversight for sound banking through the RBI. 

The limit for NBFCs to be eligible for debt recovery under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002 is proposed to be reduced from 500 crore to asset size of 100 crore or loan size from existing 1 crore to 50 lakh.

An app-based invoice financing loans product will be launched. This will obviate the problem of delayed payments and consequential cash flows mismatches for the MSMEs.

Handholding support (for technology upgrades, R&D etc) for selected sectors such as pharmaceuticals, auto components and others have been extended. A scheme of ` 1000 crore will be anchored by EXIM Bank together with SIDBI for equity and technical assistance. Both these institutions would contribute ` 50 crore each.

Financial Markets

FPI limit in corporate bonds, currently at 9% of outstanding stock, will be increased to 15% of the outstanding stock of corporate bonds.

A legislation would be brought for laying down a mechanism for netting of financial contracts. This would improve investors’ confidence and to expand the scope of credit default swaps,.

Government proposes to expand Debt-based Exchange Traded Fund (ETF) 

For investment in infrastructure GIFT City would set up an International Bullion exchange(s) in GIFT-IFSC as an additional option for trade by global market participants.This will enable India to enhance its position worldwide, create jobs in India and will lead to better price discovery of gold

Fiscal Management

Estimated nominal growth of GDP for year 2020-21, on the basis of trends available, at 10%.

A fiscal deficit of 3.8% in RE 2019-20 and 3.5% for BE 2020-21.

Direct Tax

Estimated nominal growth of GDP for year 2020-21, on the basis of trends available, at 10%.

A fiscal deficit of 3.8% in RE 2019-20 and 3.5% for BE 2020-21.

Direct TAX

  • Personal Income Tax and simplification of taxation

  • In order to provide significant relief to the individual taxpayers and to simplify the Income-tax law, the budget proposes to bring a new and simplified personal income tax regime wherein income tax rates will be significantly reduced for the individual taxpayers who forgo certain deductions and exemptions.

  • New tax regime to be optional - an individual may continue to pay tax as per the old regime and avail deductions and Exemptions.

  • Around 70 of the existing exemptions and deductions (more than 100) to be removed in the new simplified regime.

  • The new personal income tax rates will entail estimated revenue foregone of Rs. 40,000 crore per year

Dividend Distribution Tax (DDT)

In order to provide significant relief to the individual taxpayers and to simplify the Income-tax law, the budget proposes to bring a new and simplified personal income tax regime wherein income tax rates will be significantly reduced for the individual taxpayers who forgo certain deductions and exemptions.

Propose to remove the DDT and adopt the classical system of dividend taxation under which the companies would not be required to pay DDT. The dividend shall be taxed only in the hands of the recipients at their applicable rate. The removal of DDT will lead to estimated annual revenue forgone of Rs. 25,000 Crore.

Concessional tax rate for Electricity generation companies

In order to attract investment in the power sector, the budget proposes to extend the concessional corporate tax rate of 15% to new domestic companies engaged in the generation of electricity.

Tax concession for foreign investments:

100% tax exemption to the interest, dividend and capital gains income on investment made in infrastructure and priority sectors before 31st March, 2024 with a minimum lock-in period of 3 years by the Sovereign Wealth Fund offoreign governments.

Start-ups:

Start-ups with turnover up to Rs. 100cr to enjoy 100% deduction for 3 consecutive assessment years out of 10 years. Start-ups generally use Employee Stock Option Plan (ESOP) to attract and retain highly talented employees. Tax payment on ESOPs is deferred for five years or till they leave the company or when they sell their shares, whichever is earliest.

Medium, Small and Micro Enterprises:

In order to boost less-cash economy and to reduce the compliance burden on small retailers, traders, shopkeepers, turnover threshold for audit increased to Rs. 5 crore from Rs. 1 crore for businesses carrying out less than 5% business transactions in cash.

Affordable housing:

Additional deduction (announced in last year’s budget) up to Rs. 1.5 lakhs for interest paid on loans taken for an affordable house extended till 31st March, 2021. 

Cooperatives:

Parity brought between cooperatives (currently taxed at a rate of 30%) and corporate sector. Option to cooperative societies to be taxed at 22% + 10% surcharge and 4% cess with no exemption/deductions. Cooperative societies exempted from Alternate Minimum Tax (AMT) just like Companies are exempted from the Minimum Alternate Tax (MAT).

For charity institutions

  • Process of registration to be made completely electronic.

  • Unique registration number (URN) to be issued to all new and existing charity institutions.

Tax Facilitation Measures

Under Vivad Se Vishwas’ scheme a taxpayer would be required to pay only the amount of the disputed taxes (direct taxes) and will get complete waiver of interest and penalty, provided he  pays by 31st March, 2020. Those who will avail the scheme after 31st March, 2020 will have to pay some additional amount. The scheme will remain open till 30th June 2020

In order to impart greater efficiency, transparency and accountability to the assessment process, a new faceless assessment scheme to be enabled by amending the Income Tax Act. Instant PAN to be allotted online through Aadhaar.

Losses of merged banks:

Amendments proposed to the Income-tax Act to ensure that entities benefit from unabsorbed losses and depreciation of the amalgamating entities.

Taxpayer’s Charter

CBDT to adopt a Taxpayers’ Charter whereby taxpayer’s rights would be clearly enumerated. This would enhance the efficiency of the delivery system of the Income Tax

Indirect Tax

GST

A simplified GST return shall be implemented from the 1st April, 2020 with features like SMS based filing for nil return, return pre-filling, improved input tax credit flow and overall simplification.

Dynamic QR-code is proposed for consumer invoices. GST parameters will be captured when payment for purchases is made through the QR-code.

The GST rate structure is also being deliberated so as to address issues like inverted duty structure. India’s rank has improved from 146 to 68 on Trading Across Border parameter of Ease of Doing Business rankings by the World Bank.

Customs Duties:

Review of Rules of origin requirement because of threat caused to domestic industry by Free Trade Agreements. Labour intensive sectors in MSME are critical for employment generation. Cheap and low-quality imports are an impediment to their growth.Keeping in view the need of this sector, customs duty is being raised on items like footwear and furniture. Proposal to impose a nominal health cess, by way of a duty of customs, on the imports of medical equipment keeping in view that these goods are now being made significantly in India. The proceeds from this cess shall be used for creating infrastructure for health services in the aspirational districts. Proposal to raise excise duty, by way of National Calamity Contingent Duty on Cigarettes and other tobacco products. 

Analysis:

Instead of a major spending stimulus, the government’s attempt to boost consumption has been through tax cuts. But while tax rates across different slabs have been slashed, the removal of exemptions make the overall effect on demand uncertain.

It would have been better if the growth push came from the spending side. The multiplier effect of these tax cuts will be low. Besides, this may not work because people may wish to save and get the exemptions rather than forgo exemptions and opt for a tax cut to induce their consumption. Moreover, the tax cuts could further stall revenue growth and add pressure to fiscal deficit.

The economic slowdown may be affecting the rural sector the hardest but this budget has not offered the sector much needed help. The share of overall spending on the rural sector has stagnated. And within this, spending on key rural policies, such as the Mahatma Gandhi National Rural Employment Guarantee Scheme and the food subsidy, have been reduced. Spending in the social sector, which includes education and health, has reduced too. Spending on defence, interest payments and transfers accounted for 58.7% of government spending

The transfers to states, as a proportion of the union government’s tax revenues are budgeted to increase in the coming financial year and return to the levels seen during 2014-19. For 2020-21, the states’ share is estimated at 41% of the shareable central taxes based on the interim recommendations of the 15th Finance Commission. The commission suggested a small reduction in the states’ share in Union tax revenues to 41% from 42% because of the change in the status of Jammu and Kashmir.


 

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