Budget: Fiscal deficit pegged at 3.5%; Nominal GDP to be 10%; Capex scaled to 21%

Few takers for differential tax slabs proposed for those foregoing exemptions.

Update: 2020-02-01 20:00 GMT
Nirmala Sitharaman.

New Delhi: In a move to boost consumption for bringing the economy out of the worst slowdown phase, the government on Saturday announced some sops to cheer both corporate and aam admi in some way or the other, while at the same time, it widened budget deficit targets for the current and next fiscal years to help spur growth.

The most remarkable measures announced by the government in its Budget 2020 include, cutting personal income tax on lower slabs, raising deposit insurance to Rs 5 lakh from Rs 1 lakh at present, scrapping Dividend Distribution Tax (DDT) to encourage coporates for more investment, spending more on agriculture and rural sector, raising funds via listing of Life Insurance Corporation (LIC), pegging FY21 fiscal deficit at 3.5 per cent of GDP, etc.

Presenting her second Budget in Parliament, finance minister Nirmala Sitharaman said that the 2020-21 Budget was aimed at boosting incomes and enhancing purchasing power, stressing that the economy’s fundamentals were strong and inflation was well contained in the country.

As far as fiscal deficit is concerned, it is, however, expected that the government will miss its deficit goals for a third year, pushing the shortfall to 3.8 per cent of gross domestic product (GDP) from a planned 3.3 per cent in the year ending March this year.

“The deficit target for the coming fiscal year starting April 1 was widened to 3.5 per cent,” the finance minister said. For the next fiscal, she also pegged net borrowings of `5.45 lakh crore and doubled target of raising revenue from the sale of government stake in PSUs to Rs 2.1 lakh crore.

Sensing a good economic health in next fiscal, the government also pegged the country’s nominal GDP growth rate at 10 per cent in the next fiscal and the capital expenditure is scaled up by 21 per cent to prop up the economy.

However, Sitharaman said, “Receipts for 2020-21 are pegged at Rs 22.46 lakh crore while expenditure at Rs 30.42 lakh crore. The revised estimated expenditure for FY20 has been pegged at Rs 26.99 lakh crore and receipts at Rs 19.32 lakh crore.”

In a move to boost domestic manufacturing in the country, Ms Sitharaman also raised import duty on a variety of products ranging from tableware and kitchenware to electrical appliances to footwear, furniture, stationery and toys, while at the same time, she provided funds to help farmers set up solar power generation units and set up coal storages to transport perishables.

Keeping labour-intensive sectors in MSME as critical for employment generation, the finance minister also pointed out that cheap and low-quality imports are an impediment to their growth. “Special attention has been taken to put measured restraint on import of those items which are being produced by our MSMEs with better quality. Keeping in view the need of this sector, customs duty is being raised on items like footwear and furniture,” she said.

India Inc welcomes Budget
With the finance minister’s announcement, India Inc welcome the Budget, while at the same time economists and opposition were muted in their reactions. On the other hand, the benchmark S&P BSE Sensex stocks index extended its decline to as much as 1.9 per cent on Saturday.

Nosediving nearly 1,275 points from the day’s high, the 30-share BSE Sensex ended 987.96 points, after the Union Budget failed to live up to market expectations of growth-boosting measures and fiscal discipline. Besides, investors’ wealth of about Rs 3.46 lakh crore has been wiped off from the system as well.

As far as personal tax cut of individuals is concerned, Sitharaman wanted more money should come in individual’s hand, and thereby slashed the income tax, which would help save about Rs 31,000 a year in tax for persons with annual income of up to Rs 17 lakh.

It was, however, conditioned on current exemptions and deductions including standard deduction for Rs 50,000 as well as the waiver earned on payment of up to Rs 1.5 lakh in tuition fee of children, and contribution towards insurance premium and provident fund, being given up.

However, the finance minister also clarified that the new tax regime would be optional for taxpayers. Under the proposed I-T slab, annual income up to Rs 2.5 lakh is exempt from tax. Those individuals earning between Rs 2.5 lakh and Rs 5 lakh will pay 5 per cent tax. A 10 per cent tax will be charged on income between Rs 5 and 7.5 lakh, 15 per cent, 20 per cent and 25 per cent on next Rs 2.5 lakh each and 30 per cent on income above Rs 15 lakh.

Alongside, the limit of insurance cover in case of bank failure on deposits was increased to Rs 5 lakh from Rs 1 lakh and a sale of government stake in the country’s largest insurer Life Insurance Corporation (LIC) also announced as well.

For farm and rural sectors, she also allocated Rs 2.83 lakh crore and fixed Rs 15 lakh crore target for financing agriculture credit. Another Rs 1.7 lakh crore spending was planned for transport infrastructure and Rs 40,740 crore allocation was made for the energy sector.

Sitharaman, who cut tax paid by companies to its lowest in September last year, proposed new tax slabs of 15 per cent and 25 per cent in addition to the existing 10 per cent, 20 per cent and 30 per cent. The new slabs would be for individuals not availing certain specified deductions or exemptions.

Sitharaman also accepted the demand of the industry to reverse the taxability of dividends back to the recipients, making equity investment more attractive.
“Now, dividends will be taxed in the hands of recipients, a move that will cause Rs 25,000 crore dent to her coffers,” she said.

However, she 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.

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