Budget insights: Union Budget 2020

An important pivot for this Government has been to build trust in the market. Through this Budget, the Government continues to underline this aspect of building trust. Initiatives like the Tax Payer Charter, increasing the deposit insurance coverage, amendments to the Companies Act on clauses that lead to criminal liability, and strengthening of the Contracts Act bear testimony to this.

Central GST collection target for this financial year (FY 19-20) has been revised downwards from INR 526,000 crores to INR 514,000 crores. The target for FY 20-21 has been pegged at INR 5,80,000 crores, a growth of about 13% from the revised collection target, which seems to be a positive step towards setting up more realistic targets.

On GST, directionally, thrust towards simplification and technology-led administration are expected to continue. The proposal of implementing a system of cash reward to incentivise customers seeking invoice should help create a more compliant GST ecosystem. Proposal to make fraudulent claim of input tax credit without any invoice or bill a cognizable and non-bailable offence is important and should help the Government enforce a check on tax evasion, though it needs to be ensured that the same is implemented well on the ground.

Changes incorporated in the Customs Act to provide for stringent checks on preferential duty claims on goods imported under a free trade agreement (FTA) based on rules of origin requirements would necessitate a complete review of current imports by the businesses.

There has been a decision to review all Customs duty exemptions by September 2020, which is a directional shift to provide additional incentive to domestic manufacturing. However, it will have to be seen if increasing Customs duty alone would help the Government meet this objective.

The tax exemptions to Sovereign Wealth Funds (SWFs) is a good step by the Government - most of the developed assets have seen investments by SWFs and this can only be aided by the tax break. It should also help complete infrastructure projects which have been stuck due to lack of funds, but actually have good economic potential, as these can then become targets for long term, patient SWF capital.

Overall the Budget has focused on long-term policy direction, agrarian sector, education, infrastructure, healthcare, financial services and improving ease of doing business and better tax governance. New optional regime for personal income tax will have marginal positive effect on disposable income. MSMEs in the Automotive Component industry would benefit from technology upgradation fund of Rs.1000 cr.

The initiative to develop ‘Kissan Rail’ for transport of perishable goods is a visionary move that can change the basic functioning of the cold chain industry. It will be revolutionary not only for India but for all developing countries across the globe.

The FM's announcement on the National Infrastructure Pipeline, NSDC program to help skill development in the infrastructure sector, PPP in passenger trains and making MSMEs competitive have been in discussion for some time and happy to note that the Budget has formalised this. Also, the project preparation facility is a good inititiative and should focus on projects across central, state and local body projects. Additionally, Krishi UDAAN and Kisan Rail are good initiatives which can help plug gaps from farm to market for agri produce. 

Viability gap funding to set up hospitals and medical colleges in the most undeserved districts will go a long way in addressing the shortage of beds and enhance geographical accessibility under the PMJAY programme.

Public Private Partnerships will help both unlock capacity and ensure cost effective delivery of care in rural areas. However, innovative business models will be critical for widespread private sector participation.

The time-bound proposal to shift to pre-paid smart meters can truly help utilities improve cash collection as well as help consumers get a competitive power supply. This is, eventually, a positive for generators, too, who currently suffer delays of 6-8 months and are sitting on surplus capacity that could be sold if they had access to consumers.

The Union Budget looks more realistic given the prevailing economic situation. The fiscal deficit of 3.8% for the current year has been on expected lines. A deficit target of 3.5% for FY20-21 though looks challenging to attain given the domestic sluggishness and global economic headwinds. It needs more government pump priming of the economy. The changes in tax slabs will put more disposable money in the hands of the majority of salaried taxpayers as they would have flexibility in going for lower tax rates and not go for forced savings. This is likely to provide the necessary boost to urban consumption. 

There has been a lot of emphasis on allowing more space to the private sector taking cues from the Economic Survey recommendations. Some key announcements on these include part disinvestment of LIC, public sector banks being asked to raise money from capital markets, IDBI being fully divested, closure of old power plants and using their land for alternative uses, privatizing one major port and developing five new smart cities under PPP mode.

Raising TDS threshold for interest and rental income should be welcome to passive income earners, such as senior citizens.

Eliminating tax on the notional income of second self-occupied house and allowing capital gain exemption on investment in the second house were much needed rationalisation and should rejuvenate interest in real estate.

The Budget in its vision for the next decade continues to focus on leveraging technology for solving large societal issues. There is a renewed focus on using technology for energising sustainable employment through Digital India program and catalysing start-ups and entrepreneurs at grass root level, use of precision farming and other technology interventions for achieving self-sufficiency in food, emphasis on electric vehicle and renewables for reducing carbon footprint and energy security and expanding rural industrialisation using digital technologies. The vision further strengthens the opportunity for India to improve the public service delivery system by utilising the advances India has already made in e-Governance over past few years like Digital Payment, Digital Locker, UPI, e-Sign etc. and by investing further in this space.

The government has acknowledged need for reforms in upstream industry to overcome the issue of significant energy import dependence. Pure exploration contracts are appearing to be issued, which will be new dimension to India's E&P sector.

The budget speech did not mention any plan about bringing petroleum products and gas into classical GST. The sector fears being left behind in benefit of GST reform for a few years now.

Infrastructure continues to be the critical backbone which will help deliver on various social and economic objectives. The growing emphasis on Ease of Living will require wide ranging urban infrastructure to address issues like housing and transport, as also air quality and accessibility. Rural industrialisation is key to linking farm sector with industry, and will need logistics infra to be significantly upgraded. The budget will not be able to continue to fund all of these, too far in the future. Going forward, it will be important to take measures to improve the country's credit rating, and attract more long-term foreign capital into infrastructure.

Pradhan Mantri Shramyogi Man Dhan Yojana seems to be an extension of the existing Atal Pension Yojana (APY). While APY was meant for workers in the unorganised sector, the new scheme includes marginal wage earners from organised sector as well. Another difference is the upper age limit of 60 years in the new scheme as against 40 years in APY. It is a welcome move and would further provide social security to a larger number of marginal wage earners in the country. Being contributory and designed in line with National Pension Scheme, this also makes economic sense.