BUDGET 2019-20 Summary ( 6th July 2019)
● Before we begin, to get a holistic view,
● Please go through the 4th July Mains Sure Shot question where we discussed the present state of the Indian economy and the way ahead.
●This is the first time that the budget has been presented by a full-time female Finance Minister. Earlier this post was held briefly by Mrs. Indira Gandhi (1970-71) when Moraji Desai resigned.
Targets set by the budget:
●In her maiden budget the FM has set for the economy a target that she aims to achieve by 2024.
1. To make India a $ 5 trillion economy and,
2. This economy would be marked by – widely dispersed social and physical infrastructure; low-carbon footprint; housing for all; and other desirable things for a flourishing economy.
Sector wise highlights:
1. Fiscal Deficit target has been reduced to 3.3% of GDP in the financial year 2019-20, lower than 3.4% estimated in the interim budget. But given the condition of the economy which needs a fiscal stimulus, this can be difficult to achieve.
2. With a view to boost digital payment, the government has proposed a tax on cash withdrawals exceeding rupees one crore in one year.
3. As mention in the answer of 4th July, the Indian economy needs a fiscal stimulus and for it the government needs to boost investment and not only from the private sector but it itself needs to raise money and spend. So disinvestment was suggested as an option. And just as we assumed the government has set a target to raise 1.05 lakh crores through disinvestment. (e.g. Air India).
4. The government also made it clear that it plans to borrow in foreign currency from external market. This will ease the pressure on domestic market that is facing a supply glut. So, the domestic lenders will have more money to lend to the private investors.
5. In order to improve the peoples (investors) confidence in the NBFCs, which is facing a crisis, the government has decided to bring NBFCs under tight control of RBI and also announced additional liquidity of 1.34 lakh crores to the NBFC sector.
6. As discussed in the answer of 4th July, in order to infuse more capital into the economy, the government has planned to provide 70,000 crore capital infusion to the public sector banks. This will enable them to give more loans hence, putting money in the market.
7. In case of farmers, the budget of the Agriculture Ministry has been almost doubled. But it is mostly directed towards schemes like PM-KISAN and PM-AASHA.
●There is a discontent that there has been no drought relief.
● Also, stress was given on ‘zero budget’ farming or organic farming.
1. The budget proposes a hike in income tax on rich.
2. There is a hike in surcharge on taxable income from 2crore to 5crore by 3% and 5crore and above by 7%.
3.The budget has proposed hiking the duty and cess on petrol mad diesel by rupees 2 per/litre.
4. Aadhar has been made interchangeable with PAN for filing tax returns. This means that those who do not have PAN can file income tax return by using their Aadhar.
5. Very important, to encourage start-ups in the country the government has eased angel tax norms.
6. To give push to MSMEs, the companies with an annual turnover of 400 crores will pay corporate tax at the rate of 25%. Earlier this rate was applied to companies who had a turnover of up to 250 crores.
● Also, a scheme has been proposed for providing loans of up to 1crore within 59 mins through a dedicated online portal to MSMEs.
● this has been called ‘turning dwarfs (MSMEs) into giants’.
7. To encourage domesting printing and publishing industry 10% import duty has been applied on newsprint and 5% on printed books.
8. The government has also hiked import duty on precious metals like gold and silver, making them dearer.
1. For the equity market the budget turned out to be a mixed bag. On one hand the investors cheered positives such as easier investment regime envisaged for foreign investors and recapitalisation of banks and simpler Securities Transaction Tax (STT).
2. On the other there was gloom at a proposal that would force companies to dilute promoter holding.
3. The government recognised Foreign Portfolio Investors (FPI) as key source of capital to the economy and hence decided to make KYC norms more investor friendly.
1. The governments was to push for a PPP model for the railways.
2. Also very importantly there is a drive to promote e-mobility. Income tax deduction of 1.5 lakh has been proposed for loans taken to purchase electric vehicles.
● Also, customs duty will be exempted on import of certain parts of electric vehicles.
3. The minister also called for port-led development by giving emphasis on using inland waterways for transport of cargo.
4. There was no change in defence allocation.
5. Stress was given on disinvesting the loss-making Air India.
6. Ambitious plans have also been set in the aviation sector to make India a MRO (maintenance, repair and overhaul) hub for aircrafts.
1. Special emphasis has been given on research and development (R&D) as it is crucial for the progress of any country.
● The government has decided to establish a National Research Foundation to fund and promote research in various fields and this is a very welcome step as R&D spending in India has stagnated over the years to only 0.65% of GDP.
2. With the vision of the PM to supply all rural households with piped water supply by 2024, the budget for National Rural Drinking Water mission has been doubled, though no special fund has been announced for Jal Jeevan Mission scheme and it has been punched with other schemes.
3. As an important step the government has decided to replace multiple labour laws with only 4 labour codes. This will enhance ease of doing business.
4. To push for Hindi in non-Hindi speaking states despite an opposition to this proposal that was set by the draft National Education Policy 2019, rupees 50 crore has been allotted to support the appointment of Hindi teachers in non-Hindi speaking states and Urdu teachers in any locality where 25% of the population is from Urdu speaking locality.
5. As we had assumed in the answer of 4th July, the proportion of funds for some development and social welfare schemes has come down like MGNREGS, Ganga clean-up, school education and rural development, while for others like higher education has gone up.
6. For giving a push to ‘Housing for All’ tax deductions have been announced for interest paid on loans for houses up to rupees 45lakh.
7. Also major stress has been given on providing every rural family with electricity and clean cooking facility by 2022.
8. But no fresh announcements were made in health sector. Though funds allotted to this sector has been hiked. This is positive because the already existing schemes can work more effectively. One scheme with proper implementation is better than ten schemes with poor performance.
9. The budget allocation for Women and Child Development Ministry was increased by 17.7%.
●The government wants a shift from ‘women-centric initiatives’ to ‘women-led initiatives.
● Another welcoming step was the proposal of setting up a committee to access budgetary allocation through gender lens.
1. In terms of foreign affairs a change in governments priorities can be seen.
2. The funds for building activities in the crucial port of Chabahar in Iran has been reduced while funding for projects in Bhutan has been hiked.
3. Afghanistan’s allocations have also come down while those of Nepal and Mauritius have remained someone same.
4. For other regional allocations like those in Latin America, Brazil and Argentina too have been reduced.
5. India has also cut its contribution to the UN to 275 crores from 307 crores but has increased its contribution to BIMSTEC.
●Overall the budget tries to stick to its fiscal deficit target.
●The aim of a $ 5 trillion economy has been fixed but the means through which it will be achieved has not clear.
● At present investment is the key requirement in the economy, public investment is required to stimulate private investment, more capital expenditure could have been done in this regard.
● To summarise, the budget is clear about what we would like to see India, right from water connection to roads. But mire clarity was needed on how we would achieve them.
What is the ‘nudge theory’?
● The nudge theory is in news because the economic survey urged using the behavioural economics ‘ nudge’ for achieving socio economic goals.
So, what is it?
● Richard Thaler is called the father of the ‘nudge theory’. He even got the Nobel economics prize for this.
● It is a concept of behavioural economics. About how to influence people’s behaviours without forcing/ telling them what to do and what not. Basically, to influence them to do what you want them to do by understanding how they think.
● Let us understand it by 2 examples-
1. Organ donation- In Spain, the government, to encourage people to opt for organ donation, made a law by which all the citizens are automatically registered as organ donors unless they choose to opt-out. So instead of asking people to opt for organ donation, the government simply gave them the option to opt-out. This is called the opt-out system of nudge theory and this worked compared to when people were asked to do it themselves.
2. Another example is of an American grocery store called Pay and Save. They placed green arrows on the floor leading to fruits and vegetables. They found that shoppers followed the arrows 9times out of 10 and their sale of vegetables increased.
● There are many other interesting examples of the nudge theory.
● The crux of the theory is that, it is not about making people do something by force by penalising them if they dont act in a certain way but to make it easier for them to take a particular decision.
● At times the nudge theory has been criticised to be paternalistic i.e. trying to influence peoples behaviour just like parents do to their kids, thinking they cant decide for themselves.
● But whatever it may be the nudge theory has proved to be very effective worldwide and is worth using more and more for constructive purposes.