The Indian sentiments on growth mirroring the global pessimism and manifested through distress in the financial sector, lower GST collections and strain on the fiscal deficit was the backdrop in which the Finance Minister tabled the budget proposals for FY 2020-21.
While it seemed that the low GDP estimate of 5% for FY 2019–20 would pose a challenge to India’s goal of becoming a USD 5 trillion economy by 2024, the Finance Minister’s budget announcements appear to be aimed at balancing growth aspirations and fiscal pragmatism. Considering the scale and sweep of challenges faced by the Government, the Finance Minister has done a commendable act in keeping the fiscal deficit at 3.8% in FY20 and projecting it at 3.5% for FY21, considering the expenditure expectations on the infrastructure and the social sectors. Though, the impact of the proposals and announcements would be better understood as the fine print is deciphered, directionally, they are likely to aid consumption and job creation.
The Finance Minister has placed significant emphasis on agriculture, wellness and education. These three areas have huge potential to impact the lives of a large part of the population. Accordingly, the 16-point agenda for the agriculture sector, viability gap funding for PPP hospitals and the new education policy with likely changes in the FDI rules are the key ingredients of the budget that would facilitate job creation and skill development.
There is also a strong message towards gaining people’s confidence and trust through assurance about the stability of the banking system, making proposals like decriminalising the Companies Act, relooking at other laws, fine-tuning the Contract Act, increasing the deposit insurance and creating a taxpayers’ charter in the statute to prevent harassment.
Recognising urban centres as the growth engines and giving importance to the role of the private sector, there are proposals to develop five smart cities, promoting electronics manufacturing, solar infrastructure, more trains, more airports and data centre parks under the PPP mode.
The tax proposals in the budget are directed towards creating trust, bringing in certainty, attracting investments and in reducing litigation. The key features of the tax proposals that deserve a special mention are reduction of tax rates for individual taxpayers in lower income range, the much-awaited abolition of dividend distribution tax, breather to start-ups, tax exemption on dividends, interest and capital gains investments by sovereign wealth funds, extension of the
concessional tax regime to power generation companies, introduction of safe harbour and APA to attribute profits to permanent establishments, harnessing technology by enabling faceless appeals, relaxing compliances for MSMEs and the tax litigation settlement scheme.
At the same time, the Finance Minister has sought to bring in balance by making some proposals towards increasing the tax base by introducing TDS on e-commerce platforms, TCS on repatriation of money under the LRS and expanding the scope of tax residency. Some key expectations that did not make it in the Finance Bill are the removal of capital gains tax on listed securities and extending the SEZ exemption regime.
On the indirect tax front, the development of an ecosystem for availing online refund of duties will provide relief to the exporters. Besides, a rejig of customs duty has been proposed, with import duties on medical devices, footwear, furniture and commercial vehicles are set to be increased, and duty on road infrastructure related items to be reduced. The excise duty on the tobacco products is also set to be increased.
To conclude, implementation will be the key for the measures announced in the budget to support growth. The fiscal path leans heavily on the divestment proceeds targeted over INR 2 trillion to achieve the growth rates realistically in the current scenario. Any slippage on the underlying assumptions on revenue will impact the actual deficits and the growth ambitions of being a USD 5 trillion economy.
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