Given the crisis the economy is facing and the populist mindset the entire political class is afflicted with, finance minister Nirmala Sitharaman has presented a Budget that cannot be called bad. That should be good enough, for, in this day and age, good is what doesn’t cause harm.
“The central government debt that has been the bane of our economy got reduced, in March 2019, to 48.7 per cent of GDP from a level of 52.2 per cent in March 2014,” she said in her speech. RBI data shows that despite slowdown in 2019-20, the government debt-to-GDP ratio is not expected to cross 50 per cent.
This means the finance minister did have some elbow room to go increase expenditure; a lot of experts and industry representatives wanted her to do that. Thankfully, she has resisted the temptation; while hiking the fiscal deficit targets for this and next fiscal, she has not gone on a spending spree.
So, the fiscal deficit has been revised to 3.8 per cent for 2019‐20, up from 3.4 per cent, and it has been pegged at 3.5 per cent for 2020‐21. “This estimation is consistent with government’s abiding commitment to macroeconomic stability,” she said, adding that the target deviations for both fiscals are consistent with the Fiscal Responsibility & Budget Management Act.
The Act “provides for a trigger mechanism for a deviation from the estimated fiscal deficit on account of structural reforms in the economy with unanticipated fiscal implications. Therefore, I have taken a deviation of 0.5 per cent.”
However, on another fiscal indicator, the revenue deficit, the situation doesn’t seem very good. The government has defined revenue deficit as “the difference between revenue expenditure and revenue receipts which indicates increase in liabilities of the Central government without increase in the assets of that government.”
The Budgetary estimate for it was 2.3 per cent for this fiscal; it has been revised to 2.4 per cent; and it is pegged at 2.7 per cent for 2020-21. The corresponding figures for effective revenue deficit, the difference between the revenue deficit and the grants for creation of capital assets, are 1.3 per cent, 1.5 per cent, and 1.8 per cent, respectively.
Which means that the fiscal deficit is not resulting in capital expenditure like infrastructure development.
There is a good announcement pertaining to the farm sector. The government wants to redeem its pledge of doubling farmers’ incomes by 2022 by incentivizing states to carry out meaningful reforms. Sitharaman proposed to encourage those state governments which undertake implementation of the three model laws already issued by the central government: the Model Agricultural Land Leasing Act, 2016; Model Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act, 2017; and the Model Agricultural Produce and Livestock Contract Farming and Services (Promotion and Facilitation) Act, 2018.
She did not spell out how would the government “encourage” state governments to implement these model laws, but the very fact that the Centre is getting serious about them augurs well for the rural sector in particular and the economy in general. And, of course, one can heave a sigh of relief that some welfarist, revenue-guzzling scheme has not been promoted.
A manageable fiscal situation and a desire to carry out meaningful reforms in agriculture and allied activities are two major takeaways.
A major expectation was the annulment of the capital gains tax; it was not met, resulting in a crash in the stock market, the Sensex losing 1,000 points. This was despite the fact that the finance minister has proposed to remove dividend distribution tax (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 finance minister provided some relief to personal income tax payers, but unnecessarily complicated the matter and increased the number of slabs, even as she claimed to have brought in “a new and simplified personal income tax regime.”
Now, an individual would pay 10 per cent for income between Rs 5 lakh and Rs 7.5 lakh against the current rate of 20 per cent, 15 per cent for income between Rs 7.5 lakh and Rs 10 lakh (current rate, 20 per cent), 20 per cent for income between Rs 10 lakh and Rs 12.5 lakh (30 per cent) and 25 per cent for income between Rs 12.5 lakh and Rs 15 lakh (30 per cent).
She has raised the disinvestment target for 2020-21 to Rs 2.1 lakh crore from Rs 1.05 lakh crore for the current fiscal. This is despite the fact that so far the government has got just Rs 17,364.3 crore from disinvestment transactions. A big announcement was the initial public offering of LIC.
Sitharaman’s speech was replete with historical references, quotes from classics, and listing of countless government schemes. The Budget that she has proposed doesn’t announce bold reforms, but at the same time there is little in it that can be detrimental to the economy.
The author is a freelance journalist. Views expressed are personal