Pro-farmer steps to revive growth
The new Indian budget for 2020-21, which was unveiled on Saturday, sought to spend billions to double farmers' incomes by 2022, and offered a simplified tax regime as well as a slew of measures to boost the economy suffering from a slowdown.
The pro-middle class budget presented to the parliament by Finance Minister Nirmala Sitharaman also seeks to upgrade infrastructure, health care, and industry to boost the country's lowest economic growth in a decade.
The budget envisages a total spending of $434.6 billion (Rs30.42 trillion), up from $385.6 billion in the current year, and receipts of $32.085 billion (Rs22.46 trillion) The minister, presenting her second budget in eight months, proposed to lower income tax, changing the tax slabs and rates for those foregoing exemption and deductions. The new optional personal income tax regime offers to lower taxes by 5-10 per cent for people earning above Rs500,000 a year. Those earning less than Rs500,000 will pay no tax, up from Rs250,000 currently.
For income between Rs750,000-Rs1 million, the tax rate is 15 per cent; for income between Rs1 million and 1.25 million, the tax will be 20 per cent; for Rs1.25-1.5 million income, the tax rate will be 25 per cent. Those earning above Rs15 million will continue to pay 30 per cent. The government will have to forego Rs400 billion as a consequence of income tax rate tweaking.
She said Rs2.83 trillion ($39.82 billion) will be allocated for agriculture and allied activities including helping farmers set up solar power generation units as well as establish national cold storage to transport perishables.
Proposing a 16-point action plan to boost agriculture and farmers' welfare, Sitharaman said: "Farm markets need to be liberalised, farming needs to be made more competitive."
Agriculture accounts for 15 per cent of India's gross domestic and a source of livelihood for more than half of the country's 1.3 billion population. The budget proposed to spend $9.9 billion for health, $3.9 billion for industry and commerce, and $628.6 million to combat worsening air pollution in the country.
"Farm markets need to be liberalised, farming need to be made more competitive," she said.
Describing the objective of the budget as "to boost the income and the purchasing power of people" Sitharaman said that the government will also spend $50.65 billion on a federal water scheme to address the challenges facing one of the world's most water-stressed nations.
Agriculture accounts for 15 per cent of India's gross domestic and a source of livelihood for more than half of the country's 1.3 billion population.
The multi-billion-dollar package stimulus fell short of market expectations and battered stocks as Aisa's third-largest economy grappled with its worst economic slowdown in a decade beset by falling employment, consumption and investment.
Under the announced income tax regime, taxpayers will get certain tax benefits if they forego exemptions.
"People of India have unequivocally given their support to the policies of the Narendra Modi government. People reposed faith in our economic policies. This budget aims to address the aspirations of people," Sitharaman said in her address.
The government estimates economic growth this year, which ends on March 31, will slip to five per cent, the weakest pace since the global financial crisis of 2008-09. It has also warned that an expected bounce back in growth the following year might entail a blow out in fiscal deficit targets.
The minister said that the fiscal deficit for the current year would widen to 3.8 per cent of gross domestic product, up from 3.3 per cent targeted for the current year.
For fiscal 2020-21 Sitharaman set the fiscal deficit at 3.5 per cent as it boosts state funding to shore up a sagging economy.
Analysts said the budget highlighted the challenges to fiscal consolidation from slower real and nominal growth, which may continue for longer than the government forecasts.
India's government debt is already significantly higher than the average for Baa-rated sovereigns - a product of persistent fiscal deficits, it said.
While India's new budget calls for a modest narrowing of the deficit to 3.5 per cent in the fiscal year 2020/21 from 3.8 per cent in the fiscal year 2019/20, sustained weaker growth and tax cuts would make gross revenue targets difficult to achieve, analysts argued.
Indian shares slid to an over three-month low on Saturday, with sentiment dented by the lack of sufficient stimulus in the budget to lift the economy, analysts said.
The NSE Nifty 50 index dropped as much as 2.1 per cent to 11,717.45, while the benchmark S&P BSE Sensex slumped 1.95 per cent.
"People have reposed faith in our economic policy. This is a budget to boost their income and enhance their purchasing power," she said.
The government also announced higher duties on a host of imports from walnuts to automobiles and even smartphone components.
The budget proposed to increase taxes on imports of pre-assembled printed circuit boards to 20 per cent from the previous 10 per cent, and imposed new taxes on mobile phones ringers, display panels in a bid to boost local manufacturing of smartphones, like neighbouring China.
To help generate revenue, the minister also announced the government will reduce stakes in the country's largest insurer Life Insurance Corporation as part of its divestment programme.
In its annual economic report, released on Friday, the government predicted that growth would rebound to 6.0 per cent to 6.5 per cent in the fiscal year beginning April 1, but warned that it may have to exceed its deficit target to revive growth.
Sitharaman said 100 more airports will be developed in the country by 2024 to boost the aviation sector. She also announced an allocation of $3 billion for the power and renewable energy sector in 2020-21.
Many economists believe Prime Minister Narendra Modi's signature economic policies are at least partly to blame for the slowdown. A surprise demonetization in 2016 and the hasty rollout of a goods and services tax were blows to manufacturing, especially the auto industry.
Gene Fang, Associate Managing Director, Sovereign Risk, Moody's Investors Service said: "India's 2020/21 budget highlights the challenges to fiscal consolidation from slower real and nominal growth, which may continue for longer than the government forecasts."
Commerce and Industry Minister Piyush Goyal on Saturday said that the budget is "very balanced" and it prepares India to become a $5 trillion economy.
"I think this is a very balanced budget which prepares India for the decade ahead of us, prepares India to be a $5 trillion economy and covers a very vast canvas on the social side of economic development," he said.