Budget 2020: Sitharaman balances the populist with the progressive

From being the first full-fledged woman defence minister to first woman finance minister, Finance Minister Nirmala Sitharaman has many firsts to her credit. She received accolades for breaking the political glass ceiling, and for choosing a red bhai khata over more officious briefcase when she presented first budget of the Modi 2.0 in July last.

Her new assignment had came at a difficult time, when the country's economy had been hit by a slowdown. Since then, Sitharaman had been put under a sharp lens for her performance as the finance minister. She chose to engage with various stakeholders as she went across the country to understand their concerns. This resulted in her announcing 32 measures in the past eight months, to kick-start the economy.

The final outcome of her eight-month long stint was crystallised in a marathon budget speech she delivered on Saturday, lasting two hours and forty minutes. The ground work was visible in the speech. In the end it exhausted her too, as she asked the permission of Lok Sabha speaker to lay the last two pages. But then she again had another first to her name – the longest budget speech ever.

The first-budget of the decade—as Speaker Om Birla announced it—saw Sitharaman addressing the political “jan-aadesh” (mandate) through focus on rural sector economy, safeguarding the interests of Indian MSME sector through hiked customs duty on certain imported products to increased allocation, promoting wealth creators through various concessions, and promoting investments in infrastructure. This political motive came entwined with a more pressing need – to revive growth and boost consumption.

Instead of talking about individual ministries of sectors, she chose broad themes for giving inputs.

Her budget was focused on creating wealth and helping wealth creators. However, it got a thumbs down from the stock market as Sensex fell over 1,000 points. “I will wait till Monday to see the positive response. That's when the impact of the budget will be positive,” Sitharaman said at her press conference. She credited announcements in the bond market and tax regime as major steps in her later interactions with the media.

Another major step to boost growth was the plan to enhance fiscal deficit by 0.5 per cent. The government has revised the fiscal roadmap in the near term and limited the fiscal deficit to 3.8 per cent of the GDP in 2019-20 and 3.5 per cent in 2020-21. Her announcement to sell government stake in LIC to generate funds was considered a bold move which is likely to invite a lot of protests from the trade unions.

Dressed in a mustard coloured silk saree, Sitharaman held on with grace as she presented the budget amidst several barbs by the opposition benches. She quoted from Kashmiri and Tamil verses, and even referred to Harappan script, forcing many to wonder as it is yet to be deciphered.

The announcements were met with approval from the treasury benches, and help flowed from women MPs as she felt exhausted towards the end of her speech. Many rushed in to give her candies, even offered sugar asking if she need assistance. After her speech was finished, even the oppositions MPs came to ask about her health, and she waved her hand to her family in the visitors gallery, signalling she was fine.

The main effect of her budget speech will be visible in the next a few months, mostly likely by the next fiscal year. THE WEEK takes a look at key initiatives in this budget.

New tax regime

While the big expectation from her was a stimulus package or massive income tax rate cuts, the finance minister took other steps to boost consumption and give relief. For the middle class, she revised the income tax slabs by reducing taxes for those earning between Rs 5 lakh to 15 lakh. This, however, came with a caveat. The tax payer will have forego all exemptions if he wants to shift to new tax regime. The new personal income tax rates will entail estimated revenue forgone of Rs 40,000 crore per year.

“My approach is to put more money into the hands of the tax payers, it is his decision where he wants to make investments,” Sitharaman said when asked if removing exemptions will hamper the savings culture.

What Sitharman has done is to nudge the country to move towards an era where there are no exemptions. By removing tax exemptions, or giving tax payers a choice is to prompt them to give up these. “The aim is to eventually removes all exemptions,” Sitharaman said.

Another benefit for the tax payers is the introduction of Tax Charter in the statues books to check harassment as it is seen as an impediment to wealth creation. This charter will be added in the the Income Tax Act to ensure fairness to all assessees and to make sure that officials in their quest to collect taxes do not end up harassing citizens.

Rural economy

Another big focus has been on the rural economy to boost demand. She announced expansion of PM-KUSUM to 20 lakh farmers for setting up stand alone solar pumps and help another 15 lakh farmers solarise their grid-connected pump sets. She further proposed to operationalise scheme to enable farmers to set up solar power generation capacity on their fallow/barren lands. To promote storage infrastructure and reduce wastage of foodgrains, Sitharaman proposed creation of warehouses through viability gap funding on a PPP mode at block level. She proposed village storage scheme to be run by Self Help Groups (SHG) primarily managed by women. She also proposed new trains with refrigerated coaches and initiatives in aviation sector for transportation of perishable food items. Similarly, she offered to youth in fishery extension through 3,477 sagar mitras and 500 fish farmer producer organisations. “We hope to raise fishery export to rupees one lakh crore by 2024-25.”

When questioned about decreased outlays for the MNREGA scheme, Sitharaman told a news channel that as the scheme was demand driven, as and when new demand arises, more funds will be allocated. MNREGA funds assume political significance as the scheme was started during the UPA regime.

Youth

As youth have been major supporters of the Modi government, the finance minister promised steps in fields of education. She referred to job creation in her speech as she talked about various aspects, including when she announced sops for the start-ups.

The sops came in the form of tax holidays for start-ups, an Investment Clearance Cell for starting new businesses, and development of five new smart cities for such projects.

Sitharaman said a total outlay of Rs.99,300 crore has been earmarked for the education sector in 2020-21 and Rs 3,000 crore for skill development. “By 2030, India is set to have the largest working age population in the world. Not only do they need literacy but they need both job and life skills”, the finance minister said.

As a step towards employment generation, Sitharaman announced that 150 higher educational institutions will start apprenticeship embedded degree, diploma courses by March 2020-21. This will help to improve the employability of students in the general stream (vis-a-vis services or technology stream). The government will also start a programme whereby urban local bodies across the country would provide internship opportunities to fresh engineers for a period of up to one year.

Other two keys steps are starting degree level full-fledged online education programme through top 100 ranked institutions; a new an Ind-SAT test for Asian and African countries who can receive scholarships for studying in India. Among new initiatives were a National Police University and a National Forensic Science University.

She also proposed to setup a new National Recruitment Agency (NRA) as a specialist organisation for conduct of a computer based online common eligibility test for recruitment with test centre in every district for non–gazetted posts in governments and public sector banks.

Financial sector

To boost market sentiment and economy, the budget announced removal of Dividend Distribution Tax, tax sops for power generation companies, cooperatives, affordable housing, and 100 per cent tax exemption to investment made in infrastructure by foreign wealth funds.

Some of the key steps announced were to enhance deposit insurance coverage from current Rs 1 lakh to Rs 5 lakh. The finance minister said robust mechanism is in place to monitor and ensure health of all scheduled commercial banks and depositors' money is absolutely safe.

With an aim to raise more money, government proposed to sell part of its holding in Life Insurance Corporation by way of Initial Public Offering. This money will be used in infrastructure sector. This announcement came with a lot of protests from the opposition benches.

For the markets, the budget opened certain specified categories of government securities for NRIs, apart from being open to domestic investors, it also proposed to expand Exchange Traded Fund by floating a Debt ETF, consisting primarily of government securities.

The budget also provides for Rs 1.7 lakh crore to be allotted for transport infrastructure in the coming financial year. A National Technical Textiles Mission will be introduced with an outlay of Rs 1,480 crore.