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CRICKET (HTTPS://WWW.FIRSTPOST.COM/FIRSTCRICKET/) TECH (HTTPS://WWW.FIRSTPOST.COM/TECH) HEALTH (HTTPS://WWW.FIRSTPOST.COM/CATEGORY/HEALTH) Budget 2020: Indirect tax proposals PHOTOS (HTTPS://WWW.FIRSTPOST.COM/CATEGORY/PHOTOS)may take Make in India theme VIDEOS (HTTPS://WWW.FIRSTPOST.COM/CATEGORY/VIDEOS) forward; customs electronic duty FIRSTCULTURE (HTTPS://WWW.FIRSTPOST.COM/CULTURE-OF-WORLD/) TECH2 INNOVATE (/TECH2-INNOVATE) 9 MONTHS SEASON 4 (/9-MONTHS) credit ledger a milestone Budget 2020 Union Budget 2020 LIVE TV ISL 2019-20 Citizenship Amendment Act Tech2 Gad (https://www. rstpost.com/business/budget-2020-(https://www. rstpost.com/budget- (https://www. rstpost.com/budget- (https://www. rstpost.com/isl- (https://www. rstpost.com/tag/citizenship- (https://w indirect-tax-proposals-may-take-make-in-india-theme-2020/) 2020/live-tv/) 2019/) act) forward-customs-electronic-duty-credit-ledger-a- milestone-7994771.html) Budget 2020 n Unilever jumps over 4% (https://www. rstpost.com/business/sensex-turns-green-after-paring-opening-losses-jump Budget 2020: Farmers will now reap what the govt did not sow; agri distress to continue (https://www. rstpost.com/business/budget-2020- You are here: (https://www. rstpost.com/) / (https://www. rstpost.com/category/business) farmers-will-now-reap-what-the-govt-did-not-sow-Latest News Business News agri-distress-to-continue-7994461.html) India's manufacturingBudg sectoret activity202 hits0 :near H 8-yearas Finance Minister Nirmala Sitharaman set high in January on sharp demand recovery (https://www. rstpost.com/business/indias-an unrealistic disinvestment target? manufacturing-sector-activity-hits-near-8-year-high- Businessin-january-on-sharp-demand-recovery-7994801.html) (/category/business) Madan Sabnavis (https://www. rstpost.com/author/madan) Feb 02, 2020 15:48:16 IST Budget 2020: A mixed bag for healthcare services, pharma sector; additional duties on medical devices to hike costs for consumers I(https://www. rstpost.com/business/budget-2020-a-t must be realised that the Budget is just one policy of the government like the monetary policy of the Reserve Bank of Imixed-bag-for-healthcare-services-pharma-sector-ndia (RBI) and that growth is engineered in any economy by the private sector through policy incentives additional-duties-on-medical-devices-to-hike-costs- for-consumers-7993361.html)
TSensexhe g oturnsver ngreenmen aftert ca paringn init openingiate pr losses,ivate sector action by providing certain tax bene ts or directly strive to push demand tjumpshrou overgh e 250xp epoints;nditu Niftyre above 11,700, Hindustan Unilever jumps over 4% (https://www. rstpost.com/business/sensex-turns- Tgreen-after-paring-opening-losses-jumps-over-250-here are measures announced in the Budget which help to facilitate business, especially SMEs which is useful points-nifty-above-11700-hindustan-unilever-jumps- over-4-7994231.html)
Individuals earning salary of over Rs 13 lakh a year to Wsavehe nunder eva newlua taxtin regimeg the proposedBudget in it Budget is im 2020portant to ask as to what exactly is the policy supposed to address. It must be (https://www. rstpost.com/business/individuals- reearning-salary-of-over-rs-13-lakh-a-year-to-save-alised that the Budget is just one policy of the government like the monetary policy of the Reserve Bank of under-new-tax-regime-proposed-in-budget-2020- In7993311.html)dia (RBI) and that growth is engineered in any economy by the private sector through policy incentives. This is generally out of the purview of the Budget as the framework provides the contours for operation. The government can initiate private sector action by providing certain tax bene ts or directly strive to push demand through expenditure. All this is done within the contours of the Fiscal Responsibility and Budget Management (FRBM) Act which nudges government to keep within prudential limits. Let us see how this has played out.
First on the prudential side, the government has stuck to the FRBM path and overtly stated that the revised number of 3.8 percent for FY20 is 0.5 percent away from what was targeted at 3.3 percent and hence is within the permissible limits under extreme conditions in the economy which has now been accepted. For FY21 it has been placed at 3.5 percent, again 0.5 percent higher than the ideal 3 percent as conditions are still not normal. All this means that there is no Big Bang announcements along the non-conventional lines and the framework are in the traditional mould.
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We’d like to send you news update noti cations close On the taxation side the impact isYo uq caun iutnseub sacrmibe bfroimv tahelse wnhetn.ev eWr yohu wiilseh the move to lower tax rates but remove exemptions is in line with the DTC, it has been quite bold and probably (https://www.izooto.com/getting-started-with-izooto? Powered by iZooto not well-timed. While the Futimn_saonurce=ere Mferrialn&uitsmt_emred iNumi=rPmoweareldaBy &Suittmh_caamrpaamign=ahnttp %h3aA%s2 Fs%t2aFtwewdw. risntp ohst.ecorm) Allow Later speech that those choosing the new regime will be better off, it holds for only a certain class of people and hence may not be universal. Presently a choice is given to individuals to choose the regime and hence technically one can say that those choosing the new regime will do so if they stand to gain. Therefore, in a way this can be neutral but also means that these proposals may not give consumption a big push.
Second, the removal of the Dividend Distribution Tax (DDT) will be good for companies but their reaction to payment of dividend is important. If they do not enhance dividends, then the recipients will be paying tax on such earnings which is a negative from the point of view of disposable income. Presently, when DDT is paid, the company’s pro ts diminish and hence the transfer to reserves goes down. This is notional for shareholders who will not now have to pay their respective tax rates. Therefore, this may not resonate well with shareholders though company Pro t and Loss (P & L) will look better as will their balance sheets.
Combining the two, the picture emerging is that the tax measures may not really lead to higher consumption and could come in the way of savings in case individuals choose to save less with Section 80C being made redundant for those choosing to invest in these instruments. Exemptions have been introduced over the years to provide speci c incentives to sectors such as pensions, housing and insurance. Housing may become less attractive once these exemptions are removed especially when tax savings are the Finance Minister Nirmala Sitharaman presenting (https://images. rstpost.com/wp- motivation. While it may not be right to overstate the case, the conBudgettent/up inloa Lokds/l aSabharge_ l eon_p Saturday.lugin/2020 ANI/02/1580536607_NIRMALASITHARAMAN380.jpg) impact on consumption would generally be marginally positive only while that on savings can be marginally negative.
How about investment? The corporate tax rate has already been lowered and hence nothing more was expected. The Budget talks of the banking and nancial sector measures which will help in the medium term but would not really lead to more lending presently. Government’s capex has increased by 20 percent which is good, but not of the variety that gives the big push to the investment cycle. The concentration remains on roads and railways and ensures continuity. It can be hoped that the states do their bit to maintain the tempo of investment.
Putting these two together, it does not appear that the Budget is big on growth and is more focused on facilitation through policy announcements (for nancial sector) and spreading the limited resources more effectively by containing subsidies and working on better delivery of the same. There are measures announced which help to facilitate business, especially SMEs which is useful.
Are there any downsides? Here some of the assumptions made could be aggressive. For example, the high expectation on disinvestment raises a feeling of skepticism as a sum of Rs 1 lakh crore is hard to attain and this one talks of Rs 2.1 lakh crore. If this works out, the capital market will receive a boost, but the question is
https://www.firstpost.com/business/budget-2020-has-finance-minister-nirmala-sitharaman-set-an-unrealistic-disinvestment-target-7991311.html 2/6 2/3/2020 Budget 2020: Has Finance Minister Nirmala Sitharaman set an unrealistic disinvestment target? - Firstpost
whether or not it will materialize and whethWere ’dth lieke m to asernkde yto uh naesw tsh uepd cataep naotci itcyat itoon sabsorb such large stocks of PSUs. close With LIC to contribute to the kitty through aYnou I cPanO un, stuhbsecr iibne fvroems thoesre owhfe lnaevsetr yroeu swoishrt will not be a buyer in this market! Any shortfall here will reverberate on the other scal numbers. (https://www.izooto.com/getting-started-with-izooto? Powered by iZooto utm_source=referral&utm_medium=PoweredBy&utm_campaign=http%3A%2F%2Fwww. rstpost.com) Second, even in case of tax collections it is assumed that rst corporate tax collection will increase which is Allow Later premised on PBT being very high as the lower tax rate has to be imposed on a large number to attain the target. In case of GST and customs, there have to be more goods and services consumed. For customs collections, imports have to increase to garner such revenue. The experience in FY20 has not been encouraging which opens the door for some bit of apprehension. The GDP growth has been projected at 10 percent which is reasonable but the elasticity of tax collections assumed here could be optimistic.
Last, the Budget has a de cit of 3.5 percent which entails net borrowings of Rs 5.46 lakh crore which is higher than that of last year at Rs 5 lakh crore. This means that there could be some pressure on liquidity but given that the latter has been in abundance and a recovery is not expected in the economy in the rst half as per the Economic Survey, we can expect some front loading of the borrowing programme to ensure that the impact is neutral. Therefore GSec yields may not be signi cantly impacted by the de cit per se.
On the whole, the Budget has been reasonable from the practical point of view. In terms of what was expected which was a ‘Big Bang’ one, it could be a disappointment as it is a normal one which will ensure that it is business as usual from Monday onwards.
The writer is Chief Economist, CARE Ratings
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Updated Date: Feb 02, 2020 15:48:16 IST
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