Budget 2020: Sitharaman’s Missed Opportunity to Boost Demand

Almost nothing has been done to address India’s biggest economic problem right now— shrinking domestic demand.

Nirmala Sitharaman had her task cut out. She had to use Budget 2020 to stimulate demand, both for consumption and investment. The Finance Minister was also in a comfortable position because there was a broad consensus, even among conservative economists, that it is okay to miss the fiscal deficit targets for a couple of years. What we got, however, was an entirely lacklustre, vision-less document.

Government spending will increase by about Rs 3.44 lakh crore, in 2020-21, compared to what is being spent in this fiscal. Government revenue is expected to go up by Rs 1.71 lakh crore compared to this fiscal. So, there’s an additional Rs 1.73 lakh crore to be brought from other sources. Where will it come from?

• Govt revenue is expected to go up by Rs 1.71 lakh crore compared to this fiscal. So, there’s an additional Rs 1.73 lakh crore to be brought from other sources. Where will it come from?
• When it comes to the middle class, the finance minister announced a ‘simpler’ income tax structure, which paradoxically has many more slabs.
• Virtually nothing has been done to address the biggest problem India’s economy faces right now — that of shrinking domestic demand.

Budget Speech: How Will Govt Fund Everything Sitharaman Mentioned?

Modi Sarkar says it will get an additional Rs 1.45 lakh crore from disinvestment alone. Mind you, it had set a disinvestment target of Rs 1.05 lakh crore in 2019-20, and managed to raise just Rs 65,000 crore. Ms Sitharaman has announced that LIC might be listed, and that is probably going to be the single biggest source of divestment funds.

The remaining funding gap will be met with the expanded fiscal deficit. Economists expected the government to expand the deficit by at least 0.5 percent of GDP or about Rs 1 lakh crore. This writer had advocated for doubling that to about Rs 2 lakh crore. But, Budget 2020 is expanding the deficit by less than Rs 30,000 crore. It is just 3.8 percent more than what the fiscal deficit turned out to be in this fiscal. In real terms, adjusted for inflation, the fiscal deficit is going to contract, instead of expanding.

So, how will the government fund everything that the FM mentioned in her marathon speech?

What is the plan to double farmer income? Is it by dramatically increasing budgetary outlay for agriculture and rural development? Is it by increasing funds for MGNREGA? Or is it by giving more money under PM-Kisan?

What Does Budget 2020 Mean for Farmers?

Budgetary allocation for agriculture and rural development, taken together, has gone up from Rs 1.51 lakh crore — that was meant to be spent in this fiscal — to Rs 1.55 lakh crore. That’s a measly 2.1 percent increase, and in real terms, a 2 percent drop in expenditure. The government spent Rs 71,000 crore on MGNREGA this fiscal. Allocation for the employment guarantee scheme has been reduced to Rs 61,500 crore. Allocation to PM-Kisan is unchanged at Rs 75,000 crore, which again means that in real terms, it’s a 4 percent reduction.

There are some heads that affect farmers directly, which have got decent outlay hikes.

Pradhan Mantri Krishi Sinchai Yojna for irrigation is up 15 percent, the crop insurance scheme gets a 14 percent increase, and the outlay for interest-rebates on short-term farm loans has been increased by 18 percent. On the other hand, other schemes for the rural poor, such as the much vaunted Saubhagya, which gives LPG connections to the poor, have either seen a cut in their budgets or have been kept static.

The three heads under which funds are given to promote agriculture, dairy and fishing – the Green, White and Blue revolutions – were allocated a total of Rs 15,371 crore in the previous budget. Budget 2020 increases the allocation to Rs 15,695 crore, an increase of just 2.1 percent, again a contraction in inflation-adjusted terms. So much for promoting agriculture.

Will the Middle Class Benefit From New ‘Simpler’ I-T Structure?

What about education and health? Outlay on education has gone up by 4.7 percent, which means as a percentage of GDP it has gone down from 4.6 percent in this fiscal to 4.5 percent in 2020-21. Similarly, outlay on health has gone up by just 3.8 percent compared to what it was allocated for 2019-20. And it is down from 0.31 percent to 0.30 percent of GDP.

When it comes to the middle class, the finance minister announced a ‘simpler’ income tax structure, which paradoxically has many more slabs.

Tax rates have been reduced for all brackets for anyone earning up to Rs 15 lakh per year. However, this will only be applicable if they do not avail of any of the tax exemptions available right now. So, the lower tax regime is only available to those who do not take tax rebates on housing loan payments, PF investments, medical insurance premium, and house rent allowance.

The FM said that the removal of exemptions will simplify matters and help people calculate their tax liabilities and file their returns without professional help. In the real world, outside her budget speech, tax payers will need to turn to their CAs to work out whether taking exemptions is better for them, or paying tax under the new tax regime.

Corporates got a minor sop, as the government removed the dividend distribution tax on companies.

While the FM spoke of ensuring that entrepreneurs are not victimised by tax officials, no concrete steps were announced, other than a promise to insert a taxpayer’s charter, to protect their rights.

India’s Shrinking Domestic Demand Crisis — What Budget 2020 Skims Over

Virtually nothing has been done to address the biggest problem India’s economy faces right now — that of shrinking domestic demand. There are no clear plans to generate jobs, nothing to improve incomes. While there have been repeated statements about investing Rs 103 lakh crore in infrastructure, there is no visible path on how that will be funded.

Nirmala Sitharaman’s budget speech lasted as long as an average Bollywood film. Unfortunately, it didn’t turn out to be a blockbuster.

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(The author was Senior Managing Editor, NDTV India & NDTV Profit. He now runs the independent YouTube channel ‘Desi Democracy’. He tweets @AunindyoC. This is an opinion piece. The views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)