All eyes were on Finance Minister, Nirmala Sitharaman, as she presented the Union Budget 2020-21 on February 1, amid a backdrop of global pessimism and distress in the financial sector, as well as rising fiscal deficit. In order to balance growth aspirations and burgeoning concerns regarding fiscal deficit, this year’s Budget laid emphasis on three core ideas – Aspirational India, Economic Development, Caring Society.
In Decoding Budget 2020 and its impact on various sectors. let us look at the big policy announcements in some of the significant sectors, and delve deep into what reputed industry leaders feel about these moves:
Data is the new oil, says Sitharaman with regard to the tech sector
In her speech Nirmala Sitharaman said the government will soon build data centre parks throughout the country. She added that India’s new economy will be steered by technologies like Artificial Intelligence (AI), Internet of Things (IoT), 3D printing, drones, data storage, among others.
– A new proposal to build Fibre to The Home (FTTH) through Bharatnet to link 100,000 Gram Panchayats over the next financial year, was also welcomed. For this, the budget has allocated Rs 6,000 crore to expand Bharatnet – a platform to boost regional language content streaming, audio and video in rural areas.
– The government will also soon set up a digital platform to simplify registration of intellectual property rights (IPRs) that are developed by entrepreneurs and startups. Hailing this move, Rashmi Guptey, CFO and General Counsel, Lightbox Ventures, shared with TBC, “Recognising the importance of proliferation of technology and productivity of our population was very relevant to a contemporary India. Creating an IPR digital platform for seamless application of IPs was a great move and an absolute need of the hour.”
Dr. Rishi Bhatnagar, President, Aeris Communications, lauded these reforms but feels more government support is essential in this regard. “More government support is desired for triggering the digital revolution with use of new-age technologies like IoT, AI and Machine Learning in economic, healthcare and agriculture development. We urge the government to also focus on using the allocated funds for automation and mechanisation in these fields. With these initiatives, technology companies will be able to provide cutting edge IoT technology services for efficient waste management and higher productivity in the field of agriculture, utilities, finance, asset assurance, fleet management and many more areas.”
Praising the government for its proposal to start apprenticeship-embedded degree/diploma courses by March 2021, Bhatnagar added, “It is also heartening to see that the new budget initiatives have tried to positively address the skill-gap problem. The apprenticeship embedded degree, online education program and study in India program will equip the upcoming Indian professionals with the essential knowledge and competencies to navigate the data-driven world of tomorrow..”
Hope for the EV sector
The government has been encouraging when it comes to promoting the manufacture and use of electric vehicles to reduce India’s carbon footprint and crude oil imports. The Faster Adoption and Manufacturing of Hybrid and Electric Vehicles, or FAME 2 scheme was announced with an outlay of Rs10,000 crore in March 2019.
– This Budget saw the government announcing an increase in basic customs duty in the range of 10-40 percentage points across the EV segment.
Mr. Shailesh Chandra, President, E-Mobility Business and Corporate Strategy, Tata Motors, told TBC, “The proposed hike in SKD/CKD forms of Passenger EVs is consistent to the ‘Make in India’ approach and encourages progressive localisation of Electric Vehicles in the country. This will drive the efforts of OEMs more towards local operations and ensure greater commitment to Electrification in the country. This also, in a way, complements the Phased Manufacturing Plan laid down by the government under the FAME program.”
Detailed agenda for agriculture welcomed by leaders, await action
– Nirmala Sitharaman emphasised on the need for ‘farm markets to be more liberalised and farming to be more competitive’. The allocation of Rs 2.83 lakh crore rupees for agriculture and allied activities, irrigation and rural development, in the 2020-21 budget, will provide an impetus to this sector.
– Sitharaman also proposed measures for 100 water-stressed districts in the country, and added that the agricultural credit target has been set at Rs 15 lakh crore.
– The other big announcement was the proposal to provide additional aid to farmers, under the Pradhan Mantri Kisan Urja Suraksha Evam Utthan Mahabhiyan (PM KUSUM). This Scheme envisions to assist 20 lakh farmers in setting up standalone solar pumps. Additionally, Sitharaman said the government will continue to support the idea of zero-budget farming, proposed in the previous budget.
– The agriculture sector also welcomed some other moves, including the introduction of Kisan Express by Ministry of Railways and Krishi Udaan by Ministry of Civil Aviation to help farmers transport perishable goods quickly.
– The other meritorious announcements included the expansion of the NABARD Refinancing Scheme. Speaking in this regard, Arjun Mehta, Partner, RNR & Co, told The Blue Circle, “Initiatives and programmes for agriculture, rural development and irrigation are a welcome step. Schemes relating to solar pumps and refinancing facilities by NABARD are in the right direction. However, only time will tell how they go on to increase rural demand.”
On the other hand, Sanjay Banerjee – Partner, Amrop India, in an exclusive chat with The Blue Circle, said, “Overall it appears to be high on “statement of intent” but providing little clarity on specifics barring a few areas.What exactly is being done to address the issue of rural consumption is not clear, especially as outlay on MGNREGA has actually been brought down.”
Will the new tax regime benefit taxpayers?
–The Minister announced new tax rates for those earning up to Rs 15 lakh a year which will only be applicable for those who forego exemptions and deductions. Note: The new rates are optional and individuals can follow the older rates too.
New income tax slabs
0 – 2.5 lakh – exempted
₹2.5 lakh – ₹5 lakh – 5%
₹5 lakh – ₹7.5 lakh – 10% (20% earlier)
₹7.5 lakh – ₹10 lakh – 15% (20% earlier)
₹10 lakh to ₹12.5 lakh – 20% (30% earlier)
₹12.5 lakh – ₹15 lakh – 25% (30% earlier)
No change in tax rates above ₹15 lakh
According to Sanjay Banerjee – “The intent to move to a simplified direct tax code with fewer exemptions is welcome. However, the existing tax rate cuts under the new scheme will only benefit a narrow band of people earning between Rs 14 to Rs 20 lacs per annum. For the higher income bracket, it remains unchanged and for the lower income bracket, incidence of tax is less only for those not availing any current exemptions. It appears that the Government wants to direct efforts of this group from savings and investment on things like re-trials, Mediclaim etc to consumption. However, the question to be asked is whether, in the absence of any significant safety nets, is this redirecting of behaviour advisable for this vulnerable segment of the population.”
On the other hand, Lakshman Kanuga, President, Corporate Affairs – Botil Oil & Strategic Advisor – IPN Holding BV, feels that it’s a noteworthy move. “It requires courage to present a Union Budget against the backdrop of the present state of the Economy, a delicate balancing act to address multiple constituencies, some intrinsically contradictory. The revised Personal Income Tax regime without exemptions and the choice allowed to stick with the current regime with exemptions very cleverly segregates the salaried constituency into those who are more likely to propel consumption growth with more money in hand than those at higher income levels.”
– In the current scenario, companies are required to pay dividend distribution tax (DDT) on the dividend paid to its shareholders at the rate of 15% plus applicable surcharge and cess. This is in addition to the tax payable by the company on its profits. This has now been changed.
Voicing his views, Ashok Maheshwary, Founder, Ashok Maheshwary & Associates LLP, told The Blue Circle, “On the corporate tax front, the biggest change has been changing the taxation of dividends from the current taxation in the hands of the company to shareholders. This is a big change and will benefit smaller resident shareholders who will get benefit of lower slab rates. The biggest class of beneficiaries would be foreign shareholders who would be able to get benefit of treaty tax rates and also a credit of that in the home country.”
Sanjay Banerjee has a different view. “While Dividend Distribution Tax in the hands of the recipient may be good news for FPIs, it would imply additional tax burden on most retail investors.”
– Startups have also got further clarification by extension of the the tax holiday to 7 years and the increase in the revenue threshold from existing Rs 25 crores to Rs 100 crores. In this regard, Ashok Maheshwary feels, “Startup employees will be able to defer their tax liability on exercising ESOPs for 5 years or sale of ESOPs or leaving employment whichever is earlier.”
-To promote affordable housing, Sitharaman has extended the date for availing additional tax benefit on purchase of new houses (up to ₹45 lakh) by a year to March 31, 2021.
Mixed review for healthcare announcements
– The government has proposed to set-up viability gap funding for establishing hospitals in PPP mode. This is applicable for aspirational districts that do not have any Ayushman Bharat empanelled hospitals.
– Sitharaman also proposed focus on liquid & grey water management along with waste management & Task force for lowering Maternal Mortality Ratio (MMR).
– The Budget also proposed a health cess of 5% on the import of medical equipment. Proceeds from such a cess may be utilised towards building healthcare infrastructure in aspirational districts.
Sharing his concerns with TBC, Sanjay Bhutani, Director – Medical Technology Association of India (MTAI), said, “A 5% cess on custom duties for import has been imposed on medical devices in the budget today, which will increase the cost of the imported medical devices. Ultimately, patients will bear this cost and affordability will decrease. This is against the basic ethos of PMJAY, wherein the government wants to provide affordable healthcare for all. This is a retrograde measure and goes against the global companies which provide more than 80% of the critical care medical devices as well as the patient who gets exposed to the danger of smuggling of these low-bulk and high value devices, without service & legal guarantees from neighbouring countries, where the tariffs are already lower. The domestic self-sufficiency argument of the government also needs to be taken with a grain of salt. We do hope the government has not looked at the classes of products on which it plans to impose this cess, monolithically, as many sub categories of these classes would not be manufactured in India at all.”
Education at the forefront
– Nirmala Sitharaman suggested a new education policy, apart from several measures that will revolutionise the education sector, and facilitate employment and skill-building. The budget earmarked Rs 99,300 crore for the education sector in 2020-21 and about Rs 3,000 crore for skill development. In the previous Union Budget, the government’s allocation for the sector was Rs 94,800 crore.
Pranay Kotasthane, Head of Research, The Takshashila Institution, told The Blue Circle, “Education is a concurrent list subject, so Union government budget spending is only one part of the story. Having said that, there was a marginal 6.4% nominal increase in the Union government’s allocations for Samagra Shiksha Abhiyaan – a flagship centrally-sponsored scheme to which both union and state governments contribute.”
Further, he added, “Any drastic increase in spending education requires a jump in revenue collections or a diversion from existing commitments to fuel, fertilizer, and food subsidies, and on other non-priority expenditures. Given that neither of the conditions were satisfied in the last fiscal year, the budgetary allocations this year reflect a status-quo stance on the education front.
Policy announcements that should bring cheer going ahead are: enabling FDI and external commercial borrowings into the education sector and green signalling degree level full-fledged online education programmes by country’s top 100 educational institutions. .”
– The budget also proposed a National Police University and a National Forensic Science University.
Some of the reforms are not as par with expectations, while others seem promising. Only time will tell, if Budget 2020-21 proves to be path-breaking or not!