Union Budget 2020: Bold & Beautiful

Union Budget 2020 has elicited a plethora of reactions from various stakeholders but clearly, this Budget, which has Prime Minister Narendra Modi's decisive stamp all over it, was neither overly bombastic nor boringly routine. It had just the right mix of sound intent backed with a roadmap to execute the vision that Modinomics epitomizes. For instance, after decades, the Deposit Insurance and Credit Guarantee Corporation (DICGC) has been allowed to increase deposit insurance coverage to Rs 5 lakh per depositor from Rs 1 lakh, something that showcases how both the "reformist" and "welfarist" approaches have blended seamlessly in this Budget and that in many ways is both bold and beautiful.

For India's GDP in the medium term to grow at 10%, infrastructure as a percentage of GDP should be in the region of 10-15%. The Modi government's Budget 2020 therefore, continues with its focus on this space. 100 new airports will be set up under the UDAN scheme by 2024, carrying forward the existing momentum. Six airports have already been privatised under the Modi regime and privatisation of six more will be done soon. The Zurich International Airport recently won the bid to build a brand new airport for Delhi, while work on a spanking new airport for Mumbai is underway.

Again, big changes in city gas distribution are in many ways spearheading the retail gas revolution. The 10th round of city gas distribution bids will cover 55-60% of Indian cities. The Mumbai-Nagpur super expressway received full funding of Rs 28,000 crore from banks and work is going on in full steam. To cut to the chase, the massive push outlined in December last year, with plans to invest about Rs 102 lakh crore on infrastructure projects by 2024-25, is in complete sync with the theme of Budget 2020. The five-year-long National Infrastructure Pipeline (NIP) that enters its 2nd year in the financial year 2020-21, during which Rs 19.5 lakh crore will be invested, reflects do-able ambition that will be further buttressed by the proposed National Logistics Policy.

27,000-km of rail track electrification, Rs 1.6 lakh crore worth of CAPEX allocation and Rs 70,000 crore of budgetary allocation for railways, operation of 150 passenger trains through the public-private partnership (PPP) mode, developing 9500 km of coastal roads and 2000 km each of economic corridors and strategic highways, the proposed 148 km long Bengaluru suburban transport project at a cost of Rs 18600 crore with 20% central government equity and, focus on Krishi rail to enforce a cold supply chain for perishables, are some of the high points of Budget 2020.

Additionally, Rs 22,000 crore in equity support to Infrastructure Finance Companies such as IIFCL a subsidiary of National Investment & Infrastructure Fund (NIIF) and of course, 100% tax exemption to sovereign wealth funds (SWFs) provided they stay invested for more than three years, as also making tax treatment of unlisted infrastructure investment trusts (InvITs) at par with listed ones, underpin the dynamic vision on infrastructure, by this government. SWFs like ADIA, along with the NIIF and another investor, have committed to buy a 49% stake in GVK Airport Holdings, which runs the Mumbai airport. Another SWF, GIC, in partnership with the Tata Group and another investor, will invest Rs 8,000 crore into GMR Airports, which runs India’s busiest airport in New Delhi.

Critics claiming the infrastructure roadmap lacks clarity on the funding aspect, have surely missed reading the fine print of Budget 2020. The Budget focuses on asset monetization and recycling with aims to monetize at least 12 lots of highway bundles of over 6000 km before 2024. The BJP led government had introduced Toll –Operate- Transfer (TOT) model in 2016, and since then, has successfully auctioned TOT bundles to private companies for monetizing public-funded highways. It is also actively pursuing the InvIT route of asset monetisation and the Union Cabinet has already approved a proposal from National Highways Authority of India (NHAI) for the same. 

A completely unfounded criticism against Budget 2020,pertains to fiscal deficit projected at 3.8% in 2019-20, 3.5% in 2020-21, 3.3% in 2021-22 and 3% in 2022-23.Gross borrowings stood at Rs 7.1 lakh crore for 2019-20 and budgeted at Rs 7.8 lakh crore for 2020-21. Concerns have been raised that the headline fiscal deficit is being understated via the use of extra-budgetary resources and the actual number could be 4.6% and 4.3% for 2019-20 and 2020-21. But these concerns are baseless, as central government debt that is in any case not a part of market borrowings, is being used to fund expenditure. Also, there is no compulsion for the government to include recapitalisation bonds, fully serviced bonds, or say, subsidy payments to Food Corporation of India (FCI), in the headline fiscal deficit number. It is perfectly prudent to include some items as off-budget items.

The government is looking to garner a record Rs 2.1 lakh crore from disinvestments. It is true that a large chunk of this, Rs 90,000 crore, is expected to come through an initial public offering of Life Insurance Corporation of India (LIC) and the sale of the government’s residual stake in IDBI Bank Ltd, which may be time-consuming. However, to bridge shortfalls if any, the government always has the option to raise funds via ETFs, which in the past have received tremendous response. Also, the government is also looking to garner over Rs 1.55 lakh crore in dividends from the RBI, financial institutions and Public Sector Enterprises(PSEs). This includes Rs 65,747 crore from public sector enterprises and another Rs 89,648 crore from RBI and financial institutions.

Another Rs 1.33 lakh crore is expected from ‘communication services’, linked to the likely collections from adjusted gross revenue (AGR) of telecom firms. Overall, the Modi government's assumptions about non-tax revenues are pretty conservative, with the potential for an upside surprise. Even tax receipt assumptions are very modest,with an expected growth of 12.3% in overall tax revenues, driven by an estimated 13.6% growth in direct rax receipts and only a 10.7% growth in indirect tax collections,for 2020-21. Therefore, all the rumour mongering about this government being aggressive in its assumptions that could, in turn, lead to a miss on the fiscal deficit target for 2020-21, is the work of idle minds.

The central government’s debt is revised to 50.3% of GDP from the budget estimate of 48% for 2019-20. For 2020-21, this debt is estimated at 50.1% of GDP, signifying, how the BJP led Modi government has neatly wedded, fiscal prudence, debt, inflation, growth and reforms, into a wholesome recipe towards becoming an aspirational and caring five trillion dollar economy in the next four years.

Abolition of Dividend distribution tax (DDT), is a bold step. It was introduced in 1997 but amounted to double taxation—after paying an effective corporate tax at 25%, the effective tax rate, including DDT, for India Inc. worked out to 48.5%. Worse still, foreign companies received no credit for DDT paid by their Indian subsidiaries. All that is a thing of the past now, post removal of DDT.

Also, though the dividend received through mutual funds is not getting taxed anymore, the same will be added to the income of the investor and taxed at a marginal rate of tax. Earlier mutual funds used to deduct DDT at the rate of 11.64% on dividends declared by the equity mutual funds. For bond funds, the DDT was charged at 29.12%. Removal of DDT will now, particularly benefit investors in the lower tax brackets, including bond fund investors in the higher 20% bracket.

The super-rich who are dividend recipients would be taxed at the maximum marginal rate of 42.7%, but given the drastic 8% reduction in corporate tax rate in 2019, raising the basic income tax exemption limit to Rs 5 lakh per annum, various sops to angel investors and, the 5% hike in dearness allowance for salaried government employees, as per 7th pay commission recommendations, it is amply clear that the Modi government has left a much larger surplus in the hands of many stakeholders including rich promoters, in the last many months. Hence this constant refrain that this government is against wealth creation and wealth creators, is simply a lot of hogwash.
Budget 2020 is also remarkable for unleashing "animal spirits" in the hitherto quieter bond markets, by increasing the investment limit for foreign portfolio investors (FPIs) in corporate bonds from 9% to 15% of outstanding stock, opening up certain government securities for non-resident investors (NRIs) and launching a new debt exchange-traded fund (ETF) consisting primarily of government securities, close on the heels of the Bharat Bond ETF launched in December 2019, which was a roaring success.

The Budget highlighted how the Narendra Modi led government lowered, effective tax incidence for India's growing middle class by about 10%, via the goods and services tax (GST), to the tune of an annual benefit of Rs one lakh crore. An average household now saves about 4% on its monthly spend on account of reduced GST rates. Hence, the contention by vested interests that the middle class has been ignored by this government, is absolutely false.

The gross GST collection for December 2019 was over Rs 1 lakh crore, making it the 9th time since the inception of GST in July 2017, that monthly collection crossed the magical Rs 1 lakh crore mark. Also, in the last two years alone, the government has added more than 60 lakh, new taxpayers, a total of about 40 crore returns were filed, 800 crore invoices were uploaded, and 105 crore e-way bills were generated, reflecting glowingly on the tremendously successful execution of the GST, which has also set a new benchmark in terms of co-operative federalism. 

Rahul Gandhi, the failed dynast whose buffoonery has inspired countless memes and the Congress, an equally marginalised player that is no longer taken seriously, keep making baseless allegations of how the Modi government has abetted crony capitalism by ignoring small businesses. However, facts to the contrary, support the case of how "Make in India" under the current BJP led regime, has got new wings, thanks to the revival of MSMEs.India has over 6 crore MSMEs employing more than 11 crore people, with this segment accounting for 48% of India's exports and about 45% of manufacturing output in 2018-19. More than five lakh MSMEs have benefitted from the restructuring of debt permitted by RBI in the last year. The restructuring window has been extended further till 31st March 2021. 

An app-based invoice financing loan product will be launched to obviate the problem of delayed payments and consequential cash flow mismatches for the MSMEs.More importantly, Budget 2020 allows NBFCs to extend invoice financing to MSMEs and additionally, subordinated debt, akin to quasi-equity, will now be given to MSMEs by banks, guaranteed by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). Again, in order to reduce the compliance burden on small retailers, traders and shopkeepers who comprise the MSME sector, the turnover threshold for the audit has been raised from the existing Rs 1 crore to Rs 5 crore for those businesses which carry out less than 5% of their business transactions in cash. India's EODB ranking has improved dramatically under the leadership of Prime Minister Modi, from number 142 in 2014 to 63 in 2019. When Modi talks of ease of doing business( EODB), he means serious business that includes the smallest vendor and trader in the entire MSME supply chain, truly capturing the essence of Antyodaya.

Coming to Start-Ups, in order to give a boost to the startup ecosystem, the Budget proposed to ease the burden of taxation on the employees by deferring the tax payment on employee stock options (ESOPs), by five years or till they leave the company or when they sell their shares, whichever is earliest. Further, an eligible startup having turnover up to Rs 100 crore will now be allowed deduction of 100% of its profits for three consecutive assessment years, with the period of eligibility for a claim of deduction hiked, from the existing 7 years to 10 years.

Allocating Rs 35,600 crore for nutritional related programmes, Rs 28,600 crore for women-specific programmes, 85,000 crore for Scheduled Castes& Other Backward Classes, Rs 53,700 crore for Scheduled Tribes, Rs 9,500 crore for Divyaang programme for the benefit of senior citizens, Rs 4400 for clean air, Rs 30,757 crore for J&K and Rs 5958 crore for Ladakh, showcase the Modi government's commitment to ensure inclusive and holistic development, cutting across both caste and demographic divides.

A total of Rs 69,000 crore has been allocated for the health sector. Hospitals under PPP mode would be established in 112 aspirational districts, with a proposal to attach a medical college with the district hospital to address gaps on the shortage of medical professionals. Anti-TB campaign to eliminate TB by 2025, setting up Jan Aushadhi Kendras in all districts of the country to provide medicines at affordable rates and using the viability gap funding (VGF) route to scale up medical infrastructure under the "Ayushman Bharat" scheme, which already has over 20000 empanelled hospitals, having treated over 70 lakh patients, are some of the high points of  Budget 2020.
It is said, India will have the largest working-age population globally, by 2030. Taking cognisance of this, Rs 99,300 crore has been allocated for the education sector and Rs 3,000 crore for skill development.150 higher education institutions will start an apprenticeship and embedded degree diploma courses by March 2021. The Modi government will also ensure industry-relevant skill training for 10 million youth in India. Online degree courses will be offered by institutes ranked in the top 100, in the National Institutional Ranking Framework (NIRF). Apart from setting up the proposed National Police University and National Forensic University, Indian Institute of Heritage and Conversation will be set up as a Deemed University. The computer-based Common Eligibility Test will be rolled out for recruitment to non-gazetted government posts and the online test will be carried by an independent agency, the National Recruiting Agency. What is praiseworthy is the keen eye for detail with respect to proposals pertaining to the education sector, including the decision to tap foreign capital via external commercial borrowings (ECBs), for this space.

Budget 2020, will among other things, be remembered for giving the North East, its due. Five archaeological sites including Shivsagar in Assam, once the capital of the Ahom rulers, will be developed as iconic sites with on-site museums. The National Gas Grid will be expanded from 16,200 km to 27,000 km. On January 8th 2020, the Cabinet approved Rs 5,559 crore capital grant to Indradhanush Gas Grid Limited (IGGL) for setting up of the North-East Natural Gas and Pipeline Grid. This project, apart from developing an industrial climate in the region, will further increase the share of clean fuels in India’s energy basket, other than being in line with PM Modi’s vision of ‘Purvodaya-Rise of the East.’  IGGL will also help in providing an uninterrupted supply of natural gas to the people of 8 states of North-East region and help develop an industrial climate without impacting the environment, apart from boosting job opportunities to further spur economic growth in the region.

Last but not the least, Budget 2020's emphasis on India's "Naari Shakti" and the farm economy, are commendable. Under the "Deen Dayal Antyodaya Yojana" for the alleviation of poverty, 58 lakh Self Help Groups (SHGs), consisting of women volunteers will serve as "Dhanyalakshmis" in villages, assisted by NABARD and the MUDRA schemes. Six lakh Anganwadi workers are equipped with smartphones to upload and update the nutritional status of 10 crore households. The tremendous impact made by the Prime Minister Modi's "Beti Bachao, Beti Padhao" programme has yielded incredible results, with the gross enrolment ratio of girls across all levels of education, higher than boys. The gross enrolment of girls is 94.32% at the elementary school level, 81.32% at the secondary level and 59.7% at the higher secondary level. Speaking of India's rural economy, under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), the total outlay which was Rs 1.91 lakh crore between 2008-14, rose to a solid Rs 2.95 lakh crore between 2014-20, with agri-credit target pegged at a whopping Rs 15 lakh crore for the financial year 2020-21, alone. Funds allotted under the premier flagship scheme such as Pradhan Mantri Gram Sadak Yojana (PMGSY), rose by 39% to Rs 19500 crore.

The effort and hard work behind Budget 2020, has Modinomics written all over it. Indeed, Modinomics is best explained by a powerful quote from none other than Prime Minister Narendra Modi himself---"Hard work never brings fatigue; It brings satisfaction".

Ms Sanju Verma is an Economist, Chief Spokesperson for BJP Mumbai and Author of the Bestseller--"Truth & Dare-The Modi Dynamic"