It Looks Like The One Presented by Chidambaram or Pranab

(Dr Pentapati Pullrao)

Whether  the 2020 Budget will achieve its desired results will be known only after a year. But in the meantime, Finance Minister broke a record for the longest Budget speech ever in India by speaking for 2 Hours  40 minutes. Her speech was the longest since the first budget of India in 1951 . In contrast, one of the greatest budget speeches was by the great Benjamin Disraeli of Britain, who only spoke for 45 minutes in about 170 years ago.  Our great Finance Minister Dr. Manmohan Singh never spoke beyond 90 minutes .Now we have to see whether the length of a budget speech is equal to the actual substances in the Budget .  

Indian budgets are an imitation of British budgets . Indian budgets follow just about every tradition of the British budget, including a red-colored briefcase of Bag for the budget papers by the Finance Minister.  Newspapers will analyze every move of the Finance Minister on the budget . generally, her party will say it is a great budget and the Opposition will condemn it. That has already happened. 

The first budget of Republic of  India was presented in 1951. In those days,  the budget consisted only of revenues and expenditure . There was usually a gap  between revenue and expenditure and that was met by foreign aid, foreign loans and the shortfall was  met by Government printing press,which made the currency notes. But government could not print notes without limit. The Indian Rupee was also linked to gold and hence there were limits.

Nowadays, budgets have become more complicated. The budget will touch all aspects of our lives  and the Finance Minister has also to keep in mind the stock market, the foreign exchange market, international opinions and foreign companies . In the  old days, there was a lot of secrecy about the budget. Nowadays, you usually know what is going to be in the budget. If you read the economic survey of 2020, which was released on January 31, 2020, you could  guess  most of the trends of today’s budget . 

Some key issues in the 2020 Budget are as below :

 New income tax slab for FY 2020-21: ₹5-7.5 lakh: 10% income tax, ₹7.5 lakh to ₹10 lakh: 15% income tax, ₹10 lakh-12.5 lakh: 20% income tax, ₹12.5 lakh-15 lakh: 25% income tax. For those earning above ₹15 lakh, 30% income tax.  Those earning ₹5 lakh will not pay any tax. For those earning ₹5 to ₹7.5 lakh, income tax has been reduced to 10% from 20%.

FM proposed a  scheme to bring down litigation in direct taxation scheme; 4.83 lakh direct cases pending in various Appellate forums. Lakhs of crores of tax money is held up in litigation.

The move to increase the Bank deposit insurance from Rs. 1 lakh to Rs. 5 lakh by the RBI subsidiary Deposit Insurance and Credit Guarantee Corporation (DICGC) is great news for the common man. It was a necessary step in the backdrop of the recent private and cooperative bank failures and the horrible trouble felt by depositors.  I quote Adhil Shetty, CEO of BankBazaar.com.

 : “The increase in deposit insurance was overdue. This will certainly give a sense of security to depositors, especially senior citizens, who rely on their deposit interest for regular income needs in their golden years,” 

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The Budget Receipts or Income is  ₹22.46 lakh crore and the budget . Expenditure is  ₹30.42 lakh crores. So the deficit will be made up by sales  of shares of public sector units, borrowings, printing of currency notes and all other sources.  So there is a budget deficit of nearly Rs. 8 lakh crores

5. Tax harassment will not be tolerated. But how will this be done has not been outlined.  The Finance Minister thinks that an automatic system of tax collection and faceless assessment system will result in less harassment and corruption.  But I doubt it. Tax harassment wills top only when taxes are lower and the system is every simple. That has not been done. 

6.  Finance Minister  Sitharaman proposed  ₹4,400 crore solution to Delhi’s air pollution problem. Delhi has got a great allotment as it is the capital city. No other State got such an allotment 

7.  National security is the top priority of this government. This is because the security environment around India is very bad and we have  to maintain a huge army and border security forces. India is also a constant victim to potential terror actions. Security for India is a very costly affair. 

8. The Union Budget is woven around three primary themes — Inspirational India,  Economic development for all and a caring society according to Nirmala Sitharaman

9.   Simplified return for GST is being introduced from April 2020: FM

10. We shall bring back ease of living to every citizens: Nirmala Sitharaman

11. We are now the fifth largest economy of the world: Finance Minister. 

For a few months before the budget, most experts agreed that India was experiencing an economic  slowdown and a budget has to be effective in reviving the economy. Experts also agreed that consumer demand must be encouraged. There was also agreement that un-employment must be tackled by bigger government expenditures.  The depressing agriculture situation was also noted and experts said that farming must ebb revived and farmers must be helped. In general, experts agreed that a ‘ Big Bang’ budget as needed. 

But the budget does not seem to have come up to expectations .

Even the new income tax rates are not  a big benefit. In reality, the new income tax rates will apply if a person agrees to forgo all exemptions. That means the relief for income tax payers is not much and only cosmetic. 

The farm sector gets more funds. But the quality of expenditure will mean the famer will not  get a direct benefit. Various new schemes are being planned. The farmer has not benefited much by the  insurance schemes of government. So there is nothing new for the farm sector. There has been no effort to try alternate cash crops instead of rice and wheat to increase incomes. Therefore, it is highly; unlikely that farm, income will double by 2022 as prime minister Modi has  been saying.

 The reduction of un-employment is dependent on the  revival of the farm sector and factories. A quick examination of the budget does not  show any great encouragement for agriculture, except old plans in new words. . Talking about  schemes is not enough. What was needed was to design a scheme of giving Direct Cash transfer to farmers in a big way. More  funds should have been allotted to farmers to switch their crops to “ high-Value ‘ crops. That has not been touched. 

Excessive amounts of funds have been earmarked for infra-structure development. Government feels that just buildings roads, airports and ports will  be enough. But experience has shown that even if you build airports, planes might not come. Even if you build roads, there might not be enough commerce and trade.  Records show that most companies who borrowed money for infra-building are near bankruptcy and full of bad debts to banks. This means that there has been no demand for many infra-structure projects. But government is pouring  lakhs of crores into the infra-structure without good returns . I doubt whether infra-structure alone is enough. 

The single most important  action to revive an economy is to put money into peoples’ hands. People will then buy goods directly. But government has not shown any action to put money into peoples’ hands. Therefore, it is difficult  to see how the Indian economy will revive.

.   It is good  that government has talked about ending tax litigation where lakhs of crores has been held up. But how will government take urgent  steps to settle such disputes. A lot of words are frequently said on this issue,. But there seems to be no time-bound plan to get income for government from merely settling  long pending disputes, which number nearly 5 lakhs . Action and not words are needed here . But what the Finance Minister gave is the longest speech in Indian history of budgets . 

Conclusion :  Narendra Modi is a  very lucky man. Oil prices continue to be low for the last 6 years .  His tragic Notebandi scheme was done 3 years ago and maybe slowly the effects will wear off. Maybe  Chinese economy will go down further , due to the Coronavirus, which is harming Chinese economy. It  is also possible that Indians by their own skills and intelligence will invent new economic sectors like they did the IT sector, computer companies and finding Gulf employment . 

While we have to wait for the results of this 2020 Budget, the stock market is down. Praise  has also been very modest from business. The other advantage for the government is that the economy  declined in the last 3 years and it has “ bottomed out ‘. That means, the economy can only go up ,as it has come down very much.. So Nirmala Sitharaman might be a lucky Finance Minister and the economy might go up ,despite a  weak budget . But right now, the 2020 Budget seems to be the same as the earlier 6 budgets of Narendra Modi government. It looks as if it is a Chidamabaram or Pranab Mukherjee budget .

(Dr Pentapati Pullarao is a New Delhi based enonomist and political analyst)