nion Finance Minister Nirmala Sitharaman has presented the budget for 2020-2021 at a juncture when country’s economy is in bad shape. Her budget speech was two hours and forty-two minutes long. When Dr Manmohan Singh presented the iconic budget of 1991, he, too, made a long speech. When the late Arun Jaitley, then finance minister, presented the budget in 2014, his speech lasted two hours and 10 minutes. The duration of speech, though, is no criterion to judge the quality of a budget.
Budget envisages several ambitious investment plans of the government in areas such as infrastructure, electronics, farm and rural sectors, telecommunications, online education and piped gas supply. The finance minister has unveiled plans for highways and railways, proposing Rs 1.7 trillion ($23.7 billion) for transport infrastructure, including highways. She plans to monetise 12 lots of highway bundles and the budget also aims to encourage manufacture of mobile phones, electronic equipment and semiconductor manufacturing, besides medical devices.
Budgetary allocation of Rs 2.83 trillion for the farm and rural sectors, besides agriculture credit target for the next year at Rs 15 trillion, is considered a welcome move; nevertheless, some experts question the viability of such an ambitious commitment, especially when the economy is confronted with liquidity crunch. A proposal also exists to expand fisheries and create 500 fish farmer-producer organisations.
With regard to budgetary emphasis on developing Bharat Net or Bharat Broadband Network Ltd further, some economists opine that this would benefit Reliance Industries at the expense of BSNL. The announcement to build data center parks is a welcome one; nonetheless, some critics warn that public sector undertakings should also be strengthened to augment competitiveness and ensuring data protection.
The high expectations that this budget would undertake bold measures to provide stimulus have not been met. The finance minister’s clever strategy of working within the limits of the normal budgetary growth numbers to deliver an effect on spending is going to work only gradually
Enhanced education budget is a welcome move, along with emphasis on establishment of full-fledged online education programmes to be offered by institutions in the top 100 in the national institution ranking framework. While welcoming the move, some observers feel private operators should be allowed limited role to let higher education reach the underprivileged and downtrodden segments of society as well. With regard to income tax relief, experts have mixed reactions. While lauding the measure, experts feel it will not boost consumption.
The question how far the budget will impact current economic situation in the country is not easy to answer at present because some impacts of budgetary measures will start showing impact only in the second quarter. The immediate impact, though, can be discerned from the S&P BSE Sensex and NSE Nifty 50 indices that ended the Budget trading session with losses of more than 2 per cent. Sensex nosedived by 988 points to 39,375, and Nifty tumbled 300 points to 11,662. Analysts said the Budget proposals announced by the finance minister failed to lift investor sentiment.
The Budget, undoubtedly, was largely in consonance with expectations; nonetheless, it is disappointing on long-term capital gains (LTCG) tax front. The only factor to cheer is the rationalisation of Dividend Distribution Tax (DDT) for some high dividend-paying companies such as the ones in IT; nevertheless, no major step can boost economic sentiments immediately.
The finance minister’s ‘silence’ on infusing new capital into state-run banks for 2020-21 and government’s failure to inject fresh capital could impact big banks such as State Bank of India, Bank of Baroda, Canara Bank, Union Bank of India, Bank of India and Punjab National Bank. The absence of specific measures for the real estate and construction sectors has led to a decline in the shares of real estate companies such as Godrej Properties, Oberoi Realty, DLF and Prestige Estates. This sector had demanded measures to enhance credit availability for developers, industry status and other measures that could boost sales.
The strategy of the present government to seek political solution to all problems, be it economic or social, is seemingly a flawed approach. The present economic mess is the first casualty, and this budget is no panacea for these ills.
The high expectations that this budget would undertake bold measures to provide stimulus have not been met. The finance minister’s clever strategy of working within the limits of the normal budgetary growth numbers to deliver an effect on spending is going to work only gradually.
A lukewarm response is expected from the market to the budgetary proposals. In view of the fact that level of domestic savings has been downsizing, the assumptions made in terms of increasing spending power on the taxation front is unlikely to boost domestic savings. While hailing the fiscal target as reasonable at 3.5 per cent, some critics denote its heavy dependence on how GDP progresses. No major thrust has been given to consumption and it is left to the household.
Former finance minister P Chidambaram, when asked to rate the Budget on a scale of one to ten said: “Ten has two digits, one and a zero . . . You can pick either.” He described the current state of economy as “demand-constrained and investment-starved”. He said there was nothing in the Budget that could lead the people to believe that growth would revive and meet the target of 6 to 6.5 per cent next year. The interim budget the finance minister had presented last fiscal was almost rolled back in the middle of that financial year. Hopefully, this budget would not meet the same fate; if that happens, what will happen to the $5 trillion economy target? Isn’t it a historic budget after all?
The writer is executive editor, News24. Views expressed are his own.