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Indian Budget Analysis FY 2020-21: Key Points

Amid India’s alarming financial scenario, global pessimism, poor GST collections, and distressing fiscal deficit, the Finance Minister proposed the Union Budget for FY 2020-21 on February 1. This came as an air of relief aimed at effectively managing fiscal pragmatism and the country’s growth aspirations. Now it is a matter of time to see; whether the Finance Minister’s budget announcements will help India overcome its low GDP estimate of 5% for the financial year 2019-20, and achieve its goal of USD 5 trillion as an economy by 2024.

Understand the impact on you as we provide an in-depth Indian Budget Analysis 2020 with a focus on key points.

Key Features of the Union Budget 2020 are:

  • Moving Ahead with Growth Aspirations

There’s one thing evident in the new budget, the government wants to build an “Aspirational India.” The finance minister has given special emphasis on education, agriculture, rural development, and wellness to impact the lives of millions for the better.

The budget focuses on a 16-point agenda proposed for the agriculture sector. Additionally, with the new education policy, the “viability gap” financing for PPP hospitals and prospective changes in FDI rules are expected to facilitate skill development and job creation.

  • Paving the Way for Economic Development

For streamlined economic development, the budget proposed collaboration with the states to set up five smart cities, with more stress on promoting solar infrastructure, electronics manufacturing, more airports, data center parks, and trains under the PPP model. The new “National Logistics Policy” will clearly provide impetus to the country’s infrastructure sector. It indicates that the government focusing on urban development is a powerful and effective growth engine.

Also, proposals were given to establish a project preparation facility that helps fast-pace current projects.

  • Tax Proposals

The key tax proposals outlined in the budget are initiated towards building trust, ensuring certainty, driving more investments, and lowering tax litigations. One of the key highlights here is the reduction of tax rates for individual taxpayers who belong to the lower-income range. This financial year, the Budget also worked towards the much-awaited abolition of the dividend distribution tax (DDT) with effect from 1 April 2020.

Under Personal Tax, the budget proposed an “Optional Tax Regime” to extend relief in the form of lower tax slab rates. Other key tax proposals as considered important in our Indian Budget Analysis are:

  • Tax exemptions on dividends
  • Fast and efficient tax litigation settlement
  • Introducing a reliable APA and harbor to extend profits to stable establishments
  • A tax breather for start-up businesses
  • Capital and interest gains investments to be initiated by sovereign wealth funds
  • Lenient tax rules for MSMEs
  • Using advanced technology to facilitate faceless tax appeals

For indirect taxes, the budget focused on developing an ecosystem that helps get online refunds for duties, providing relief to the exporters. A new line of customs duties has been outlined. Import duties on footwear, medical devices, commercial vehicles, and furniture have been increased, while those on road infrastructure and duty-related items are set to be lowered. The excise duty on tobacco will also increase.

  • Implementing “Cleaner Air” in Big Cities

To mitigate large-scale pollution that is causing havoc on human lives and the environment, the Budget 2020-21 laid the proposal to incentivize states that will design and implement strategic plans to ensure clean and fresh air in big cities. To make the plan effective, the Finance Minister allocated INR 4,400 crores for the financial year 2020-21.

  • The Financial Sector Gets a Boost

The Indian Budget 2020-21 laid special emphasis on uplifting financial services. To facilitate increased participation in “Foreign Portfolio Investments (FPI)”, it proposed to boost investment limits to 15% of the total outstanding stock of corporate bonds. The budget also aims to enable sourcing of foreign direct investments and external commercial borrowings to provide the highest quality education. It also proposed formulating legislation to create a mechanism that enables getting more lucrative financial contracts that can help broaden the scope of “credit default swaps”.

However, a major highlight here is the Government, planning to sell a part of its LIC holdings through an IPO. Additionally, the budget proposed selling off the Government’s balance holding in IDBI Bank to retail/institutional/private investors through the stock exchange too.

According to our Indian Budget Analysis, this has sparked criticisms from diverse fields, stating that such an act can lead to unemployment, higher interest rates, and other aspects that will affect the lives of common people.

  • GIFT City

As proposed by the International Bullion exchange(s), the Government will establish a GIFT City that will provide global market participants with an additional trading option. Herein, the RBI and the Government permits trading rupee derivatives in the IFSC. The latter also claims that the GIFT City can serve as an epicenter of high-end data processing.

  • Healthcare

To address the challenge of hospital shortages in Tier 1 and Tier 2 cities, the budget proposed setting up a “viability gap funding” to establish hospitals under Public-Private Partnerships (PPP). Under this scheme, aspirational districts that do not have any hospitals yet, impaneled under “Ayushman Bharat plan” will be covered too. The objective is to provide better healthcare services to all, especially in districts.

  • Strengthening the Education Frontier

Education is the backbone of economic development. Keeping this in mind, the Government proposed implementing a new education policy soon. The budget highlighted to meet the financing needs through foreign currency loans and FDI. It also proposed to allow leading 100 NRF ranked educational institutions to provide full-fledged degree programs online.

  • Agricultural Development Remains a Key Focus

Another key highlight of Indian Budget Analysis for FY 2020-21 is the Government’s focus on all-around agricultural development. It proposed to boost the State Governments who have implemented certain model laws issued by the Central Government earlier. This is focused on improving efficiency in the agricultural supply chain and streamlining the produce procurement process; thereby providing better prices to farmers and consumers.

With this, let’s be optimistic that India will witness a new ray of hope – overcoming the challenges of a poor economy and catering to individuals & businesses effectively.

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