Union Budget 2020 to be presented in Parliament today; FM may announce cut in tax rate, sops for social sectors

New Delhi: Finance Minister Nirmala Sitharaman will present the Union Budget 2020 in the Parliament on Saturday amid huge speculations about the government announcing some relief to millions of income tax-payers of the country and offering some sops for the social sectors. Going by the people's expectations, a cut in personal income tax rate slab, sops for rural and agriculture sectors as well as an aggressive push on infrastructure spending are likely to be part of Finance Minister's "feel-good" second General Budget.

Facing the worst economic slowdown in more than a decade, FM Sitharaman is expected to pull out all stops to spur consumer demand and investment, according to economists. FM Sitharaman's second Budget is expected to announce measures to restore economic growth and to set out a clear roadmap for achieving the ambitious target of making India a USD 5 trillion economy by 2025.

Union Budget 2020-21 could not have come at a worse time for the government, as the economy faces high inflation, along with subdued growth and low job creation. Accordingly, these factors make the Union Budget presentation a unique affair, as economy watchers and investors eye the financial document for a stimulus package and further reforms to arrest the slowdown cycle. 

According to market experts, the Budget will be gauged by its ability to pass on some liquidity to the masses to restart the consumption cycle and to usher in investments. Investments have failed to pick up despite corporate tax cuts and other stimulus measures, higher FDI inflows, plans to consolidate state-owned banks and monetary easing.

After corporate tax cuts in September last year, speculation is rife about a possible reduction in personal income taxes. A combination of an increase in the basic exemption limit and/or the introduction of a differentiated tax rate structure for higher incomes may be on the cards.

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To cushion the impact on collections, these tweaks might be accompanied by rationalisation in tax rebates. "The government announced a slew of stimulus measures in the last four months but consumer confidence is missing. Not many are eager to take loans to buy homes or cars fearing the worst. The feel-good factor in the economy is missing," a senior government source was quoted as saying.

"I think the Union Budget 2020 will be a feel-good Budget that will try to restore faith in the economy and spur spending and investments," the source said. With disbursements under the PM-Kisan scheme to farmers being less than the budgeted amount, the Budget may also see measures to get states to onboard more eligible farmers under the scheme. 

Also, there would be some announcements for sectors such as renewable energy, e-vehicle, power, affordable housing, real estate, and exports. Financial markets are expecting relief on Securities Transaction Tax (STT), Long Term Capital Gains Tax (LTCG) and removal of dividend tax.

Capital infusion in public sector banks and liquidity measures for Non-Banking Finance Companies (NBFC) may also be on the horizon. Both the government sources and the economists feel the Budget would reaffirm the focus on infrastructure spending after the rollout of an ambitious National Infra Pipeline (NIP) in December.

Social sector schemes such as rural electrification, MGNREGA, healthcare, education and skill training may also find mention in the Budget. However, all such measures would come at the cost of fiscal slippage. 

Economic Survey projects growth at 6% to 6.5% in 2020-21

The Economic Survey for 2019-20, released on Friday, has already laid the ground by suggesting to the government to keep the focus on reviving growth and letting go of fiscal discipline a bit. The RBI, armed with a favourable inflation backdrop, defended slowdown risks last year with 110 basis points cut in interest rates. As it puts a brake on the easing cycle, due to an unseasonal spurt in food prices leading to above-target inflation, the ball is in the government's court to revive growth.

FM Sitharaman would have to do a balancing between efforts to boost growth and the need for fiscal restraint. Economists expect a slight policy tilt towards prioritising growth. The real GDP growth is estimated to fall to an 11-year low of 5 per cent in FY20 from 6.1 per cent in FY19. Estimated nominal growth at 7.5 per cent in FY20 is the lowest since 1975-76 (FY76) as per the FY12-based GDP series.

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IIP growth turned positive but remained low at 1.8 per cent in November 2019 after contracting by (-) 4 per cent in October 2019. CPI inflation increased to a 65-month high of 7.4 per cent in December 2019, its fifth sequential rise, mainly due to persistently rising vegetable prices.

Also, growth in bank credit fell to a 25-month low of 8 per cent in November 2019. 

Market experts and industry veterans feel that govt must unleash bold reforms to achieve 6-6.5 pc growth in FY21. Attaining a GDP growth rate of 6 to 6.5 per cent in 2020-21 as projected by the Economic Survey will be "challenging" and the government needs to prioritise growth while unleashing bolder policy measures to achieve it, industry bodies feel.

"The 6-6.5 per cent growth pegged by the Economic Survey for 2020-21, is a target that is achievable with the right dose of reforms and public investments," CII Director General Chandrajit Banerjee said. The CII said as the Economic Survey is a precursor to the Union Budget, it expects some of the bold reforms highlighting trust, entrepreneurship and primacy of the market to be reflected in the Budget announcements.

Leader Economic Advisory Services at PwC India Ranen Banerjee said attaining the projected growth rate of 6-6.5 per cent will be challenging. Economist at Deloitte India Rumki Majumdar said the Survey projects growth revival in FY 2021 but suggests that the government may have to incur expansionary policy to support growth.

Tech Mahindra MD & CEO CP Gurnani said India needs to be persistent with the technology push through initiatives like 5G rollout that will enable the use of big data, artificial intelligence and machine learning to give a necessary impetus to the digital economy and other growth areas that encompass sustainable development.

Assocham president Niranjan Hiranandani said it strongly advocates that the Central government needs to announce bolder policy and fiscal measures to recover from "sharp economic downturn and somnolent market scenario".

(With Agency inputs)