Story Of The Week

The Interim Budget 2019-20

“This year’s budget is a thank you to the Farmers, to the Middle-Income level population and the Unorganised Labour, for supporting the government in its radical moves, during the tenure of last government.”

-Sanjeev Sanyal
                                                                                                                       

On 3rd of February, The Economics Club, IMI New Delhi hosted its annual Post Budget Session, inviting distinguished personalities in the field of Economics, Media, Government Bodies and Academicians to share their insights on the budget, to the students of IMI and other colleges. 

The Coveted Panel constituted of:

  1. Mr. Sanjeev Sanyal, Principal Economic Advisor in the Ministry of Finance, Government of India
  2. Dr. Charan Singh, Non-Executive Chairman of Punjab & Sind Bank
  3. Dr. Rajat Kathuria, Director and Chief Executive ICRIER
  4. Dr. M K Venu, Partner and Founding Editor of The Wire
  5. Mr. Anoop Bhatia, VP at sector head, Corporate Ratings, ICRA Limited

MACRO-ECONOMIC STABILITY

The discussion was initiated by talking about the “Macroeconomic Stability” that the government was seeking to bring about since the past four and a half year. The major Macro-economic indicator turned out to be Crude Oil trading. While some panelist believed that the adequate steps were taken to keep the prices in check, The Media experts believed otherwise.

Crude oil, especially for India has been the pain point, for the expense part of it. Our dependence on oil imports has costed a huge chunk of our revenues. The graph below displays the prices of fuel over years, which has essentially been increasing.

Source: Petro Bazaar

The two other macroeconomic factors discussed were Inflation and Fiscal Deficit. 

Inflation in India has been substantially controlled for most parts in India, as compared to Western countries, even China registers a higher Inflation.

Talking about Fiscal Deficit, which hovers over 6%, is primarily the interest payments and not fresh debts. The government has been successfully decreasing the deficit in the past years.

 

THE 3 MAJOR BENEFICIARIES OF THE BUDGET

  1. Farmers
  2. Unorganized Labour
  3. Middle-Level Income Population

The government lately realized that the double whammy of GST implementation and Demonetisation, pushed back the above mentioned three population, significantly. Thus it was a thank you for these segments who were most impacted. 

1. FARMERS

  • Rs. 6000 assured income to small farmers per year
  • 2% interest subvention to farmers
  • 2% interest subvention to farmers who pursue animal husbandry and fisheries jobs
  • ‘Kaamdhenu’ scheme for animal husbandry to be launched

CRITICISM OF FARMER’S RELIEF PLAN

The panelist deliberated on the effectiveness of the monetary relief curated for farmers as it is quite a cumbersome task to collect the data related to farmers. Many still don’t have a bank account, moreover, the scheme of INR 6000 per annum is for the framers owning over 2 acres of land. However, the scheme stays silent on the land-less laborers, who are the most vulnerable.

2. UNORGANISED LABOUR

  • Rs. 60,000 crores allocated to MNREGA
  • Rs. 19,000 crores allocated for construction of rural roads under Gram Sadak Yojana

3. MIDDLE-LEVEL INCOME POPULATION

  • No tax till 5 Lakh income for individual taxpayers. The rebate under Section
  • 87A of the Income-tax Act, 1961, has been raised to Rs. 12,500
  • Standard deduction increased from 50,000 from Rs. 40,000 for salaried class.
  • Individuals with gross income up to 6.5 lakh will not be taxed if they make Investments   in provident funds and prescribed equities
  • TDS threshold for home rent increased from Rs 1.8 lakh to 2.4 lakh
  • Interest income up to Rs 40,000 in post offices and banks made tax free
  • Capital gains tax exemptions under Section 54 to be available up to Rs 2 crore. Capital gains exemption to be available on 2 house properties 

While the budget has many constructive benefits for different segments of the population, there were some misses too. Let’s look at them.

THE TRUTH OF DISINVESTMENTS

While it is a welcome step by the government to disinvest in sick Public Sector Units, the mechanism for doing so is under scrutiny. Currently, few disinvestments took place where another PSU is buying shares of a sick unit, ultimately the burden stays with the government, defeating the main objective of disinvestment. 

UNCLEAR DEFINITION OF UNEMPLOYMENT

The government needs to review its definition of unemployment. Many individuals are termed as unemployed but are working in the unorganized sector. There is a need to develop a mechanism to identify these strata of the population

TIGHTER CONTROL ON CREDIT RATING AGENCIES

Last year saw one of the biggest NBFC fall into crumbles, ILFS. All this time credit rating agencies rated it as “AAA” and reduced it to “D” in a matter of a week. The agencies need to revise their mechanism of rating as they clearly missed some red-flags

PROMOTE WOMEN EMPLOYMENT

Various researches have proved that women’s contribution is essential to boost the economy. In order to harness human resource effectively, the female population has to contribute. This budget, however, did not specifically strengthened this cause. A tax benefit would have incentivized women and men alike to encourage women to work. 

CONCLUSION

The interim budget, 2019-20, did bring some good news, especially for the farmers and middle-income level segment. The tax rebates will boost the economy in long run, and incentivize people to make more investments. With the fiscal deficit under control, the economy seems to be going on the correct path. As usual, the government sprinkled some vanilla provisions for women, education and rural welfare, nothing extraordinary but satisfactory. 

The question is how futuristic was this budget, as there weren’t any significant provisions for general research and development in the country. After government’s much vocal dissatisfaction with HAL over its ability to produce fighter jets domestically, it was rather surprising to not see any monetary push to the PSU. Unemployment seems to continue to haunt Indian youth for some more years to come. 

There were some hits and clearly some misses. 

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