The Union Finance Minister presents the budget in India on the first day of February since 2016. The budget contains Annual Financial Statement (Article 112), Demands for Grants (Article 113), Finance Bill (110 a), Macro-Economic Framework Statement and Medium-Term Fiscal Policy cum Fiscal Policy Strategy Statement as per Fiscal Responsibility and Budget Management Act (FRBM), 2003.
James Wilson presented the first budget in India on February 18, 1860. After independence, the first union budget was presented on 26 November 1947. It was presented by independent India’s first Finance Minister, R. K. Shanmukham Chetty. Morarji Desai has presented the maximum number of budgets (10). Government has combined Railway Budget with General Budget in 2016. Railway Budget was presented separately since 1924. The separation of the Railway Budget was recommended by the Acworth Committee of 1921.
Finance Minister has recently presented the Budget for 2020-2021. Union Budget 2020-21 is the 73rd budget of independent India. The Budget this year contains three main themes; these are aspirational India, economic development and caring society.
The theme of aspirational India covers aspects like agriculture, irrigation & rural development, wellness, water & sanitation and education & skills. Main aspects of the second theme of Budget 2020-21, economic development are industry, commerce & investment, infrastructure and new economy. The third theme of the Budget, caring society consists of sectors like women, child & social welfare, culture & tourism and environment & climate change.
Let’s see the major highlights of the Union Budget 2020-21 sectorwise.
The budget proposes to provide employment opportunities to youth in infrastructure development and special attention by the National Skill Development Agency on skill development opportunities focused on infrastructure.
Transport infrastructure: As per Budget 2020-21, the government will provide 1.70 lakh crore rupees for transport Infrastructure in 2020-21. Budget 2020-21 announces the release of the National Logistics Policy in the near future. National Logistics Policy will create a single-window e-logistics market.
- Expressways, Highways and Roads: Budget 2020-21 fixes deadline for completion of Delhi-Mumbai Expressway by 2023 and announces the starting of Chennai-Bengaluru Expressway. Budget 2020-21 makes the following announcement about the development of highways.
Type of Highways/ Roads
Length proposed in Budget 2020-21
Access control highways
Coastal and land port roads
- In Budget 2020-21, the government says that Indian railways has ended unmanned crossings and having a target of electrification of 27000 Km of tracks.
- As per Budget, railways is also considering a proposal to set up solar power capacity along tracks. It is also carrying out the process to start 150 passenger trains through PPP mode.
- The budget announces more Tejas trains and speedy development of high-speed train between Mumbai to Ahmedabad. The central government will provide 20 % of equity to the Bengaluru Suburban transport project and help the project in getting external assistance equal to 60 % of the project cost.
- Indian railways will also develop Kisan Rail through PPP mode to provide a national cold supply chain for milk, meat and fish.
- Seaports and Inland Waterways: As per the Budget, the government may corporatize at least one major port and list it on stock exchanges. The budget says that Jal Vikas Marg on National Waterway-1 will be completed. It also proposes the completion of the 890 Km Dhubri-Sadiya section of National Waterway-2 by 2022.
- Airports: In Budget 2020-21, the government has announced that it will develop 100 more airports by 2024. The Budget says that the number of aircrafts may increase from 600 to 1200 by 2024.
Energy: In the power sector, the Budget proposes taking measures to reform DISCOMs, promotion of smart metering and provides nearly 22,000 crore rupees to power and renewable energy sector in 2020-21. It proposes the expansion of the national gas grid to 27000 km. Presently, it is spread over 16200 km only.
Agriculture, Irrigation & Rural Development
While Agriculture, Irrigation & allied activities have been allocated Rs. 1.60 lakh crore in Budget 2020-21, rural development and Panchayati Raj will get Rs. 1.23 lakh crore as per the Budget 2020-21. Budget 2020-21 sets the target of Rs. 15 lakh crore agriculture credit for the financial year 2020-21.
- Expansion of KCC scheme & NABARD re-finance scheme: The budget also increases coverage of the Kisan Credit Card (KCC) scheme to all eligible beneficiaries of Pradhan Mantri Kisan Samman Nidhi (PM-KISAN). In other words, all eligible beneficiaries of PM-KISAN will be included in the KCC scheme of August 1998.
- The government has also announced further expansion of the NABARD re-finance scheme.
Farming and food processing related measures:
- Integrated farming systems in rainfed areas:
- Government has proposed expansion of integrated farming systems in rainfed areas and the addition of Multi-tier cropping and Zero-Budget Natural Farming.
- Multi-tier cropping is also known as multi-storied or multi-tier cropping. In these crops of different heights such as coconut, pepper, and pineapple are grown together on land.
- The government has also proposed the addition of bee-keeping, solar pumps and production of solar energy in non-cropping season.
- Milk processing capacity: In Budget 2020-21, the government has a fixed target of doubling milk processing capacity from the current 53.5 million MT to 108 million MT by 2025.
- Strengthening jaivik kheti portal & expansion of PM-KUSUM: Government said that it would strengthen jaivik kheti portal. Budget 2019-20 has also announced the expansion of the Pradhan Mantri-Kisan Urja Sanrakshan Evam Utthan Mahabhiyan (PM-KUSUM) scheme of Ministry of New and Renewable Energy (MNRE).
- Scheme for solar power generation and selling by farmers: The government will also develop and implement a scheme to help farmers in developing solar power generation capacity on fallow or barren lands. Through this scheme, the government will also enable farmers to sell power to the grid.
- Village Storage scheme: The government will launch a Village Storage scheme. SHGs will run this scheme to lower logistics costs for farmers. The role of SHGs and women will be strengthened as Dhaanya Lakshmi.
- Creation of warehouses & mapping and geo-tagging of existing warehouses:
- In Budget 2020-21, the government has proposed that it will give Viability Gap Funding (VGF) for the establishment of new efficient block-level warehouses in agreement with norms of Warehouse Development and Regulatory Authority (WDRA) and through PPP mode.
- The budget also provides for the construction of warehouses on their land by Food Corporation of India (FCI) and Central Warehousing Corporation (CWC).
- NABARD will carry out mapping and geo-tagging of India’s facilities for agri-warehousing, cold storage, etc. Currently, the capacity of India’s facilities for agri-warehousing, cold storage, etc. is estimated at 162 million Metric Ton (MT).
- Krishi Udaan & Kisan Rail will also be launched by the Ministry of Civil Aviation and Indian Railways, respectively.
- The budget says that financing on Electronic Negotiable Warehouse Receipts (e-NWR) will be integrated with e-NAM.
Livestock related plans in Budget:
- Raising artificial insemination from 30% to 70%.
- Ending Foot and Mouth Disease (FMD) and Brucellosis in cattle by 2025.
- Ending Peste Des Petits ruminants (PPR) in sheep and goatby 2025.
Blue economy (fisheries sector) related measures:
- The budget proposes the development of a framework for marine fishery resources of India. The framework will be developed for their development, management and conservation.
- The budget proposes to produce 200 lakh tonnes fishes by 2022-23 and achieve Rs. 1 lakh crore fisheries’ exports by 2024-25. In the budget, the government has announced its plan to include youth in the extension of fisheries through Sagar Mitras.
Horticulture sector-related measures: In Budget 2019-20, the government has proposed that it will support states for better marketing and export of horticulture products on one product one district basis. Currently, India produces more horticulture products (311million MT) than food grains.
Social sector & Social services
Healthcare: Healthcare has been allocated Rs. 69,000 crore. The allocation of Rs. 69,000 crore includes Rs. 6400 crore for PM Jan Arogya Yojana (PMJAY).
- PMJAY: Budget 2020-21 says that more empanelled hospitals are needed in Tier-2 and Tier-3 cities for poor people under PMJAY. AS per the proposal, the government will for the Viability Gap funding window for developing hospitals in the PPP mode. Its first phase will cover Aspirational Districts where there are no Ayushman empanelled hospitals.
- Jan Aushadhi Kendra Scheme: Under this scheme, the government has proposed to provide some medicines and surgicals in all districts by 2024.
- TB Harega Desh Jeetega: Efforts like TB Harega Desh Jeetega campaign will be strengthened to achieve the government’s target of ending Tuberculosis by 2025.
Education: Education sector has been allocated Rs. 99,300 crore this year.Rs. 3,000 crore has been allocated for skill development in 2020- 21. External Commercial Borrowings (ECBs) and FDI may be allowed in the education sector to provide high-quality education.Other important proposals related to education sector are given below.
- Top 100 institutions in the National Institutional Ranking framework will start an online degree programme.
- Government will start a scheme for one year-long internship opportunities to fresh engineers by urban local bodies.
- A scheme for integrating a medical college with existing district hospitals in PPP mode will also be started.This will help in lowering the shortage of qualified medical doctors.
- National Police University and National Forensic Science University to be established.
- Ministries of Health and Skill Development will design special bridge courses to improve the skills of teachers, nurses, para-medical staff and care-givers. The Ministries will design such courses along with professional bodies.
- Under the ‘Study in India’ program, the Ind-SAT exam will be held for Asian and African countries.
Water: Jal Jeevan Mission has been allocated Rs. 3.60 lakh crore. The emphasis will be on increasing local water sources, recharging of water sources, water harvesting and de-salination.
Sanitation and waste management: The budget proposes to focus on ODF-Plus, sustaining ODF behavior, grey water management, solidwaste collection, source segregation and processing.
Women and Child welfare: The government will form a task force to give recommendations about reducing Maternal Mortality Rate and improving nutrition levels. The government has allocated Rs. 28,600 crore for women-specific programs. In Budget 2020-21, the government has also allocated funds for the welfare of Scheduled Castes and Other Backward Classes, Scheduled Tribes, senior citizens and Divyang.
Poverty: As per Budget 2020-21, 271 million people came out of poverty during 2006-16. The government will mobilize more SHGs under Deen Dayal Antyodaya Yojana for the alleviation of poverty.
Culture and Tourism
- Indian Institute of Heritage and Conservation: It will be developed under the Ministry of Culture. Indian Institute of Heritage and Conservation will be given the status of a deemed University.
- Development of iconic sites: These sites will be developed at Rakhigarhi (Haryana), Hastinapur (Uttar Pradesh), Shivsagar (Assam), Dholavira (Gujarat) and Adichanallur (Tamil Nadu).
- Re-curation of museums and development of new museums: Indian Museum in Kolkata and four other museums will be re-curated. Museum on Numismatics and Trade will be developed in Kolkata. The establishment of the Tribal Museum in Ranchi will be supported by the government. Ministry of Shipping will establish a maritime museum at Lothal.
Environment & Climate Change
- Closure of old thermal power plants: As per the proposal in Budget 2020-21, the government will advise electricity supplying organisations to stop operating old thermal power plants. Only those power plants emitting carbon above norms decided earlier.
- Encouragement to states: In Budget, the government has said that it will encourage states to create and implement plans for making the air cleaner in cities with more than a million population.This will help in lowering air pollution.
Governance related measures
- National Recruitment Agency (NRA): It will be formed to carry out a computer-based online common eligibility test. NRA will carry these tests for recruitment to Non-Gazetted posts in governments and public sector banks. NRA will have a test centre in every district.
- National Policy on Official Statistics: New National Policy on Official Statistics will encourage and support the use of latest technology like AI. The policy will be aimed at developing a plan for modernized data collection and timely dissemination.
- Measures to make tax administration more effective, efficient and transparent:
- Taxpayer charter will be developed for fair and efficient tax administration. Companies Act will be amended to remove the criminal liability of certain acts that are civil in nature.
- The government has proposed to launch faceless appeal to make the tax assessment and administration effective. It will be similar to a new faceless assessment scheme launched recently. Cases involving ex-parte assessment will also be included in the scope of faceless assessment scheme.
- The government has also made a proposal to widen the scope of the Dispute Resolution Panel (DRP). All non-residents will be included as eligible assessee in the scope of DRP.
Investment & manufacturing
- Investment Clearance Cell: Government will establish Investment Clearance Cell to provide end to end facilitation and support to investments through a portal.
- New smart cities: Government has proposed that it will develop five new smart cities. They will be developed in collaboration with States through Public Private Partnership.
- Electronics manufacturing: Government will announce a scheme to promote manufacturing of mobile phones and electronic equipment. The scheme will also promote manufacturing of semi-conductor packaging. The government may modify this proposed scheme for promoting manufacturing of electronic items to manufacturing of medical devices also. The scheme will lead to job creation and investments in electronics manufacturing.
- National Technical Textiles Mission: National Technical Textiles Mission will be set up and implemented from 2020-21 to 2023-24. This mission will be set up to change current situation of India’s large technical textiles imports worth US$ 16 billion every year. Currently, India’s technical textiles industry is import intensive. Technical or engineered textiles are the products that are used widely in sectors like health care as implants, agriculture as fishing nets, etc.
- Zero Defect-Zero Effect manufacturing: Quality standard orders for Zero Defect-Zero Effect manufacturing will be issued by all industries.
- NIRVIK(Niryat Rin Vikas Yojana): This will be a scheme for disbursement of more export credit. The scheme will give more insurance coverage, less premium for small exporters and simplify claim settlement procedure.
Government e-Marketplace (GeM): Government has proposed to increase turnover of GeM to Rs 3 lakh crore. GeM is a unified procurement platform for procurement of goods and services.
Digital India/Digital Governance: In Budget 2020-21, government aims to ensure delivery of services by using digital governance. It aims to digitally connect public institutions at 100,000 Gram Panchayats by Fibre to the Home (FTTH) connections through Bharatnet in 2020-21. As per the proposal in Budget, Bharatnet programme will be given 6000 crore in 2020-21. Government will also frame a policy to hep private sector in creating Data Centre parks across India.
National Mission on Quantum Technologies and Applications(NM-QTA): Government will provide Rs 8000 crore for National Mission on Quantum Technologies and Applications. The amount will be given over a period of 5 years. Department of Science & Technology (DST) will implement NM-QTA.
Intellectual Property Rights: Government will establish a digital platform for application of IPRs and an Institute of Excellence, which will work on complexities and innovation in the area of Intellectual Property.
Knowledge Translation Clusters: They will be formed in different technology sectors and a comprehensive database will be developed through two new national level schemes. The database will help in mapping of genetic landscape (data) of India. This database is very important for next generation medicine, agriculture and for bio-diversity management.
Measures for benefit of Startups: Budget 2020-21 contains certain measures for benefit of Startups. They include early life funding, seed fund, technology clusters and establishment of test beds and small scale manufacturing facilities. Government has increased turnover limit for deduction of 100 % on the profits of the start-up during three consecutive years out of 7 years from 25 crore to 100 crore. The eligibility period for claiming deductions has been increased from 7 years to 10 years. Government has also deferred taxation on Employee Stock Option Plan (ESOP).
Financial Sector & Financial Management
- The government will carry out governance reforms in PSBs. Deposit insurance coverage will be increased from current Rs.1 lakh per depositor to Rs. 5 lakh.
- The government has proposed that the Banking Regulation Act will be amended for the strengthening of Cooperative Banks.
- Government has lowered the eligibility limit of NBFCs for debt recovery under the SARFAESI Act 2002 from Rs. 500 crore to Rs 100 crore asset size or from Rs 1 crore to Rs 50 lakh loan size.
- Government will sell its holding in IDBI Bank. The government will amend the PFRDA Act to separate the National Pension System (NPS) Trust from the Pension Fund Regulatory and Development Authority (PFRDA).
- EXIM Bank and SIDBI will jointly provide a scheme of Rs 1000 crore to technical support mid-size companies in pharmaceuticals, auto components and other sectors. Both will contribute Rs 50 crore each.
- Measures to increases capital flows in financial system:
- Budget announces full opening of Government securities in certain specific categories for non-resident investors.
- FPI limit in corporate bonds will be increased from 9% of the outstanding stock of corporate bonds to 15%. The government will also bring a law to create a system for the netting of financial contracts. This law will improve the confidence of investors.
- New Debt-based ETF: The government will create a new Debt-based Exchange Traded Fund (ETF). This ETF will have mainly government securities. A new mechanism will be created to deal with liquidity constraints of NBFCs/ Housing Finance Companies (HFCs).
- International Bullion Exchange: An International Bullion exchange will be developed in Gujarat International Finance Tec- International Finance Services Centre (GIFT-IFSC).
- Disinvestment: The government will sell some part of its holding in LIC.
- GST Compensation Fund: Now, government will transfer only collections from GST compensation cess to GST Compensation Fund.
- Budget estimates the nominal growth rate of GDP at 10% for 2020-21.
- The government has estimated 3.8% fiscal deficit in Revised Estimates (RE) for 2019-20. Fiscal deficit in Budget Estimates (BE) of 2020-21 is 3.5%.
- RE of government expenditure for the Financial Year (FY) 2019-20 stand at Rs.26.99 lakh crore. BE of government expenditure for the year 2020-21 is Rs.30.42 lakh crore.
- In RE for FY 2019-20, receipts are estimated at Rs.19.32 lakh crore. In BE for the year 2020-21, they are estimated at Rs.22.46 lakh crore.
MSMEs related measures
In Budget 2020-21, the government has announced certain steps to address important issues faced by MSMEs. The issues and steps are summarized in the table given below.
Issues being faced by MSMEs
Steps proposed in Budget 2020-21
Economic and financial sustainability
Amending Factoring Regulation
Act 2011 to permit NBFCs to give invoice financing to MSMEs through Trade Receivables electronic Discount System (TReDS)
Working capital credit
Scheme to give Credit Guarantee Trust for Medium and Small Entrepreneurs (CGTMSE) guaranteed subordinate debt for entrepreneurs of MSMEs.
Delayed payments & cash flows mismatches
App-based invoice financing loans product will be started.
Government has said that RBI should extend the loan restructuring scheme for MSMEs till March 31, 2021. The government has increased the turnover threshold limit for audit of accounts of MSMEs to ₹5 crore. Earlier, the limit was fixed at revenue of ₹1 crore.
Direct tax-related measures
- Government has removed the Dividend Distribution Tax (DDT). This will lower the tax burden on investors.
- Government has tried to rationalize different provisions of Income Tax Act, 1961 and reduced the time limit for NRI to be considered as a resident of India for the purpose of imposing tax from the current 182 or more days to 120 or more days.
- Government has also proposed that it will give a concessional corporate tax rate of 15% to new electricity generation companies.
- Government has exempted cooperative societies from Alternate Minimum Tax (AMT).
- Government has proposed that it will give instant PAN online by the use of Aadhaar.
- Government has proposed Vivad Se Vishwas scheme to lessen the number of direct tax cases. The scheme will continue till 30th June, 2020. Under the scheme, the taxpayer will pay only disputed taxes till 31st March, 2020. After 31st March, 2020, the taxpayer will pay extra amounts (interests and penalty) also.
- The registration process for charity institutions will be made fully electronic and new and existing institutions will be issued Unique Registration Number (URN).
- In order to widen and deepen the tax base, the government has proposed to levy TDS of 1% in PAN/Aadhaar cases and 5% in non-PAN/Aadhaar cases on e-commerce transactions.
- As a measure to provide tax certainty, the government has also widened the scope of Safe Harbour Rules and Advance Pricing Agreement.
Indirect Tax related measures
- GST: Budget 2020-21 says that 60 lakh new taxpayers were added to tax net and 105 crore e-way bills were generated in the previous 2 years. As per Budget 2020-21, the average household saves nearly 4 % of monthly spending. Tax rates on common use items have come down after the introduction of GST.
- Customs: Government has announced that it will review the Rules of Origin requirements in the future. Government has increasedcustoms duty on footwear and furniture from 25% to 35% and 20% to 25%, respectively. The government has imposed 5% health cess on import of specific medical equipment. Excise duty on Cigarettes and Tobacco products will be raised.
Tax concession to foreign investments: The government has proposed a 100 % tax concession to the investment made by the Sovereign Wealth Fund of foreign governments. Only investment made by the Sovereign Wealth Fund of foreign governments in the priority sector before 31st March, 2024 will be given tax concession. In order to get tax concessions, the investments should have a minimum lock-in period of 3 years.