SOURCES

Latest Articles

Top Ad [post page]

Sign Up for Email Updates

UNION BUDGET 2020

UNION BUDGET 2020 : Explained in the simplest form


The Finance Minister, Nirmala Sitharaman, presented the Indian Budget 2020 on February 1, 2020.


This article will not only be helpful in understanding the key points of the Union Budget 2020 but also the key economics concepts like Fiscal Deficit, Primary DeficitRevenue Deficit, etc.

INDIAN UNION BUDGET 2020


The Budget 2020 which has been presented provides three basic information i.e.,

(i) Actual estimates for FY’2018-19;

(ii) Revised estimates for FY’2019-20;

(iii) Budget estimates for FY’2020-21.

We will solely be analyzing these figures and it will help you find the right approach to deal with the Budget keeping in mind the requirement for your USPC IAS Examination.

INDIAN_BUDGET_2020_AT_A_GLANCE



    The Budget Expenditure: Rs.30,42,230 crores


    The Indian Budget 2020 stands at Rs 30.42 lakh crore. It is to be noted that the expenditure has increased significantly as compared to the Union Budget 2019, where the expenditure figure was Rs 26.98 lakh crore (revised estimates).

    The value of Total Receipts (excluding the borrowings): Rs.22,45,893 crores


    The total value of the revenue which is expected in the financial year 2020-21 (excluding borrowing) is only Rs. 22.45 lakh crores which is much lower than the expenditure (Rs. 30.42 lakh crores). In order to balance the expenditure and receipts side of the budget, the government needs to borrow money.



    Borrowing and other Liabilities India Budget 2020

    Net Borrowings and other Liabilities: Rs 7,96,337 crores


    In order to cope up with the difference between expenditure and revenue, the Indian government needs to borrow Rs. 7.96 lakh crore in the financial year 2020-21 to meet its expenditure. Hence, the borrowings and other liabilities are known as FISCAL DEFICIT. Therefore, here we have a formula for it:

    Fiscal Deficit = Total Expenditure – Total Receipts excluding borrowings

    According to the Budget 2020Fiscal Deficit is 3.5% of Indian GDP.
    Ideally, Fiscal Deficit should be kept below 3% of GDP and the current rate is above the Financial Responsibility and Budget Management Act (FRBM) guidelines.

    However, it should be kept in mind that the borrowing is not always a bad notion, if and only if, the borrowed money is used for productive purposes. You can understand this with the following example:

    If the money that is borrowed is used to build capital assets like factoriesroadsrailways etc – that is productive as also seen via National Infrastructure Pipeline that resulted in better employment opportunities as well.

    However, one big question that come up is how the borrowing is planned to be utilized by the Finance Minister as per Indian Budget 2020?

    If Interest payments are considered alone, then it amounts to Rs 7,08,203 crore!


    While dealing with the borrowings we must not forget that the Indian government usually borrow from the public and in present case the govt. had already taken many loans from the public for which the interest payments is above Rs. 7.08 lakh crore and that too just for the payment of interests and not for principal repayments.

    So, the critical question that arises is how much amount is left for productive investments?

    In order to calculate this, Interest Payments are need to be deducted from the Borrowings i.e.,

    Fiscal Deficit – Interest Payments = Rs.796337 crores – Rs. 708203 crore = Rs. 88134 crores.

    The value that come out is known as the Primary Deficit (The value of primary deficit denotes the borrowing which is not used for interest payments). Therefore, according to the latest budget, the Primary Deficit of India is Rs. 88134 crores which is merely 0.4% of GDP.

    What does this figure imply?

    The figure implies that out of the total borrowed amount of 7.96 lakh croreonly 0.4% of GDP is, in reality, available for productive purposes.

    Disinvestment target: Rs.2,10,000 crore


    Now from the above we understood that the Finance Minister has limited the borrowings (Fiscal Deficit) at Rs 7.96 lakh crore (3.5% of GDP), following the expectation that an additional revenue via another route i.e., sale of capital assets will come for the rescue.

    Keeping such a mindset, the present government has set an ambitious target of sales of shares of Public Limited Companies that accounts for around Rs.2.1 lakh crores(including the shocking news of selling of the shares of Life Insurance Corporation of India (LIC)). It is to be noted that the governments of the past haven’t touched this insurance cash cow, most probably keeping it reserved only for emergency situations.

    The Finance Minister, Smt. Nirmala Sitharaman, is planning to target Rs.1,20,000 crore under the usual disinvestment route. Further, she is also aiming for another Rs. 90,000 crore via the disinvestment of Government stake in Public Sector Banks and Financial Institutions

    Note: For 2019-20, the target of the government during the budget proposal was Rs.105000 crore. However, it is updated in the revised estimates as Rs.65,000 crore. Even this figure is far from reality, as only Rs. 18,100 crore has been earned through this route in the first 9 months of this financial year.

    The share of Capital Expenditure: Rs.4,12,085 crore (only 13.5% of total expenditure)

    UNION BUDGET 2020 KEY NUMBERS

    As we have noticed till now, for a country to grow and prosper, it is necessary that it should invest in the more productive assets known as the Capital Assets and must try to lessen their liabilities. Keeping in mind the perspective, the main figure to worry about with caution is capital expenditure as only this figure would be used to build infrastructure –roadrailways, etc and would help in future growth.

    Coming back to the Budget 2020, only Rs.4.12 lakh crore is allocated for capital expenditure (13.5% share) out of the total expenditure of Rs.30.42 lakh crore. However, if we also include the grants in aid given to states for capital asset creation i.e., Rs 2.65 lakh crore, the total expenditure on the capital asset creation side comes only to 22.25% of the entire union budget. Although it is better than that of the last year but still is not the adequate investment.


    The amount of Tax Revenue collected: Rs.16,35,909 crore (could meets only 53.7% of expenditure)


    A tax revenue of Rs.16.35 lakh crore for the financial year 2020-21 has been estimated by the Finance Minister. The figure so estimated is a much lower figure than the last year budget estimates (Rs.16,49,582 crore) which will be missing the target by almost Rs.1.4 lakh crores as per revised estimates.

    In addition to the tax revenue of Rs.16.35 lakh crore, the government is also expecting to get Rs.3.85 lakh crore as non-tax revenue  (significantly higher expectations than last year budget.) 

    However, the total revenue receipts estimated are Rs. 19.77 lakh crore (meets only 66% of total expenditure).


    Revenue expenditure is more than revenue receipts by Rs. 6,09,219 crore


    We must note that the expenditure which is incurred on the revenue side does not build up new assets rather it is used for day-to-day expenses of running the government machinery like salary, pension, interest payments etc.

    In case of an ideal government, there should be enough efficiency to generate surplus income from the resources on which it gives a salarypension etc so that the additional revenue can be used for capital expenditure. However, if we talk about INDIA, the government machinery is not generating enough income to even to meet their salary or pension.

    The above situation can be better understood with the help of an example. Lets consider a government project which collects a particular tax. If the salaries, pension, and administrative expenses of the project is Rs.50 crore, and if the project is able to collect only Rs.45 crore as tax, running this project results in a loss of Rs.5 crore rupees. In this case, it’s even better not to collect tax!

    That is the main reason due to which, the FRBM act, even in 2003, mandated to eliminate the revenue deficit completely. However, the fundamental problem of revenue deficit still exists in the Indian Budget.

    Presently, the total revenue receipts estimated are Rs. 20.2 lakh crore while total revenue expenditure is Rs.26.3 lakh crore. The revenue deficit has increased to 2.7 per cent of GDP.

    Budget 2020: What planning has been done by the Government regarding the Fiscal Deficit?

    \SOURCES OF DEFICIT FINANCING BUDGET 2020

    In order to finance the fiscal deficit, there are a few sources available, the most important being the market borrowings.

    Higher the fiscal deficit, the higher will be the market borrowings

    However, this will result in lower funds for the private sector to borrowBesides market borrowings, there are other debt receipts like Securities against Small Savings, Other Receipts (Internal Debts and Public Account), Draw Down of Cash Balance etc. which are also proposed to be widely used this time.

    ‘Tax revenue’ vs ‘GDP’ growth


    Now the question arises: If weaker growth means lower taxes, is the converse also true?

    The budget calculations are purely based on estimated nominal GDP growth of 10% – that too at a time when the Economic Survey estimated 5% real GDP growth for FY 2019-20, and a maximum of 6.5% real GDP growth for FY 2020-21. Thus, the method applied for calculation in the Budget this time is definitely debatable.

    It is yet to be observed if India could grow at that pace in 2020- 21 if inflation factor remains at the current level. Presently, when the nominal GDP growth for FY2019-20 is estimated at around 7.5%, tax-revenue growth is at a meager 2.6%.

    What inferences can be drawn from this?

    As a matter of fact, there can be two inferences here out of which atleast one of those should be correct.

    (1) The growth in GDP is not entirely getting transformed into tax-revenue growth. Tax revenue growth should only be assumed to be 1/3rth of nominal GDP growth.

    (2) Considering that tax-data as verifiable at ground-level, the nominal GDP growth rate estimates may not be accurate.

    Budget 2020: Major Sources of Tax Revenue


    BUDGET 2020: MAJOR TAX SPLIT


    As an estimate, Income Tax is still expected to generate 17% of total receipts and a considerably greater share (18%) is expected from Corporation Tax.

    Further, another 18% of receipts is estimated from the major indirect tax – Goods and Service Tax (GST). However, the major share of receipts in Budget 2020 comes from borrowings and other liabilities (20%).

    What are the important announcements made by the Finance Minister in the Union Budget 2020-21?

    CENTRAL GOVERNMENT EXPENDITURE BUDGET 2020

    • In sync with the theme of the Economic Survey 2020, Finance Minister announces that the wealth creators will be respected in this country.
    • Budget 2020 has been presented with 3 major themes: Aspirational IndiaEconomic development, and Caring society.
    • 16-point action plan has also been proposed by the Union Budget 2020 in order to boost agriculture and farmers’ welfare and for doubling farmers’ income by 2022.
    • The Union Budget 2020 has set the Agricultural credit target at 15 lakh crore rupees.
    • In order to help farmers set up standalone solar pumps, funds will be provided to twenty lakh farmers.
    • The Union Budget 2020 has also proposed the comprehensive measures for 100 water-stressed districts.
    • Medicines at affordable rates are to be provided by the Jan Aushadhi Kendras in all districts of the country.
    • The top 100 institutions in the country will offer a degree-level full-fledged online education programme as per the provisions of the Budget.
    • An amount of Rs 3.6 lakh crore has been approved for Jal Jeevan Mission.
    • In order to support the UDAN SCHEME100 more airports will also be developed by 2024.
    • In the coming financial year, a total of Rs. 1.7 lakh crore will be provided for transport infrastructure.
    • The National Mission on Quantum Technologies and Applications has also been proposed with a total outlay of Rs.8000 crore. 
    • The Budget has also proposed a New Income Tax Regime as an option to the old regime.
    • As per the announcement made by the Union Budget, simplified GST return shall be implemented from 1st April 2020. In addition to this, the Refund process is planned to be fully automated.
    • The Budget put forward the Fiscal deficit at 3.8% in 2019-20 (RE) and 3.5% for 2020-21(BE); It has also proposed for a return path committed to Fiscal Consolidation without compromising on investment.

    BUDGET 2020: WHAT CAN BE CONCLUDED FROM THIS YEAR'S BUDGET?


    BUDGET 2020: TRENDS IN DEFICIT

    Falling Tax Revenue is one important clue from this year Budget. The tax revenue has felled to such an extent that even the government has lowered its expectations on tax-revenue when compared to last year. 

    The situation can be understood by the fact that the tax-revenue along with non-tax revenue is only helping to meet 2/3rd of the expenditure.
    Not much can be expected from the income tax after going through the Budget as the economy is facing a slowdown. Apart from that the Goods and Service Tax (GST) still has many bottlenecks that are to be fixed. In order to fill the gap, the government is depending heavily on disinvestments and market borrowings.

    In order to cope up with the current economic slowdown, the right way is to increase the fiscal spending in the priority areas. However, it should also be kept in mind that too much borrowing will widen the Fiscal Deficit and is also against FRBM guidelines, but as for now the government is now going in that direction.

    Another harmful indicator which is acting against the FRBM is the Revenue Deficit which has this time increased to 2.7% of GDP (the actual target being 0% of GDP). Ideally there should be an increasing in spending at the capital assets side, but there is an increase in expenditure on the revenue side this year – which will create problems in future for sure.

    What need to be done by the government is the promotion of a good business atmosphere in India so that the tax revenue will increase accordingly. Otherwise, the revised budget estimates will show the targets as missed. If that is the case, then there will not be sufficient funds available for the development projects and promises will remain only on paper.

    Last but not least, the Budget reflected the sign of an unhealthy economy which is heavily depended upon the borrowings and disinvestment. Enlarging deficits just shows that things are not well. On a whole, while the budget has a good vision, it lacks in the logic of the division of funds under various heads.




    Bottom Ad [Post Page]