Union finance minister Nirmala Sitharaman will present her second budget on Saturday seeking to revive a sagging economy and spur consumer demand as she is expected to increase spending on infrastructure and cut taxes.
Nirmala Sitharaman will be aiming to get growth back up with the economy staring at the worst pace of expansion recorded in a decade with her second budget as the second woman finance minister after Indira Gandhi.
Sitharaman will begin her budget speech at around 11am with an address to the Speaker of the Lok Sabha.
In the Economic Survey, released on Friday, the government predicted that economic growth would pick up to 6.0% to 6.5% in the fiscal year beginning April 1, but also warned that it may have exceeded its deficit target to revive growth.
Likely announcements
Apart from cuts in personal income tax, sops for rural and agriculture sectors as well as an aggressive push on infrastructure spending are likely to be part of Sitharaman’s Union Budget 2020.
She is expected to announce measures to restore economic growth and to set out a road map to achieve the government’s ambitious target of making India a $5 trillion economy by 2025.
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.
Speculation is rife about a possible reduction in personal income taxes after the government cut corporate tax cuts in September last year. 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.
These tweaks might be accompanied by rationalisation in tax rebates to cushion the impact on collections.
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.
The government may reduce allocation for the PM-KISAN scheme by 20% to around Rs 60,000 crore in the Union Budget due to implementation hurdles in some states, reports said.
The Centre had allocated Rs 75,000 crore in the Budget Estimate (BE) for 2019-20 to implement the PM-KISAN scheme, under which Rs 6,000 is being provided to farmers per year in three equal instalments.
There would be 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 cards.
Social sector schemes such as rural electrification, MGNREGA, healthcare, education and skill training may also find mention in the Union Budget.
Balancing act
However, all such measures would come at the cost of fiscal slippage.
The Economic Survey for 2019-20 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 Reserve Bank of India (RBI), armed with a favourable inflation backdrop, defended slowdown risks last year with 110 basis points cut in interest rates. The ball is in the government’s court to revive growth as RBI puts a brake on the easing cycle, due to an unseasonal spurt in food prices leading to above-target inflation.
Sitharaman is expected to balance between efforts to boost growth and the need for fiscal restraint.
Real Gross Domestic Product (GDP) growth is estimated to fall to an 11-year low of 5% in FY20 from 6.1% in FY19. Estimated nominal growth at 7.5% in FY20 is the lowest since 1975-76 (FY76) as per the FY12-based GDP series.
Index of Industrial Production (IIP), which tracks manufacturing activity in different sectors of an economy, growth turned positive but remained low at 1.8% in November 2019 after contracting by (-) 4% in October 2019.
The Consumer Price Index (CPI) inflation increased to a 65-month high of 7.4% in December 2019, its fifth sequential rise, mainly due to persistently rising vegetable prices.
The Union Budget is the financial statement of the government, detailing its revenue and expenditure in the past, as well as estimated spending and projections for the coming year.
Sitharaman had presented her first budget in July last year, shortly after the Bharatiya Janata Party (BJP)-led government came to power in the Centre in the Lok Sabha elections in 2019.
Former finance minister Arun Jaitley had presented the Union Budget on February 1 in 2017, moving away from tradition. The Union Budget was presented on the last working day of February till 2016.
