Union Budget 2020-21

UNION BUDGET
2020-21

Budget for
Aspirational
India, Caring

Society &
Economic
Development

1

Index

• A. Economic Overview
• B. Survey: Observations and Recommendations
• C. Sectoral highlights
• D. Direct Tax Amendments
• E. Indirect Tax Amendments

2

A. Economic Overview

3

Growth of the Indian Economy

Union Budget 2019- 20 had articulated the vision of the
Hon’ble PM to make India a US$ 5 trillion economy by
2024-25.
The march towards this milestone has, however, been
challenged by less than expected growth of India’s GDP
so far this year, on the back of a decline in world output.
Yet, given India's record of growth with macroeconomic
stability over the last 5 years (AAGR) of 7.5% and annual
average inflation of 4.5 %), the economy is poised for a
rebound towards US$ 5 trillion goal.

- Economic Survey

4

GDP: India vis-à-vis BRICS Countries

• The deceleration in India’s GDP growth since 2017 has
tracked the decline in world output.

• WEO has estimated India’s economy (US$ 2.9 Trillion) to
become the 5th largest in the world, moving past UK and
France.

• Indian economy to grow at 5.8% in 2020 and to contribute
significantly to an eventual pickup in the growth of world
output – WEO (Jan’2020)

5

Inflation rate in India

• Despite the increase in CPI inflation rate in 19-20 (H1), India
witnessed a sharp decline in WPI inflation rate reflecting
weakening of demand pressure in the economy.

• Food and beverages emerged as major contributors (54%)
of the increase in CPI inflation rate due to unseasonal
rainfall and a flood-like situation in many parts of the
country, which affected agricultural crop production.

6

CPI Inflation: India vis-à-vis
other country groups

AE: Advanced Economics; EMDE: Emerging Market and Developing Economies

• Along with the weakening of global economic activity,
inflation the world over also remained muted in 2019.

• Inflation softened in advanced and emerging
economies reflecting a slack in consumer demand;
lower energy prices also contributed.

7

Target USD 5 Trillion

With stable growth over last 5 yrs. (AAGR of 7.5% and
annual average inflation of 4.5%), the economy is
poised for a rebound towards the US$ 5 trillion goal.

– Economic Survey 2019-20

8

Rupee Comes In

Non Debt Capital
Receipts
6%

Borrowings and Income Tax Union Excise
Other Liabilities 17% Duties
7%
Non Tax 20%
Revenue Corporation Tax
GST 18%
10% 18%

Customs
4%

9

Rupee Goes to

Centrally Sponsored Pensions Other Expenditure
Schemes 6% 10%
9%
Central Sector
Subsidies Schemes
6% 13%

Defence Finance
8% Commission and
Other Transfers
Interest Payments States' Share of
18% Taxes and Duties 10%

20%

10

Tax Revenue – Constituents

11

Revenue vs. Capital Expenditure

• Share of capital expenditure in total expenditure is
envisaged to decline roughly by a % point in 2019-20 BE
over 2018-19 PA. However, capital spending in 2019-20
BE is estimated to grow by 10 % over 2018-19 PA.

• In revenue expenditure, more than 40% of increase is
due to increase in interest payments and major subsidies.

• Revenue expenditure as a % of GDP is expected to
increase with capital spending remaining unchanged.

12

B. Survey:
Observations and
Recommendations

13

Wealth Creation: The Invisible Hand
Supported By The Hand Of Trust

• The exponential rise in India’s GDP growth rate post
liberalization coincides with wealth generation in the
stock market. Sensex has not only grown after 1991, but
has grown at an accelerating pace.

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Wealth Creation: The Invisible Hand
Supported By The Hand Of Trust

Wealth Creation vis-à-vis Salaries paid to employees

Wealth Creation vis-à-vis Capital Expenditures

15

Wealth Creation: The Invisible Hand
Supported By The Hand Of Trust

Wealth Creation vis-à-vis Foreign Exchange Reserves

Wealth Creation vis-à-vis Direct Tax Inflows

16

Entrepreneurship and Wealth
Creation at the grassroots

Exponential growth in New Firms in India

Entrepreneurial activity v. GDDP New firms across districts

17

Pro-Business vs. Pro-Crony

Pro Business Pro Crony

- Firms compete on a level - Some incumbent firms may
playing field receive preferential treatment
- Resource allocation in the - Resource allocation in the
economy is efficient economy may not be efficient
- Citizens' welfare is - Citizens' welfare may not be
maximized maximized

In New Delhi

To Open a Restaurant To procure new arms

45 documents 19 documents

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Pro-Business vs. Pro-Crony

RPTs to Unlisted/Foreign counterparties and tax havens

Impact of coal block allocations on Related Party Transactions

19

Undermining Markets: When Government
Intervention Hurts More Than It Helps

• Economic freedom enhances wealth creation by enabling
efficient allocation of entrepreneurial resources and energy to
productive activities, thereby promoting economic dynamism.

• In the Index of Economic Freedom, India is categorized as
‘mostly unfree’ with a score of 55.2 in 2019 ranking the Indian
economy 129th among 186 countries (in the bottom 30 % of
countries.

20

Undermining Markets: When Government
Intervention Hurts More Than It Helps

Unintended impact of Essentials Commodities Act, 1955

Weakens development of Reduced incentive to
Agricultural value-chain invest in storage

Market distortions from
stock limits under ECA

Reduced producer profit Inhibits development of
vibrant commodity
derivative markets

Contrary to Increased price volatility and
its objective!!! reduced consumer welfare

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Undermining Markets: When Government
Intervention Hurts More Than It Helps

Unpremeditated impact of Drugs Prices Control Order, 2013
• Prices of formulations that came under DPCO, 2013 that

were mostly sold at hospitals increased by Rs. 99/mg.
• In the case of formulations mostly sold in hospitals that

were unaffected by DPCO, 2013, the prices increased by
only Rs. 25 per mg.

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Undermining Markets: When Government
Intervention Hurts More Than It Helps

Government must observe that:

What markets can do Keep prices in Provide public What markets cannot do
check goods

Use resources Prevent abuse of
efficiently monopoly power

Encourage Internalize
innovation externalities

Increase consumer Overcome
choice information
asymmetry
Create wealth
Distribute wealth
Maximize equitably
aggregate welfare
Ensure ethical
practices

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Creating Jobs and Growth by Specializing
to Exports in Network Products

• India’s share in merchandise exports grew at 13.2 % p.a.;
share in world exports increased from 0.6% in 1991 to 1.7
% in 2018.

• Yet, even by 2018, India’s world market share remains
paltry compared to 12.8 % for China. Merchandise
exports as % of GDP remained consistently lower for
India compared to the world average by a significant
margin.

24

Creating Jobs and Growth by Specializing
to Exports in Network Products

• World exports of Network Products (NP) increased steadily
from to US$ 5.41 Trillion in 2018 driven by Assembled End
Products (AEP). On an average, NP accounts for about 42
% of world manufactured exports.

• Asia’s share in world exports of NP increased phenomenally
from about 37% in 2000 to 51% in 2018 while the shares of
both Europe and America declined.

• East Asia accounted for the bulk of total Asian exports
followed by Southeast Asia.

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Creating Jobs and Growth by Specializing
to Exports in Network Products

• Even as India’s export of NP increased from about US$2
billion in 2000 to US$32 billion in 2018, its participation in
this market remains miniscule compared to that of other
Asian countries.

Survey’s prediction of overall Impact on employment and GDP

26

Improving Ease of Doing Business in India

India leap frogs in ranking

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C. Sectoral Highlights

28

Agriculture, Irrigation and Rural
Development

29

Paramparagat Krishi Vikas Yojana

6.11 Doubling
Crores farmers’
farmers income
insured by 2022

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Budget Highlights

1. States to undertake model laws

Encourage states to take up model agricultural laws:

Model Agricultural Model Agricultural Model Agricultural
Land Leasing Act, Produce and Livestock Produce and Livestock
Contract Farming and
2016 Marketing Act, 2017
Services Act, 2018

2. Water stress related issues

• Government has proposed
Serious Concern comprehensive measures for
across country 100 water stressed districts

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3. Expansion of PM KUSUM Scheme

Now proposed to expand the scheme to 20 lakh
farmers.

In addition, a scheme to
enable farmers to set up
solar power generation
on their barren lands

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4. Balanced use of Fertilizer

Proposal to encourage

traditional organic and

other innovative

fertilizers

Fertilizer subsidy during 2013-14 to 2019-20

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5. Warehousing

Agri- Cold Storage Reefer van
warehousing facilities

Map & Geo tag

6. Kisan Rail

Indian railway to set up
“Kisan Rail” through PPP
arrangements for.
Seamless national cols
supply chain for
perishables.

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7. Integrated Farming Systems

Integrated farming
systems in rainfed
areas shall be
expanded.

8. Agriculture Credit 2019 – 20 2020 – 21
13,50,000 Cr 15,00,000 Cr
Agriculture credit
target for 2020-
21 has been set
at Rs.15 lakh
crore

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Manufacturing & Production

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Sector Overview

➢ Make in India initiative is empowering India to
become the 5th largest manufacturing company in the
world by 2020. Govt. aims to achieve 25% GDP share
and 100mn new jobs by 2022

➢ Manufacturing industry has witnessed a reduced growth
rate of 0.9%* as compared to 4.9%* in PFY.

Growth Rate

4.6
4.4

3.9

2.8

0.9

2015-16 2016-17 2017-18 2018-19 2019-20*

*April to November

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Budget Highlights

New scheme for manufacturing of mobile
phones, electronic equipments & semi conductor
packaging.

“Zero Defect-Zero Effect” Quality Standard
Orders to be issued by all ministries within
this year.

To support domestic manufacturing of medical
equipments, health cess on import of medical
equipments will be levied

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Budget Highlights

Establishment of test beds and small scale
manufacturing facility

Designing & Validation of proof Scaling up
Fabrication of concept Technology

Clusters

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Infrastructure

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Sectoral Analysis

➢ To achieve $5 trillion by 2024-25, India plans to spend about
102 lakhs crores over the next 5 years on infrastructure.

Social Infra
3%

Agriculture & Food Industrial Infra
Processing Infra 3%
1%

Rural Infra
8%

Energy
24%

Irrigation
7%

Telecom
3%

Urban Infra
16%

Transport
35%

*NIP projects worth Rs.102 lakh crores for the period FY 20-25

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Budget Highlights

• Proposal to set • National Logistics • Gift city will set

up Project Policy to create a up an

Preparation single window e- international

Facility. logistics market, bullion exchange

• Proposal to focusing on to enable India

direct all employment enhance its

infrastructure generation and position, create

agencies of Govt. skill development jobs & will lead

to involve youth in MSMEs. to better price

power in start- discovery of

ups. gold.

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Budget Highlights - Roadways

Development of highways

2500 km of 9000 km of 2000 km of 2000 km of
access economic access and land strategic
control corridors highways
port roads.
highways.

Expressway • Delhi-Mumbai expressway
completion by 2023

• Chennai-Bengaluru
expressway to be started.

FASTag • Proposal to monetise at least
12 lots of highway bundles of
over 6000 km before 2024

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Budget Highlights

Railways
• Large solar power capacity alongside the

rail tracks to be installed
• Four station re-development projects and

operation of 150 passenger trains to be

done through PPP mode
• More Tejas type trains to be introduced
• 148 km long Bengaluru Suburban

transport project at a cost of Rs.18600

crore to be implemented

Seaways

• The Jal Vikas Marg on National Waterway-1 to
be completed. Further, the 890 Km Dhubri-
Sadiya connectivity to be done by 2022.

• To energize economic activity along river
banks,”Ärth Ganga” plan to be introduced.

Airports

One hundred more airports to be developed
by 2024 to support Udaan scheme.

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POWER & RENEWABLE
ENERGY

45

Sector Overview

The Indian renewable
energy sector is the fourth
most attractive renewable
energy market in the world.
As of October 2018, India
ranked 5th in installed
renewable energy capacity.

Power sector in India has
witnessed a paradigm shift
over the years due to the
constant efforts of
Government to foster
investment in the sector. As
a result, lndia has improved
its ranking to 76th position
in the Energy Transition
Index published by the
World Economic Forum
(WEF).

46

Power Generation Capacity

2% Capacity(in MW)

12%

63% 23%

1. Fuel - Wise

Capacity (in MW) Hydro
Renewable Energy Sources
Thermal
Nuclear

28% 47%
25%
2. Sector-wise

Private Central State
* Data as on October 2019

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Achievements

• Over 353 million LED bulbs were
distributed to consumers in India under
UJALA as on July 08, 2019 and 11.17 million
LED bulbs were sold by private players till
March 2019.

• India has 83.37 GW of renewable energy
capacity as on October 2019

• Power generation from renewable energy
sources has reached record 107.22 billion
units in 2018-19.

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Budget Highlights

Setting up large solar power capacity alongside
the rail tracks, on the land owned by the railways.

Promotion of ‘smart’ metering. Replacing the
conventional energy meters by prepaid smart

meters in the next 3 years.

Proposals

To expand the national gas grid from the present
16,200 km to 27,000 km

To shut down old thermal power plants , if their
emission is above the pre-set norms

To provide Rs.22,000 crore to power and
renewable energy sector in 2020-21

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Tax Updates

1. Exemption in respect of certain income of Indian
Strategic Petroleum Reserves Limited (ISPRL)

Insertion of new clause in Section 10
Provides exemption to any income accruing or arising
to ISPRL, being wholly owned subsidiary of Oil
Industry Development Board under Ministry of
Petroleum & Natural Gas.
Condition:
The crude oil must be replenished within 3 years from
the end of FY in which it was removed the first time.
Applicability:
Amendment will take effect from 1st April 2020.

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