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4th February – Falling short of expectations

There were many expectations from the Union Budget 2020: that it would reverse the falling growth rate, reduce unemployment and rekindle the animal spirits needed to revive private investment. Does the Budget really hold out the promise on these counts?

Analysing the budgetary provisions –

Skill development allocation –

Finance Minister has allocated a paltry ₹3,000 crore for skill development. Skilling will require massive investment and concerted efforts. The Budget could have given tax incentives to companies to provide internships and on-site vocational training to unemployed youth. 

Flagship welfare schemes –

  • Budgetary allocations for the Pradhan Mantri KIsan Samman Nidhi (PM-KISAN) and the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) are disappointing.
  • The MGNREGA is allocated ₹61,500 crore, which is less than ₹71,000 crore for the current fiscal year.
  • These two schemes are good instruments for income transfers to small and marginal farmers, landless labour who spend most of their income and generate demand for a wide range of goods and services. Higher disbursement under these schemes would have benefited most sectors of the economy.
  • Focus of schemes such as micro irrigation schemes for 100 water-stressed districts is welcome and so is a modest increase in allocations for agriculture and rural development schemes.
  • The allocation of ₹1.7 lakh crore for transportation infrastructure is also a welcome step. To pull in private investment, the public funding should be front-loaded in under-implementation projects.

Getting private investment –

  • The Budget’s main growth plank is the hope for a deluge of private infrastructure investment through public-private partnership (PPP) and external sovereign wealth funds that have been given 100% tax exceptions in the Budget. But private investment depends on the cost of capital along with the certainty of returns.
  • Many projects have been mired in contractual disputes with government departments and various regulatory hurdles.

Bonds and startups –

  • The focus of the Budget is the multiple schemes for government bonds mainly through additional room for foreign portfolio investors and exchange traded funds in government bonds.
  • The other leg of the “aspirational” Budget is the startups. Some relief on the tax they have to pay and on taxation of the Employee Stock Option Plans is welcome but the reluctance to abolish the angel tax that results in harassment of start-ups and their investors is unfathomable.
  • Another welcome feature is the scheme to allow the non-banking financial companies into the Trade Receivables Discounting System (TReDS) — an ecosystem that aims to facilitate the financing and settling of trade-related transactions of small entities with corporate and other buyers, including government departments and public sector undertakings.

Boosting investor confidence –

The abolition of dividend distribution tax, and the assurance that tax-related disputes will be considered with compassion might deliver the expected results provided these promises are fulfilled in letter and spirit. The same logic applies to ‘the scheme to reimburse to exporters assorted duties, such as excise duty on transport fuels and electricity’.

SourceThe Hindu

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