Falling short of aspirations (Union Budget 2020-21 didn't go the whole way)

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 Falling short of aspirations (Union Budget 2020-21 didn't go the whole way)

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Read more on - Polity | Economy | Schemes | S&T | Environment

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• Expectations belied: The huge hopes that the govt. will accept the major slowdown hitting India and do something in the Budget big to change things, were dashed. The focus was not on reversing falling GDP growth, reducing unemployment or rekindling animal spirits.
• Unmet demand: Govt. claims that India needs far more teachers, paramedics and skilled workers than it produces. Due to poor quality education and low skills, India's youth hardly gains access to best jobs. A mere Rs.3000 cr was allotted, which is of little use.
• Fiscal caution: Govt. is extremely cautious about what markets think of its fiscal balance sheet. But markets have been benign, despite rising borrowings due to low tax collections, and higher expenditure (to keep GDP growth ticking). Yields on govt. bonds haven't shot up.
• Welfare schemes: Demand boosters were missing. 

1. Allocations for PM-KISAN and MGNREGA were low. Both schemes are great for boosting rural demand, but the first one is being handled inefficiently (disbursements poor), and second is being given step-motherly treatment.
2. Health and education allocations are low.
3. Rural infrastructure allocations went up marginally (good) - micro-irrigation, rural roads, cold storage, logistical chains.  (multiplier effects are extensive)
4. Transport infra got Rs.1.7 trillion, but will it be fully spent or remain unspent (like in 2019-20)? If it gets spent well, then govt. claim of spurring investment cycle will come true.
5. So front-loading of govt. spend is crucial (in half-done projects) if private investment is to be attracted.

• Two big hopes: The GoI is betting on (a) Public-Private Partnerships (PPP), and (b) Attracting global sovereign wealth funds (100% tax exemptions given).

1. Two factors are crucial - certainty of returns, and Cost of capital.
2. Contractual disputes drag down the spirit of doing business in a big way. 

• Problem of infra financing: In India, asset-liability mismatch becomes a big trouble for all infra projects. Assets are long-term, liabilities short-term. Solution is the creation of a deep corporate-bond market. But Budget 2020-21 focused on deepening govt. bonds market by raising FPI limits (of investment) and ETFs in govt. bonds. An opportunity lost.
• Startups: Angel Tax has not been scrapped, so investors' harassment may continue. 
• TReDS expansion: A good move is to allow NBFCs into the TReDS ecosystem - Trade Receivables Discounting System - so small enterprises will get quicker funds for outstanding dues.
• MSMEs: The audit limit has been raised from Rs. 1 cr to Rs. 5 cr for those who carry less than 5% business in cash. But the inverted duty structure (higher taxes on inputs than on output) remains unresolved.
• Faith on private sector: DDT was abolished (dividend distribution tax) and many business (civil) offences under Companies Act are decriminalised.
• Actions speak louder: Over the next 12 months, whether the promises made are implemented or not, will decide how the economy responds.
• Summary : The big revivalist push expected from the Budget 2020-21 was missing, and many incrementalist measures were incorporated.

Read more on - Polity | Economy | Schemes | S&T | Environment

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