Union Budget 2020: Faced with an unenviable task of reversing a slide in economic growth when private investors still keep away, the government has budgeted an 18% hike in its capital expenditure for the next fiscal, compared with 13.4% in FY20, but it has also bridled the pace of its revenue spending. While the shift towards productive spending signals a welcome change, achieving the target without worsening fiscal deficit would be quite a task, given that the headway to squeeze revenue expenditure is typically limited.
Moreover, the reduced pace of overall spending — it’s budgeted to increase only 12.7% in FY21 to Rs 30.4 lakh crore, against 16.6% this fiscal — dampens hopes of a meaningful recovery in economic growth through a sustained, massive spike in government expenditure. Revenue expenditure is budgeted to rise only 11.9% in FY21 to Rs 26.3 lakh crore, against the revised estimate (RE) of 17% for the current fiscal.
To stimulate sagging private consumption, the government has cut the personal income tax rates with a potential revenue fall of Rs 40,000 crore a year. While some analysts say this is tailored to benefit those up to an income of Rs 10 lakh the most, its ability to induce people to spend more isn’t yet clear, especially when household savings have collpased. In any case, a major percentage of consumers, who have been victims of rural distress, is outside the income tax bracket.
The allocation under the flagship employment programme, MGNREGS, has been cut to Rs 61,500 crore for FY21 from Rs 71,002 crore for the current fiscal. The 7.2% annual rise in allocation for transport infrastructure to Rs 1.7 lakh crore for FY21 is again lower than the rise in overall government expenditure.
Finance minister Nirmala Sitharaman reiterated commitment to proposed investments of `103 lakh crore in infrastructure over a six-year period through FY25 under the recently-unveiled national infrastructure pipeline plan. While the pipeline consists of 39% of projects each of the Centre and states, 22% of the projects are envisaged to be executed by the private sector. This is an ambitious target, given the the failure of the PPP model in the absence of reforms.
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However, signalling the government’s intent to walk the talk on infrastructure, Sitharaman said about Rs 22,000 crore has already been provided, as support to the pipeline. “This would cater for equity support to Infrastructure Finance Companies such as IIFCL and a subsidiary of NIIF. They would leverage it, as permissible, to create financing pipeline of more than Rs 1 lakh crore. This would create a major source of long-term debt for infrastructure projects and fulfil a long-awaited requirement.”
However, the Budget also shines in some critical aspects. It has resisted the temptation of trimming allocation under the PM-Kisan scheme despite a massive fall in actual offtake from the budgeted level of FY20. So, the FY21 outlay for the income support scheme, which has the potential to support rural demand instantly, is kept at Rs 75,000 crore, against the revised estimate of Rs 54,370 crore for the current fiscal. The abolition of the DDT at the hands of the companies will potentially free up funds that can then be used by them to invest more.