Budget 2020

Few Initial Observations on Budget 2020

1. Tax Implications

 Reduced taxes – Will affect Government Revenues

 But can ensure greater tax compliance. As there is a inverse relationship between tax
compliance and tax rates.
 Reducing taxes will increase the number of people paying taxes and thereby increasing the
tax revenues. What we have to look forward is whether we can expect this greater
compliance as compensate for the loss of 40000 crore as a result of tax tweaking. And
whether this reduction will spur demand in the economy. As disposable income will
increase at the hands of people and thereby increasing consumption.
 DDT to be removed – Which means that now it will be taxed at the hands of the recepeint
which will encourage investors to prefer capital gain against receiving dividends. This is
positive for companies also as greater amount will now be retained in their hands.
 Corporate tax cuts again – 22% for existing companies and 15 %for new companies will
ensure increased investments
2. Revised Estimates
 Nominal GDP Growth rate for 20-21 pegged at 10% -
3. LIC IPO – Government to sell part of its stake. Divestment will enable the government to put
resources to better use which are otherwise not functioning well.
4. 3.5 lakh crore infused as capital in PSB in past years. Access capital markets for additional
capital.
5. Insurance Cover of deposits from 1 lakh to 5 lakh. Is it enough ?
6. Government stake in IDBI to be divested. Then what about LIC holdings in IDBI?
7. MSME’s to get subordinate debt from banks ? Is it a good policy considering the huge amount
of loans in MSME sector already turning NPA’s wont this measure add to the NPA of banks.
Although this measure is good enough to ensure that the MSME’s wont turn to banks for
lending considering the collateral and now they will be encouraged to do so as subordinated
debt does not require them to provide for collateral. However due dilligance must be followed
to ensure that these loans are not diverted and are used effeiciently. Debt restructuring to be
read
8. FPI Limit increased from 9% to 15% is a welcome step to encourage more investments from
abroad however it also means the companies are now exposed to contagion risks on account
of any shocks abroad.
9. Fiscal Deficit target set at 3.8% of GDP for FY20 and FY21 it is 3.5%.
10. Rs 103 NIP – 100 cr for infrastructure investments
11. Poor budget allocation for education.