(GIST OF YOJANA) Budget 2019-20: Some Reflections [AUGUST-2019]
(GIST OF YOJANA) Budget 2019-20:
Budget 2019-20: Some Reflections
Before the presentation of Budget for the year 2019-20. the
Economic Survey for the year was presented in the Parliament. The Economic
Survey throws up certain significant figures which one has to keep in mind
while attempting to understand and analyse the Budget.
A few of these basic facts are summarised below:
The rate of growth of Gross Domestic Product (GDP) in the year
2018-19 has been 6.8 per cent against 7.5 per cent in 2017-18. The Budget
aims at 7 per cent GDP growth rate. The average growth rate during the last
five years has been 7.5 per cent.
There is a declaration of an intent to become a 5 trillion economy
by 2024. This will necessitate 8 percent rate of growth of GDP in next 5
The Survey also informs that the macro economic conditions are
expected to be stable during 2019-20. Thanks to the structural reforms
affected during the last five years.
The fiscal deficit has been at the rate of 3.4 percent of GDP.
However, if the Central Government and State Government’s fiscal deficit is
combined, it would go up to 5.8 per cent. This is actually a decline from
the previous year; when it had been 6.4 per cent.
Current Account deficit has increased from1.9 per cent in 2017-18
to 2.6 per cent in the period April to December, 2018. This has been because
of higher trade deficit which rose from 162.1 billion dollars in 2017-18 to
184 billion dollars in 2018-19.
Budget: Main Points
Excise and road cess on petroleum and diesel has been hiked by Rs.
1 per litre. This has caused an increase in the price of petrol and diesel.
Customs duties on gold and precious metals have been increased
from 10 per cent to 12.5 per cent. This would make gold costlier. Despite
being costlier, gold has been a significant expenditure item because of
traditional preference for it. To an extent, it is price inelastic.
Therefore, one can argue that the gold would, in any case, get purchased in
certain quantity even if it is costlier.
An additional Rs. 1.5 lakh would be deductible from income tax for
the spend on affordable housing(up to Rs. 45 lakhs). This is expected to
give a flip to the sluggish housing sector. Budget also seeks to bring
housing finance companies under the regulation of Reserve Bank of India
(from National Housing Board at present).
Income tax too is going to see significant changes:
Income tax liability on annual income between Rs. 2 to 5 crore has
been hiked by 3 per cent and income above Rs.5 crores has been taxed by
additional 7 per cent.\
Companies with turnover up to Rs. 400 crore shall pay lower tax at
the rate of 25 per cent.
In order to increase the ease of interaction with Income Tax
Department, an element of automated tax assessment has been introduced to
make it a faceless interaction. Besides, there would be pre filled tax
return forms also.
There is a new element of tax deduction at source by 2 per cent
for the cash withdrawals of over a crore in a year. This is aimed at
discouraging the cash transactions and at promoting cashless transactions.
In an ideal situation, lesser currency in circulation and more cashless
transactions would increase the velocity of money, and in turn the GDP.
Government is willing to consider less than 51 per cent stakes in
certain PSUs. It will be decided on a case to case basis. This would mean
that while taking a decision to
this effect, the peculiar facts and circumstances of the company and its
business would he kept in consideration. The budget envisages 1.06 lakh
crores as contribution from dividends and surplus from RBI and financial
institutions including disinvestment.
Public sector banks will get a capital infusion of Rs. 70.000
crores. Banks have been under stress because of nonperforming assets and
stranded assets. This capital infusion is expected to ease the stress.
Budget seeks to encourage the corporates of up to 400 crore by
lowering the corporate tax rate to 25 per cent. For investors too. There are
some incentives. The entire lump sum withdrawal from New Pension Scheme
(NPS) which is otherwise limited to 60 per cent of the accumulated amount,
shall be exempted from tax.
Long term capital gains from the sale of housing property has been
exempted from tax if capital gains are invested in a startup. To facilitate
this, the Sunset Clause has been extended till 3L March, 2021.
There is an interesting incentive for electrical vehicles which
will entitle to a concession of up to Rs. 1.5 lakh on its purchase.
NBFCs have now been brought under RBI’s pooled assets of NBFCs
regulation. Further, a relief on defaults on loans in form of partial
government guarantee has also been provided.
There are some interesting steps on the consumption side. For
example, those with foreign trips and massive power bills will also get into
the tax net. This means that this aims at expanding the tax base.