Budget 2020 Live: FM Sitharaman Revises Personal Income Tax Slabs, Scraps DDT; Announces LIC IPO

Finance Minister Says:

• Have Not Said No Money For Recap After PSB Amalgamation
• If Capital Need Arises Along With PSB Amalgamation, Will Consider
• Private Investment Was Not Happening At Desired Pace
• GST Revenues Were Not At Par With Expectations
• Had To Ramp Up Government Spending In 2019, Hence Deficit Change
• Revenue Generation Improvement Gives Confidence On FY21 Deficit
• Divestment Groundwork Done In FY20 Will Reflect In FY21
• Government's Intent Is Not To Harass Taxpayers
• Tax Charter Meant To Honour Honest Taxpaying Entrepreneurs
• Addressed Real Estate's Needs With 1-Year Extension Of Sops
• Those Who Want To Continue Availing Exemptions Can Stay With Old Regime
• Want To Remove Income Tax Exemptions In The Long-Run
• Ideal Situation Would Have Been Scheme With No Exemptions
• Want To Bring Rates Down, Ease Complications That Exist In Compliance
• Optional Approach Similar To That Done With Corporate Tax Changes
• New Personal Tax Regime Meant To Simplify Structure

Revenue Secretary Says

• More Than 4.9 Lakh Cases Are In Dispute
• Settlement Post-Mar. 31 Can Be Done With Small Fee Over Tax Amount
• Non-Resident Status Now After 240 Days Overseas, Vs 182 Earlier
• Donation To Charitable Trust Not Deductible Under New System
• Exemption On Payment Received From NPS Retained
• Exemption On Retirement Gratuity Retained
• Retained Retirement Benefit Exemptions In New System
• Total Of 120 Exemptions To Income Tax Existed
• Donation To Charitable Trust Not Deductible Under New System

Finance Secretary Says

• Timeline On LIC IPO To Be Given A Later Point
• Revenue Generation Improvement Gives Confidence On FY21 Deficit
• PSB Mergers To Yield Synergy Savings Of Rs 1,900 Crore

DIPAM Secretary Says

• Some Of The Big-Ticket Disinvestments Will Spill Over Into FY21
• Expect Expressions Of Interest For BPCL Very Soon

Indian stocks extended declined to trade at day’s low.

The S&P BSE Sensex fell 2.1 percent or 880 points to trade below 40,000-mark and the NSE Nifty 50 fell 2.2 percent 11,697. The broader markets represented by the NSE Nifty 500 Index fell 2.3 percent.

The market breadth was tilted in favour of sellers. About 1,293 stocks declined and 443 shares declined on National Stock Exchange.

Ten out of 11 sectoral gauges compiled by NSE traded lower, led by the NSE Nifty Realty Index’s 7 percent fall. On the flipside, the NSE Nifty IT Index was the only sectoral gainer, up 0.7 percent.

Mahindra & Mahindra’s VS Parasarathy expects Budget 2020 to return confidence to consumers and benefit auto and auto ancillary markets. While there were no specifics for the industry, an improvement in overall sentiment will be seen, he said.

However,on the negative side, the budget gave no relief to the NBFC sector, he pointed out. “That's obviously a big deal as the ecosystem is challenged at the moment,” reasoning the equity market’s negative reaction.

The request to the Reserve Bank of India to extend the MSME restructuring window was a little worrisome, he added. “This is basically saying the government does not have the money to recapitalise the state-owned banks and therefore asking RBI to kick the can down the road.”

Shares of the FMCG company declined after the budget proposed to raise excise duty on tobacco and cigarettes.

The market recovered partially, after reaching the day’s low post Finance Minister Nirmala’s budget speech today.

Speaking about the Rs 5 lakh deposit insurance, Arundhati Bhattacharya said along with that, depositors must also be aware that this will mean paying a much larger premiums by the banks. "The cost of servicing accounts will rise accordingly,” she told BloombergQuint.

“On infrastructure fund, I was keen to see one unified authority,” Bhattacharya said. However, the creation of an authority for all investment proposals is a step towards this, she said.

The former SBI Chairman expressed her approval over the government’s decision to take LIC public, saying “For anyone in the finance sector, it’s going to stare them in the eye. It’s in the right direction. I congratulate the government for taking such a step”.

When asked about the budget’s ability to retract India from its current state of slowdown, Bhattacharya said, "If you're looking for the big, bold things that's going to quickly release animal spirits, I don't see that".

The budget has set the divestment target at Rs 2.1 lakh crore for the upcoming fiscal year, according to the government document.It has maintained the current year gross borrowing at Rs 7.1 lakh crore.

Key Budget Numbers:

• India sees FY21 food subsidy at Rs 1.15 lakh crore
• FY21 fertiliser subsidy at Rs 71,300 crore
• India to net Rs 90,000 crore from stake sale in banks, finance institutions
• India to spend Rs 61,500 crore on rural employment programme in FY21
• India sees Rs 89,600 crore dividend from RBI, PSU banks in FY21

• Give Up Exemptions, And Pay Income Tax At Lower Rates
• DDT Abolished, Tax Burden Shifts From Companies To Investors
• Government Pegs FY21 Fiscal Deficit At 3.5%; Invokes Escape Clause
• India To Take LIC Public
• Fifteenth Finance Commission Retains Devolution Formula With Some Adjustments
• Bank Deposit Insurance Hiked To Rs 5 Lakh
• Government Sets Agri Credit Target For FY21 At Rs 15 Lakh Crore
• Government To Monetise 6,000 Km Of Highways
• Government Vows To Boost Purchasing Power In Budget To Revive Growth
• Government Slashes Taxes, Widens Budget Deficit To Spur Economy

Indian stocks declined to trade at day’s low as long-term capital gains tax remains.

The S&P BSE Sensex fell 1.64 percent to 40,023 and the NSE Nifty 50 slid 1.85 percent to 11,736. The broader markets represented by the NSE Nifty 500 Index fell 1.93 percent.

The Finance Ministry announced the ‘Vivad Se Vishwas’ scheme for tax litigations under which, only the disputed tax amount will have to be paid on or before March 31, 2020. No interest or penalty will be charged. People who pay after this deadline, but before June 30 will have to pay some charge, Sitharaman said during her speech.

• ‘Vivad Se Vishwas' Scheme To Reduce Direct Tax Litigation
• To Amend the Income Tax Act To Enable Faceless Appeal
• Under Scheme, Assessee To Pay Only Tax Amount, Not Interest, Penalty
• March 31 Deadline For Paying Tax Claim, Avoid Interest, Penalty
• Those Who Avail After March 31 But Before June 30 Will Have To Pay Some Extra Amount

The government plans to increase the investment limit of foreign portfolio investors in corporate bonds from 9 percent to 15 percent, Sitharaman said.

The finance minister said certain government securities will be open for foreign investors.

She also proposed debt-exchange traded funds comprising mainly government securities, while stating that Rs 22,000 crore has already provided as support to infrastructure project pipeline.

To address liquidity constraints of NBFCs and housing finance corporations, a partial credit guarantee scheme will be launched by the government, she added.

The government proposed to defer tax on Employee Stock Option Plan to a period of 5 years/leave the company/sell their shares (whichever is earlier), to help startups retain talented employees and boost the startup ecosystem.

The Dividend Distribution Tax will be done away with, said Sitharaman. The dividend from investment in a company will now be taxed in the hands of the recipient, at whichever tax bracket the person falls under.

The deduction allowed for dividends received by holding company from a subsidiary.

So far, companies were required to pay DDT at 15 percent, though including surcharge and cess put the effective rate at 20.56 percent. DDT was introduced in 1997 at a 7.5 percent flat rate in an effort towards efficient tax collection.

The government proposed to lower personal direct tax in today's budget speech.

In order to provide significant relief to individual taxpayers and to simplify the income tax law, I propose to introduce a new personal income tax regime where rates will be significantly reduced for the individuals who forego certain exemptions.

New Personal Income Tax Regime

• 10 percent: Rs 5 – 7.5 lakh (Versus earlier 20 percent)
• 15 percent: Rs 7.5 – 10 lakh (Versus earlier 20 percent)
• 20 percent: Rs 10 – 12.5 lakh (Versus earlier 30 percent)
• 25 percent: Rs 12.5 – 15 lakh (Versus earlier 30 percent)
• 30 percent: Above Rs 15 lakh (Continued at 30 percent, No Exemptions)

In the new tax regime, the benefits will be accrued depending upon the exemptions a person avails of, Sitharaman said, adding that switching to the new regime is optional for taxpayers.

The government has estimated Rs 40,000 crore in forgone revenue under the new tax revenue, she added.

"It was surprising to know that currently more than 100 exemptions of different nature are provided in the Income Tax Act. No wonder the code was like this." Sitharaman said that she has removed 70 of those codes while the remaining will be examined in the coming year to further simplify the personal tax system.

India’s central government fiscal deficit settled at 3.8 percent in 2019-20 and will be targeted at 3.5 percent in 2020-21, Sitharaman said while announcing the Union Budget.

For 2019-20, the fiscal deficit was estimated at 3.3 percent at the time of the budget presentation in July.

KEY BUDGET NUMBERS

• FY20 Revised Estimate Of Expenses At Rs 26.99 Lakh Crore
• FY20 Revised Estimate Of Receipts At Rs 19.3 Lakh Crore
• FY21 Nominal Growth Estimated At 10 percent
• FY21 Receipts Estimated At Rs 22.46 Lakh Crore
• FY21 Expenditure Seen At Rs 30.42 Lakh Crore
• Estimate Fiscal Deficit Of 3.8 percent In FY20, 3.5 percent In FY21
• FY20 Net Market Borrowing Seen At Rs 4.99 Lakh Crore
• FY21 Net Market Borrowing Seen At Rs 5.36 Lakh Crore
• Budget Said To Peg Asset Sale Target At Rs 2.1 Lakh Crore In FY21

The finance minister said the Modi government is planning to sell part of its holding in public sector behemoth Life Insurance Corporation of India.

• LIC assets = roughly $433 billion*
• All Indian mutual funds together = $363 billion*

*Source: Bloomberg

A clean, reliable and robust financial sector is critical to the economy.

In our effort to achieve the $5 trillion economy, the financial architecture should move from strength to strength, she said. In the last few years, the government has infused Rs 3.5 lakh crore into public sector banks. Reforms will be carried out in these banks to make them more competitive and a few will be encouraged to approach the capital market to raise additional capital, she added.

"Robust mechanism is in place to monitor the health of all commercial banks and depositors money is safe."

The deposit insurance and credit guarantee corporation have been allowed to increase deposit insurance coverage to Rs 5 lakh per depositor compared to the current Rs 1 lakh, she said.

Amendments are being proposed to the Banking Regulation Act to strengthen cooperative banks, she said.

India widened its budget deficit target for a third straight year. The budget shortfall will be widened to 3.8 percent from a planned 3.3 percent in the year ending March, Bloomberg reported quoting people familiar, who asked not to be identified as the data isn’t public yet. The deficit will be 3.5 percent for the year starting April, the people said.

• Agri credit target: Rs 15 lakh crore
• Agri, rural development outlay: Rs 2.83 lakh crore
• Health sector: Rs 69,000 crore
• Swachh Bharat Mission: Rs 12,300 crore
• Jal Jeevan Mission: Rs 11,500 crore
• Education: Rs 99,300 crore
• Skills: Rs 3,000 crore
• Industry, Commerce: Rs 27,300 crore
• Transport infrastructure: Rs 1.7 lakh crore
• Power, Renewables: Rs 22,000 crore
• Bharatnet: Rs 6,000 crore
• Schemes for Scheduled tribes: Rs 53,700 crore
• Schemes for Scheduled caste, OBCs: Rs 85,000 crore
• Nutrition programmes: Rs 35,600 crore
• Women-related projects: Rs 28,600 crore
• Senior citizens and Divyang citizens: Rs 9,500 crore
• Culture: Rs 3,150 crore
• Tourism: Rs 2,500 crore

Fertiliser stocks—including National Fertilizers Ltd., Rashtriya Chemicals & Fertilisers Ltd. and Chambal Fertilizers and Chemicals Ltd.—traded at day's low after Finance Minister Nirmala Sitharaman's Budget 2020 pushed for the use of organic fertilisers.

Our commitment (as part of the Paris Climate Accord) will be executed in various sectors starting Jan 1, 2021, by the department and ministries concerned by the normal budgeting process, the Finance Minister said.

"There are some thermal power plants which are very old and their emissions are very high. Such plants will be advised to close if their emissions are above the pre-set norms. The land can be used for alternate use."

"The government proposes to encourage states that are formulating and implementing plans for clean air in cities with above1 million people", Sitharaman said.

Incentives for states will be notified later, she said.

The Finance Minister proposed reforms and amendments to improve confidence of entrepreneurs, in an effort to increase ease of doing business and to show the government's faith in them.

"We are trusting that every citizen, the aspirational youth, the hard-working women, the risk-taking entrepreneur, the ever hopeful and untiring farmer, and the wise and old elder citizens, are all taxpayers."

• To Enshrine A Taxpayer Charter In The Statutes
• Tax Harassment Will Not Be Tolerated
• National Security Is The Top Priority Of This Government
• Amendments In Companies Act To Correct Criminal Action On Civil Offences
• Propose To Amend Rules For Hiring In Non-Gazetted Posts
• Propose To Set Up Independent National Recruitment Agency
• Economic Data Must Have Strong Credibility

The budget proposes to provide Rs 2,500 crore for tourism development in FY21. The FM also said India will develop five archaeological sites as iconic sites with museums. Besides, she said four more museums to be taken up for renovation.

Moreover, around Rs 3,150 crore will be provided to the Ministry of Culture in FY21.

FM Sitharaman has proposed setting aside Rs 85,000 for SC/OBC relief for FY21. For STs, Rs 53,700 crore will be provided. Allocation of Rs 9,500 crore for senior citizens for FY21.

Shares of the pipe manufacturers gained after the government allocated Rs 3.6 lakh crore for piped water projects under the Jal Jeevan Scheme.

Shares of Finolex Industries rose as much as 4.4 percent to Rs 585, while shares of Prince Pipes & Fittings rose as much as 2.9 percent to Rs 181.

National Infra Pipeline aims to improve ease of living for every citizen of our country, said Finance Minister Nirmala Sitharaman, adding that it also includes a huge opportunity for employment.

"I propose to set up a project preparation facility for infrastructure projects. This programme would actively involve young engineers, management graduates and economists from our universities. It is also proposed to divert all infrastructure agencies of the government to involve youth power and startups."

A national policy will soon be released, Sitharaman said.

Key Highlights

• National Infra Pipeline Of Rs 106 Lakh Cr Addresses Country's Infra Needs
• To Set Up Project Preparation Facility For Infrastructure Projects
• National Logistics Policy To Soon Be Released
• Logistics Policy To Create Single-Window E-Logistics Market
• Delhi-Mumbai Expressway To Be Completed By 2023
• To Monetise 12 Lots Of Highway Bundles By 2024
• Indian Railways Commissioned 550 Wi-Fi Facilities
• Railways Have Small Operating Surplus
• Solar Power Capacity To Be Set-Up Alongside Rail Tracks
• Four Station Redevelopment Projects To Be Done Through PPP Mode
• More Tejas-Type Trains To Connect Iconic Tourist Destinations
• 100 More Airports To Be Developed By 2024
• To Provide 20% Equity, External Assistance For Metro Projects
• To Provide Rs 22,000 Crore For Power, Renewable Energy In FY21
• To Expand National Gas Grid To 27,000 Km From 16,200 Km
• Aim Policy To Enable Private Sector To Build Data-Centre Parks
• Fibre-To-Home Through Bharat Net To Link 1 Lakh Gram Panchayats
• Propose To Provide Rs 6,000 Crore To Bharat Net
• To Initiate Two National Level Science Schemes

To achieve higher export credit disbursement, a new scheme NIRVIK is being launched which provides for higher insurance cover, reduction in premium for small exports and simplified procedure for claim settlement.

Refund to exporters the duties levied including electricity and VAT which have been not refunded. This will be launched this year.

Investment clearance cell to provided end to end facilitation and support including pre-investment advisory, information related to land bank and facilitate clearances at the central and state level. It will work through a portal.

Finance Minister proposed a scheme for the manufacturing of cell phones, semiconductors, and other electronic devices. It can also be used for the manufacture of medical devices as well.

A detailed scheme with details will be released soon.

Indian indices were holding a tight range as Finance Minister Nirmala Sitharaman presents Union Budget 2020-21.

The S&P BSE Sensex and the NSE Nifty 50 traded little changed at 40,766 and 11,974 respectively. The 30-stock index had swung from a fall of as much as 0.7 percent to gain as much as 0.5 percent before the Budget speech started.

The broader markets represented by the NSE Nifty 500 Index rose 0.2 percent.

To catch how markets are reacting to the budget click here

By 2030, India is said to have the largest working-age population in the world, Finance Minister Nirmala Sitharaman pointed out.

"Not only do they need literacy but also jobs and life skills. Dialogues have been held with state education ministries, MPs and other stakeholders. The new education policy will be announced soon."

"It is felt that our education system needs more finance inflow to attract talented teachers, innovate and build better labs. Steps will be taken to enable external borrowing and FDI so as to deliver higher quality education."

Key Highlights

• Aim To Attach Medical College To District Hospital In PPP Mode
• National Police & Forensic Science Universities Being Proposed
• To Start Online Education Programme For Deprived Section
• Urban Local Bodies To Provide Internship To Engineers For 1 Year

• Aim To Attach Medical College To District Hospital In PPP Mode
• There Is Huge Overseas Demand For Teachers, Nurses, Caregivers
• Rs 3,000 Crore Allocated For Skill Development In FY21

The finance minister said there is a holistic vision of healthcare that translates into wellness. She said PPP mode hospitals will be set up under viability gap funding to look at areas where there are no hospitals.

• Mission Indradhanush has been extended to cover new diseases and new vaccines.
• Provide Rs 69,000 Crore To Health Sector In FY21
• Swachh Bharat Mission Allocation Rs 12,300 Cr In FY21
• Rs 3.6 Lakh Crore Approved For Jal Jeevan Scheme
• To Expand Jan Aushadi Kendra Scheme
• Proceeds From Taxes On Medical Devices To Support Health Infra

The Modi government is committed to doubling farmer income by 2022, the finance minister. She proposed a 16 action point plan to aid the farmers.

• Focus On Cultivation Of Pulses Has Raised India's Self-Reliance
• Prosperity To Farmers Can Be Ensured Through Competition
• Distortion To Farm, Livestock Markets Need To Be Removed
• Livestock, Fishery Industries Need To Be Handheld
• Farm Markets Need To Be Liberalised
• Will Encourage Balanced Use Of All Types Of Fertiliser
• Farmers Can Convert Barron Land Into Solar Farms
• Help 15 Lakh Farmers To Solarise Grid-Connected Farm
• To Promote 20 Lakh Farmers To Set Up Solar-Powered Pumps
• Necessary To Reduce Excessive Use Of Chemical Fertiliser
• Propose To Expand PM Kusum Scheme, which helped remove farmers' dependence on kerosene
• 'Krishi Udan' Will Be Launched For Domestic And International Routes
• Will Facilitate Doubling Of Milk Production Capacity
• MGNREGA To Be Dovetailed To Create Fodder Farms
• FY21 Agriculture Credit Target Set At Rs 15 Lakh Crore
• Aim To Give High Focus At District-Level For Horticulture Produce
• Horticulture Sector With 311 Million MT Exceeds Foodgrain Production
• 'Krishi Udan' Will Be Launched For Domestic And International Routes
• Indian Rail To Set Up Kisan Rail To Bolster Cold Supply Chain
• Village Storage Scheme To Be Run By Self-Help Groups
• To Provide Viability Gap Funding For Warehousing
• NABARD To Map And Geotag Land Available For Agri Warehousing
• India Has Estimated Capacity 152 Million MT Of Agri Warehousing
• Aim To Raise Fish Production To 200 Lakh Tonnes

Sitharaman lays out three prominent themes of this year’s budget:

• Aspirational India
• Caring Society
• Economic Development

The central government's debt has come down to 48.7 percent in March 2019 from 52.2 percent in March 2014, the FM said.

• Got FDI Of $284 Billion In 2014 To 2019
• Economic Development To Involve Yielding More Space For Private Sector

Humara vatan, khilte hue shalimaar bagh jaise
Humara vatan, khilte hue shalimaar bagh jaise
Humara vatan, dal lake mein khilte hue kamal jaisa
Navjawanon ke garam khoon jaisa
Mera vatan, tera vatan, humara vatan, duniya ka sabse pyaara vatan

Sitharaman paid homage to Former Finance Minister Arun Jaitley who she called the chief architect of Goods and Services Tax.

The tax reform, she said, has been the most historic move in the country. The effective tax incidence on almost every commodity reduced, the FM said adding, “the dreaded inspector raj vanished because of GST.”

Besides, she said GST has consolidated numerous taxes and cesses.

Key Highlights From GST

• GST Has Been Gradually Maturing In India
• GST Amounts To 10% Reduction In Tax Incidence
• Simplified GST Returns System Will Be Implemented From April 1
• GST Council Has Been Proactive In Resolving Issues

Finance Minister Nirmala Sitharaman rises to present Union Budget for 2020-21. She begins her speech saying the budget is aimed at boosting income and enhancing purchasing power. She said the budget aims to give aspiration and address the hopes of the citizens of the country.

The Cabinet has approved Budget 2020, according to ANI. Finance Minister Nirmala Sitharaman to present the budget in Lok Sabha shortly.

Finance Minister Nirmala Sitharaman has reached the Parliament where she will soon present the Union Budget 2020-21. Meanwhile, a meeting of the Cabinet is underway ahead of the Budget speech.

India has the world’s biggest workforce but not enough jobs to offer. And that, according to HDFC Ltd.’s Keki Mistry, is what Finance Minister Nirmala Sitharaman should address in Union Budget 2020.

“Job creation is the single most important focus that the budget should have,” the chairman and chief executive officer at the non-bank lender said during BloombergQuint’s budget special series Ideas For Growth. “It’s very critical” and will improve sentiment, he said.

Finance Minister Nirmala Sitharaman and Minister of State Finance Anurag Thakur arrived in Ministry of Finance ahead of Union Budget 2020.

Indian indices opened lower ahead of Union Budget 2020.

The S&P BSE Sensex fell 0.44 percent to 40,549 and the NSE Nifty 50 fell 0.39 percent to 11,915. The broader markets represented by the NSE Nifty 500 Index fell 0.34 percent.

The market breadth was tilted in favour of sellers. About 729 stocks declined and 605 shares advanced on National Stock Exchange.

Nine out of 11 sectoral gauges compiled by NSE traded lower, led by the NSE Nifty
Private Bank Index’s 0.8 percent fall. On the flip side, the NSE Nifty FMCG Index was the top sectoral gainer, up 0.5 percent.

Catch live market updates here.

• Will DDT be abolished?
• Will LTCG be rationalised?
  

Mukesh Butani speaks about the fine print to watch out for in Budget 2020.

• Ideas For Growth: Tax Cut Or Spending Increase?
• Ideas For Growth: Avoiding The Stagflation Trap
• Ideas For Growth: VS Parthasarathy On How Private Sector Can Contribute To Growth Revival
• Invoking Fiscal ‘Escape Clause’ May Allow RBI To Buy Government Bonds Directly
• Government’s Austerity Drive - Where Can It Cut Spending?
• Budget 2020 — Improving The Tax Environment
• Doing More With PM-Kisan In Its Second Year
• India Is Headed For Its Biggest Tax Shortfall In A Decade
• India’s Economic Slump: Should Policymakers Go Above And Beyond?
• Giving NREGA Workers Their Due
• Is It Realistic To Expect Changes To Personal Income Tax Rate?
• Government Should Focus On Real Estate And Infrastructure, Mihir Vora Says
• Government May Trim PM-KISAN Scheme Allocation By 20% To Rs 60,000 Crore
• Not Fiscal Stimulus, Alternate Measures Needed To Boost Economy, Says NITI Aayog’s Rajiv Kumar
• Modi’s Many Stalemates Are a Drag on Indian Budget
• India Set for Deficit Blowout, High Borrowing: Budget Guide
• What State-Run Oil Firms Can Pay In Dividend To Help India Bridge Budget Gap
• Invoking Fiscal ‘Escape Clause’ May Allow RBI To Buy Government Bonds Directly
• How Budget 2020 May Offer Respite To Various Sectors
• What Top Brokerages Expect From Budget 2020
• Budget 2020 Ideas For Growth: Overhauling Revenue Expenditure

From Yesterday’s Economic Survey

• India FY21 GDP Growth Pegged At 6-6.5%
• From Creating 4 Crore Jobs To Thalinomics - Ten Takeaways
• Temasek-Like Structure Proposed To Speed Up Disinvestment
• Public Sector Banks Lost 23 Paise For Every Rupee Invested In 2019

India’s second-best performing fund manager of 2019—Pramod Gubbi—has his fingers crossed for a “credible” budget, he told BloombergQuint.

“If you see a credible fiscal deficit number, something around 4 percent, with the assumptions around tax growth and expenditure fairly reasonable, the market will take that,” the founder of Marcellus Investment Managers, which manages Rs 865 crore in assets, told BloombergQuint in an interview.

“If we come out with unrealistic expectations in terms of tax revenue growth, it would be a negative,” he said.

Borrowings

The government will probably boost borrowing to fund the wider fiscal deficit, with a Bloomberg News poll estimating likely bond sales of 7.8 trillion rupees ($109 billion) for the year starting April 2020. That would be higher than the 7.1 trillion rupees budgeted for the current year.

Read More

Tax Measures

Some analysts are predicting tax changes to help support businesses and consumers.

Here are some possible changes:

• Tax rebates on home purchases: an increase in this measure would have a large multiplier effect for both employment as well as consumption, according to Edelweiss Securities Ltd.
• Cuts to personal income taxes, long-term capital gains tax, tax on share buybacks: Bank of America said this would help spur demand.
• Tax relief for individuals, minus exemptions as proposed by the Direct Taxes Code, would result in a net gain for the government, according to ICICI Securities.
• The government is planning a revamp of the insolvency process to make the mechanism simpler and attractive for buyers of stressed assets, according to a senior official.

The central government is widely expected to miss its 3.3 percent fiscal deficit target for 2019-20, with the breach likely to be announced in the upcoming budget presentation on Saturday.

Lower taxes amid weaker growth have meant that the government may invoke the ‘escape clause’ provided by the Fiscal Responsibility and Budget Management Review Committee.

The clause allows the government to breach its fiscal deficit target by 0.5 percentage points at times of severe stress in the economy, including periods of structural change and those when growth falls sharply.

The breach in itself may not seem alarming in a year when growth has fallen to 5 percent from 8 percent in a six-quarter period, but the implications of invoking the ‘escape clause’ are serious and will take India back towards “automatic monetisation” of fiscal deficits—a practice done away with when the Fiscal Responsibility and Budget Management Act, 2003, was passed.

Revenue Shortfall

The central government had budgeted a 25 percent increase in net tax collections for 2019-20, despite a fall in the previous year. Till November, the Centre’s tax revenue had only grown 2.6 percent—the worst since 2009-10—or after the global financial meltdown. In the first eight months of the fiscal, the government has achieved 46 percent of its tax target, according to data collected from the Comptroller General of Accounts. To be sure, a large chunk of the tax collections are shored up in the final three months of the financial year.

Still, that will not be enough to plug the deficit. According to BloombergQuint’s calculations, the government’s net tax collection will have to rise by a whopping 119 percent in the final four months of 2019-20 to meet the target.

That’s the biggest revenue shortfall in a more than a decade.

Read more.

Finance Minister Nirmala Sitharaman is set to present the Union Budget for the financial year 2020-21 in the Parliament at 11 a.m. today. This is Sitharaman’s second budget after Prime Minister Narendra Modi’s government returned to power in the 2019 general elections with a bigger mandate.

The state of the economy, however, has deteriorated under the Modi government. Growth took a hit in 2016 after demonetisation, only to be further disrupted by the implementation of the Goods and Services Tax in April 2017. India has since seen its GDP growth fall from over 8 percent—making the fastest-growing major economy—to an estimated 5 percent this fiscal.

Today’s budget is expected to reveal measures to boost economic growth while keeping some cognizance of the fiscal deficit path chalked out by the FRBM Act.