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Union BUDGET 2019-2020
Union BUDGET 2019-2020
Union BUDGET 2019-2020
PAN and Aadhaar are now interchangeable: More than 120 crore Indians now have
Aadhar card, therefore for ease of tax payers, it was proposed to make PAN card and Aadhar
card interchangeable and allow those who don't have PAN to file returns by simply quoting
Aadhar number and use it wherever they require to use PAN.
To discourage the practice of making business payments in cash, the
government proposed to levy TDS of 2% on cash withdrawal exceeding Rs. 1 crore
in a year from a bank account.
Public sector banks to be provided 70,000 crore rupees to boost capital and improve
credit.
For purchase of high-rated pooled assets of financially sound Non Banking Finance
Companies amounting to 1 lakh crore rupees during 2019-20, one-time six-month
partial credit guarantee to be given to public sector banks (PSBs).
India's sovereign external debt to GDP is among the lowest globally at less than 5%. Govt
will start raising a part of its gross borrowing program in external markets in external currencies.
A new series of coins of Re 1, 2, 5, 10, 20 easily identifiable to the visually impaired were
released by the Prime Minister on 7th March 2019. These coins will be made available for public
use shortly.
Four new embassies to be opened in 2019-20, to improve footprint of India's overseas
presence and to provide better public services to local Indian communities.
Regulation authority over housing finance sector to be returned from National Housing
Bank to RBI.
To further encourage women entrepreneurship, Women Self Help Group (SHG),
Interest Subvention Programme to be expanded to all districts in India.
Non-performing asset (NPAs) recovery of Rs. 4 lakh crore over the last four years, NPAs
down by Rs.1 lakh crore in the last one year.
To popularise sports at all levels, National Sports Education Board for development of
sportspersons to be set up under Khelo India.
Exclusive TV programme exclusively for startups to be started, channel will be
designed and executed by startups themselves.
It was proposed to consider issuing Aadhaar Card for Non Resident Indians (NRIs) with
Indian passports after their arrival in India without waiting for the mandatory 180
days.
New National Educational Policy to be brought in to transform Indian educational system;
major changes in higher as well as school system to be brought in.
India will be made open defecation free on 2 October 2019.
Jal Shakti Ministry will look at the mgmt of our water resources and water supply in an
integrated and holistic manner and will work with states to ensure 'Har Ghar Jal', to all rural
households by 2024 under 'Jal Jeevan Mission'.
The government will invest widely in agricultural infrastructure and support private
entrepreneurship in driving value addition to farmers produce and those from allied activities
too, like bamboo, timber and also for generating renewable energy.
9.6 crore toilets have been constructed since 2 October 2014. More than 5.6 lakh villages
have become open defecation free. It was proposed to expand the Swachh Bharat mission
to undertake sustainable solid waste management in every village.
The government will bring out a policy framework for making India a global hub of
aircraft financing and leasing activities. The idea is to encourage new industries to come
up, leveraging India’s existing capabilities that will add more quality jobs.
India has emerged as a major space power. To harness India's space ability commercially, a
public sector enterprise, New Space India Limited (NSIL) has been incorporated to tap the
benefits of ISRO.
Every rural family, except those who are unwilling to take the connection will have electricity and
clean cooking gas.
A robust fisheries management framework through Pradhan Mantri Matsya Sampada
Yojana (PMMSY) to be established by the Department of Fisheries.
Target of connecting the eligible and feasible habitations advanced from 2022 to
2019 with 97% of such habitations already being provided with all weather connectivity.
In the second phase of PMAY, 1.95 crore houses are proposed to the beneficiaries.
Scheme for Promotion of Innovation, Rural Industry and Entrepreneurship’
(ASPIRE) consolidated.
1,25,000 kilometers of road length to be upgraded over the next five years under PMGSY III.
It is the right time to consider increasing minimum public shareholding in the listed
companies, The Finanace Minister has asked market regulator Sebi to consider raising the
current threshold of 25% to 35%.
Government will invite suggestions for further opening up of FDI in aviation sector,
media, animation AVGC and insurance sectors in consultation with all stakeholders.
100% FDI will be permitted for insurance intermediaries.
Credit Guarantee Enhancement Corporation will be set up in 2019-20, action plan to
deepen markets for long-term bonds with specific focus on infrastructure sector to be put in
place.
Pension benefit to be extended to around 3 crore retail traders and shopkeepers with an annual
turnover less than Rs.1.5 crore under Pradhan Mantri Karam Yogi Man Dhan Scheme.
Comprehensive restructuring of National Highways Programme will be done, to ensure the
creation of National Highways Grid of desirable capacity.
Railway infrastructure would need an investment of 50 lakh crores between 2018 and
2030; PPP to be used to unleash faster development and delivery of passenger freight services.
Current rental laws are archaic. A modern tenancy law would be finanlised and
forwarded to states.
Schemes such as 'Bharatmala', 'Sagarmala' and UDAN are bridging the rural and urban
divide, improving our transport infrastructure.
India Inc, our job creators, are the nation's wealth creators; together, we can prosper. I wish to
propose no. of reforms to kickstart virtuous cycle of growth.
The Indian economy will grow to become a $3 trillion economy in the current year
itself. It is now the sixth largest in the world. 5 years ago it was at the 11th position.
Average amount spent on food security per year approximately doubled during
2014-19 compared to preceding five years.
Vision for the decade: From 1.85 trillion dollars in 2014, the economy has reached 2.7 trillion
US dollars withing five years. We are well within capacity to reach $5 trillion economy in next few
years.
Between 2014 and 2019, the NDA government provided rejuvenated centre-state dynamic,
cooperative federalism, GST Council and a strident commitment to fiscal discipline; set
the ball rolling for New India.
*** Need for investment in: Infrastructure, Digital economy and Job creation in small and medium
firms. Initiatives to be proposed for kick-starting the virtuous cycle of investments and
Common man’s life changed through MUDRA (Micro Units Development and Refinance Agency Bank)
loans for ease of doing business (EDB).
Analysis
$5 trillion Economy
• Starting with a base size of $2.7 trillion in 2018-19, the Budget is pushing the Indian economy to
a size of $5 trillion by 2024-25.
• It is possible at:
o a nominal growth rate of 13% per annum; or
o a real growth rate of 8%-9% and
o an inflation rate of 5%-4%; and
o an assumed rate of depreciation on the Indian rupee of 2% per annum.
In economics, a real value, of a good or other entity, is one which has been adjusted for
inflation, enabling comparison of quantities as if prices had not changed.
Changes in real terms therefore exclude the effect of inflation.
In contrast with a real value, a nominal value has not been adjusted for inflation, and so
changes in nominal value reflect at least in part the effect of inflation.
• The Union Budget has proposed a number of growth-promoting initiatives to achieve the above
target of $5 trillion economy.
• First, the government proposes to access global investors by floating sovereign bonds
denominated in external currency.
This will ease pressure on domestic savings and interest rates which will
eventually facilitate an effective transmission of a repo rate reduction to lending rates.
This will reduce probability of government borrowing crowding out the private
sector borrowing
It will help in either reducing the interest rates or keep the interest rates stable.
It will also help getting dollar flows thereby improving the Balance of Payments as
well as foreign exchange reserve.
It should be noted that India’s sovereign external debt to GDP is among the lowest globally at less
than 5%, so the government would be increasing its external borrowing programme.
• Second, the government has come out with a clearer focus on Make in India where the
emphasis will now be on relatively limited sectors such as MSMEs, start-ups, defence
manufacturing, automobiles, and electronics.
• Third, the government aims to invite global investors for setting up mega-manufacturing
plants to bring in advanced technology in electric vehicles, electronics and other related areas.
• Fourth, the burden of NPAs on the banking sector is likely to ease with a budgeted capital
infusion of ₹70,000 crore.
• Fifth, the Budget has announced that NBFCs would also be allowed to access the facility
currently available to banks wherein interest on bad loans paid by loss-making entities is
taxed in the year in which it is actually received.
• Sixth, government has shown its inclination to reinvigorate PPPs for its ambitious
infrastructure expansion plans.
Given the past experience with PPP initiative, this may be a challenging task.
Budget Proposals
• At present, start-ups are not required to justify fair market value of their shares issued to certain
investors, including Category-I Alternative Investment Funds (AIF), the Budget has proposed to
extend this benefit to Category-II Alternative Investment Funds also.
Therefore, valuation of shares issued to these funds shall be beyond the scope of income
tax scrutiny.
• The Budget also propose to extend the period of exemption of capital gains arising from sale of
residential house for investment in start-ups up to 31.3.2021 and relax certain conditions of this
exemption.
• Additionally, the issue of establishing identity of the investor and source of his funds will be
resolved by putting in place a mechanism of e-verification. With this, funds raised by start-ups
will not require any kind of scrutiny from the Income Tax Department.
• In addition, special administrative arrangements shall be made by Central Board of Direct Taxes
for pending assessments of start-ups and redressal of their grievances.
• It is important to note that this benefit is likely to apply to start ups which are registered and
recognised by DIPP.
• Merits: The proposed programme on start-ups, will serve as a platform for promoting start-ups,
discussing issues affecting their growth, matchmaking with venture capitalists and for funding
and tax planning.
• So far, 19,665 start-ups are recognised by the Department for Promotion of Industry and Internal
Trade (DPIIT).
• They are eligible for availing tax and other incentives.
What is a Start-Up
• A start-up company means a private company incorporated under the Companies Act, 2013
and recognised as a “start-up” in accordance with the notification issued by the Department
of Industrial Policy and Promotion, under the Ministry of Commerce and Industry.
• The DIPP notification has defined a start-up as an entity that is incorporated or registered in
India.
• Furthermore, the department said an entity will be considered a start-up:
Up to a period of seven years from the date of incorporation/registration. For
biotechnology firms, that period is ten years.
Provided it has an annual turnover not exceeding Rs 25 crore in any preceding
financial year, and
If it works towards innovation, development or improvement of products or processes
or services, or if it's a scalable business model with a high potential of employment
generation or wealth creation
With respect to start-ups in the biotechnology sector, an entity shall cease to be a start-
up on completion of ten years from the date of its registration or if its turnover for any
previous year exceeds Rs 25 crore, according to the notification.
• Meanwhile, in a move that provides a major relief to budding entrepreneurs, the government
also ruled that start-ups can avail tax concessions if the funds they raise, including from angel
investors, do not exceed Rs 10 crore.
In short:
Seed Funds: a) Provide the initial capital to start the company.
Angel Funds: b) Those which invest in early stage companies.
Venture Funds: c) Those which invest in new companies which are particularly risky.
• It was also proposed to start a television programme within the DD bouquet of channels
exclusively for start-ups.
Context: Struggling Micro, Small and Medium Enterprises (MSMEs) have got a boost of 2% interest
subvention scheme in the recently announced Union Budget.
Details:
For ease of access to credit for MSMEs, Government has introduced providing of loans upto 1
crore for MSMEs within 59 minutes through a dedicated online portal.
Under the Interest Subvention Scheme for MSMEs, 350 crore has been allocated for FY 2019-20
for 2% interest subvention for all GST registered MSMEs, on fresh or incremental loans.
Government will create a payment platform for MSMEs to enable filing of bills and payment
thereof on the platform itself.
o Government payments to suppliers and contractors are a major source of cash flow,
especially to SMEs and MSMEs.
o Investment in MSMEs will receive a big boost if these delays in payment are eliminated.
The Budget emphasises on enabling growth for traditional industries and artisans, while offering
them business and technology incubation facilities.
The government will also extend pension benefit to about three crore retail traders and small
shopkeepers whose annual turnover is less than Rs. 1.5 crore under a new scheme named
Pradhan Mantri Karam Yogi Maandhan Scheme. Enrolment will be kept simple requiring only
Aadhaar and a bank account.
Unequal distribution
• Only 50% of the total agricultural credit disbursed went to small and marginal farmers in 2018-
19.
• The trend was the same in the last three years.
• But out of the total land holdings in India, the share of small farmers is close to 85%.
Marginal Farmer means a farmer cultivating (as owner or tenant or share cropper) agricultural
land up to 1 hectare (2.5 acres).
Small Farmer means a farmer cultivating (as owner or tenant or share cropper) agricultural
land of more than 1 hectare and up to 2 hectares (5 acres).
Other Farmer means a farmer cultivating (as owner or tenant or share cropper) agricultural land
of more than 2 hectares (more than 5 acres).
Zero Budget for farmers; no drought relief
Context: During the budget speech 2019, the Finance Minister suggested that farmers take up zero-
budget farming. Zero budget farming is a set of farming methods that involve zero credit for agriculture
and no use of chemical fertilisers.
Details:
In terms of new schemes, the budget announced Pradhan Mantri Matsya Sampada Yojana, to
plug gaps in the fisheries value chain, and another to promote traditional industries around
bamboo, honey and textiles.
The finance minister pledged to “invest widely in agricultural infrastructure” and said the
government will go back to the basics on one count: zero budget natural farming (ZBNF).
The budget for subsidies on chemical fertilizers increased by ₹9,900 crore.
It further pledged to create 10,000 new farmer producer organizations to ensure improved
bargaining power for farmers while purchasing inputs and during selling their harvest.
It was emphasised that the Centre and states will ensure that farmers benefit from the electronic
national agricultural market, or e-NAM.
However, there is no focus in the budget on improving farm gate prices or agriculture exports.
Research
• In the direction to promote research in the country, it is a welcome measure to note the proposal
to establish a National Research Foundation (NRF).
• Besides this, in the current financial year, the government has provided ₹400 crore to upgrade
the quality of education.
It is a good start but would need more fund allocations.
Labour Laws
• The government has proposed to streamline multiple labour laws into four labour codes.
Industry will keenly look forward to this reform.
NBFCs
• The Budget has comprehensively addressed the important issues of liquidity, solvency and poor
governance in the NBFC sector.
• The government will provide a one-time, 6-month partial credit guarantee to PSBs for the first
loss up to 10% amounting to ₹1 lakh crore.
• The partial credit guarantee from GoI would help NBFCs raise funds from PSU banks, thus
providing the funding support to NBFC/HFCs. However, with the guarantee being available
for only six months, the preference could be for relatively shorter-term retail assets.
• The central bank has also decided to frontload the Facility to Avail Liquidity for Liquidity
Coverage Ratio (FALLCR) which will enable the banks to avail additional liquidity of Rs.1.34
lakh crore.
• The budget also proposed that foreign institutional investors and foreign portfolio
investors will be allowed to invest in debt securities by shadow banks, which help NBFCs to
raise more funds.
• The budget also provided some tax incentives to the NBFCs by treating them on par with banks.
• The interest on bad loans for deposit-taking NBFC and systemically important non
deposit-taking NBFC will now be charged to tax on receipt basis.
• In addition, the tax incentives for loans on e-vehicles is expected support sales and be a
positive for vehicle financing NBFCs.
More
• The government has decided to give more powers to the central bank to regulate the non-banking
finance companies.
• RBI will have the power to supersede the board of the shadow banks, apart from those owned
by the government.
• According to the Finance Bill, if the RBI is satisfied that in the ‘public interest’ or to prevent the
affairs of an NBFC being conducted in a manner detrimental to the interest of the depositors or
creditors, the board can be superseded for a maximum five years and an administrator can be
appointed.
• Another proposed amendment to the RBI Act will allow it to frame schemes for amalgamating,
splitting and reconstructing an NBFC if it feels it is required after looking into the NBFC’s books
of accounts.
• The budget also proposed that foreign institutional investors and foreign portfolio investors will
be allowed to invest in debt securities by shadow banks, which help NBFCs to raise more funds.
• A long-standing demand of NBFCs for equitable treatment with banks in the matter of taxing
interest receivable on bad loans has been conceded.
They will not need to maintain a Debenture Redemption Reserve on public placements
that was leading to locking-up of funds, which is their raw material for business. These
are important reform measures for NBFCs.
• More interesting is the move towards reviving development financial institutions.
The big problem faced by NBFC financing infrastructure is the lack of long-term funding
sources to match their lending tenure.
This pushed them into borrowing short-term funds to lend to long-term projects, leading
to asset-liability mismatches.
The proposal to set up a committee to study the issue, including the experience with
development finance institutions, is welcome.
Digital Payments
• To promote digital payments further, the Budget proposes to take a slew of measures.
• TDS of 2% has been proposed on cash withdrawal exceeding ₹1 crore in a year from a bank
account to discourage the practice of making business payments in cash
• Businesses with an annual turnover of over ₹50 crore who will offer the payments options such
as BHIM UPI, UPI-QR Code, Aadhaar Pay, certain Debit cards, NEFT and RTGS, no charges or
Merchant Discount Rate (MDR) would be imposed on them or their customers.
These costs will be absorbed by the RBI and banks from the savings that would accrue to
them as a result of handling less cash.
Necessary amendments are being made in the Income Tax Act and the Payments and
Settlement Systems Act, 2007 to give effect to these provisions.
• The payments industry has welcomed the proposals saying these would help create a robust
payments infrastructure in the country.
• However, the industry leaders underlined the need for sufficient Internet penetration and data
reach to achieve the aspirations.
Significance: Digital payments would ensure formalisation of transactions curbing corruption
and the use of black money.The payments industry has welcomed the proposals saying these
would help create a robust payments infrastructure in the country.
However, the industry leaders underlined the need for sufficient Internet penetration and data
reach to achieve the aspirations.
These provisions in the budget facilitate the transformation of the economy from cash-driven one
to a less-cash economy.
Disinvestment
• The government has set itself a target of ₹1,05,000 crore for disinvestment proceeds for financial
year 2019-20 which will hinge in very large measure on the successful sale of Air India
• The government was considering reducing its direct majority shareholding in some companies to
below the 51% mark.
The government’s disinvestment policy till date rested on two prongs.
Disinvestment through minority stake sale in CPSEs to retain majority 51% shareholding
(with management control), and through strategic disinvestment up to 50% or more
along with transfer of management control, according to the Department of Investment
and Public Asset Management.
• It has also decided that the 51% of government control will be calculated after including the stake
owned by government-controlled institutions.
For example, if this proposal is passed without modification, the government can reduce
its shareholding in a PSU to, say, 40% from 51%, with the remaining 11% being owned by
the LIC or any other government-controlled institution.
While strategic sale will entail outright privatisation in some CPSEs, the government’s
direct holding can be brought down below 51 per cent but the effective control will remain
with the government.
Experts hailed the new disinvestment strategy as a bold initiative and said that if it
intends to reduce the fiscal deficit to 3.3% of gross domestic product (GDP) it needs to
raise non-tax revenues.
• The reasoning behind this move was to open up the market for small retail investors.
• Strategic disinvestment is conducted through a consultation process among different Ministries
and NITI Aayog, which advises on the entities and the amount to be divested, as also their
valuation.
• The routes followed are:
IPO,
OFS (offer for sale),
Follow-on OFS and
Further Follow-on PO.
• It also adopts the Exchange Traded Fund route for offering companies across diverse sectors
in a single shot.
Middle Class
• The Budget had many announcements that could benefit the middle class income earners.
• First and foremost, allowing people to use Aadhar in place of PAN number is a big move. It
will potentially help in easy on-boarding of customers in financial markets as well as various
digital platforms.
• Second, affordable house buyers are being given tax incentives in the form of an additional tax
benefit, if one buys a property before 31 March, 2020.
This will not only help in reducing the EMI burden, it can also help a large pool of
working people own their dream house.
Allowing ETFs to qualify under Section 80 C is a good move for saving tax as well as
giving one more choice to investors.
• Budget 2019-20 proposed to raise the minimum public holding for listed firms from
the current threshold of 25% to 35%.
Electric Vehicles
• The Budget proposed that customs duty is being exempted on certain parts of electric vehicles,
including e-drive assembly and on board charger, to further incentivise e-mobility.
• In February this year, the Cabinet had approved the second phase of the Faster Adoption
and Manufacturing of Electric Vehicles or FAME scheme, with an outlay of ₹10,000
crore for three years. This came into effect from April 1, 2019.
• The main objective of the scheme is to encourage faster adoption of electric vehicles by way of
offering upfront incentive on purchase of electric vehicles and also by establishing the necessary
charging infrastructure.
• Only advanced battery and registered e-vehicles will be incentivised under the
scheme with greater emphasis on providing affordable & environment friendly public
transportation options for the common man.
• The Union Budget proposes to provide an income tax deduction of ₹1.5 lakh on the interest paid
on loan taken to buy electric vehicles (EV).
• Accordingly, the buyer of an EV will get a total benefit of ₹2.5 lakh over the purchase period.
The EV industry believes that this would bring the cost of ownership of EV significantly
down and therefore expedite EV adoption in the country.
But the fact is that there are not too many electric vehicles in the market now. And even
for those that are there, the waiting period to deliver one is long.
Besides, there is no ecosystem, such as charging points, even in the major cities. The
government’s hope seems to be that this incentive will create a market for e-vehicles that
will then lead to the development of the ecosystem.
• The government has already moved the GST Council to lower GST on EV from 12% to 5%.
Defence
• Close to 11% of India's total expenditure in FY20 is allocated for the defence sector.
• The military budget has fallen by 0.6% point in FY20 compared to FY19.
• India's military expenditure accounted for 2.4% of its GDP in 2018. Over the last 5 years, the
share has remained constant.
• India was the leading arms importer between 2014 and 2018 except in 2018 (China).
• The world's 5 largest arms importers are in the last 5 years are: India > China >
Pakistan > USA > Brazil.
Water Schemes
• Jal Shakti Mantralaya is formed by integrating the Ministry of Water Resources, River
Development and Ganga Rejuvenation and Ministry of Drinking Water and Sanitation.
• One of its aim is to ensure piped water supply to all rural households by 2024 under the Jal
Jeevan Mission.
• This Mission, under the Department of Drinking Water and Sanitation, will focus on integrated
demand and supply side management of water at the local level, including creation of local
infrastructure for source sustainability like rainwater harvesting, groundwater recharge and
management of household wastewater for reuse in agriculture.
• The Jal Jeevan Mission, which has no budget allocation of its own — will need to
converge with other Central and State government schemes to achieve its objectives of
sustainable water supply management across the country.
• The ongoing Jal Shakti Abhiyan, a water conservation campaign in 256 water-
stressed districts also has no separate allocation, depending on funds available under existing
schemes, mostly in the rural development sector.
Subsidies
• The share of three major components in decreasing order is: Food subsidy > Fertilizer
Subsidy > Petroleum Subsidy.
Tax Reforms
• The Budget proposes the introduction of faceless e-assessment of tax returns taken up for
scrutiny.
• This will eliminate the scope for rent-seeking by officers as there will be no interface between
assessee and official.
• In fact, the assessee will not even know the identity of the officer scrutinising the return.
• This is an absolutely welcome measure but needs to be closely watched for implementation.
What is nudge theory?
• The ‘nudge theory’ of economist Richard Thaler, mentioned extensively in the Economic Survey
2018-19.
• Richard Thaler, the father of ‘nudge theory’, has been awarded the Nobel economics prize.
• The concept is a relatively subtle policy shift that encourages people to make decisions that are in
their broad self-interest.
• It’s not about penalising people financially if they don’t act in certain way.
• It’s about making it easier for them to make a certain decision.
• It is knowing how people think, so as to make it easier for them to choose what is best for them,
their families and society.
AT A GLANCE: INFRASTRUCTURE
National Common Mobility Card: India’s first indigenously developed payment ecosystem
for transport, based on National Common Mobility Card (NCMC) standards, launched in March
2019.
Ease of Travelling: Inter-operable transport card runs on RuPay card and would allow the
holders to pay for bus travel, toll taxes, parking charges, retail shopping.
Massive push given to all forms of Physical Connectivity via: Bhartamala (road and highways
project) and Sagarmala projects (national water port development connectivity scheme),
Pradhan Mantri Gram Sadak Yojana (PMGSY), Jal Marg Vikas and UDAN Schemes, Industrial
Corridors and Dedicated Freight Corridors.
State road networks to be developed in 2nd phase of Bharatmala project.
Jal Marg Vikas Project: Under it Navigational capacity of Ganga to be enhanced through
multi modal terminals at Sahibganj and Haldia and a navigational lock at Farakka by 2019-20.
Ganga Waterways: 4 times increase in next 4 years estimated in cargo volume on Ganga,
leading to cheaper freight and passenger movement and reducing import bill.
Railways: For Railway Infrastructure during 2018-2030, Rs.50 lakh crore investments is
needed
Public-Private-Partnership (PPP) proposed for development and completion of tracks, delivery of
passenger freight services and rolling stock manufacturing.
657 kilometers of Metro Rail network has become operational across India.
Aviation: Policy interventions to be made for development of Maintenance, Repair and
Overhaul (MRO), to achieve self- reliance in aviation segment
Government will be laying a Regulatory roadmap for making India a hub for aircraft financing
and leasing activities from Indian shores
e-vehicles: Outlay of Rs. 10,000 crore for 3 years approved for Phase-II of FAME (Faster
Adoption and Manufacturing of (Hybrid &) Electric Vehicles) Scheme
Upfront incentive proposed on purchase and charging infrastructure, to encourage faster
adoption of Electric Vehicles (EV).
Under FAME Scheme only advanced-battery-operated and registered e-vehicles to be
incentivized
Highways: National Highway Programme (NHP) to be restructured to ensure a National
Highway Grid, using a financeable model
Power: to be provided to states at affordable rates ensured under ‘One Nation, One Grid’ and
package of power sector tariff and structural reforms to be soon announced.
Undesirable duties on captive generation or open access sales for industrial as well as other bulk
power consumers to be removed under Ujjwal DISCOM Assurance Yojana (UDAY).
Blueprints to be made available for water grids, gas grids, i-ways, and regional airports
Gas: Implementing HLEC (High Level Empowered Committee) Recommendations which is-
Addressing low utilization of gas plant capacity due to paucity of Natural Gas; Retirement of old
& inefficient plants.
Housing: Model Tenancy Law to be finalized and circulated to all states in country
To promote rental housing appropriate reform measures are to be taken up
For public infrastructure and affordable housing on land parcels held by Central Government and
Central Public Sector Enterprises (CPSEs), a joint development and concession mechanisms to be
used.
AT A GLANCE: FINANCE
AT A GLANCE: TAXES
Direct Taxes
Performance: India’s Ease of Doing Business (EDB) ranking under ‘Paying Taxes’ category
jumped from 172 in 2017 to 121 in 2019. In past 5 years, Direct tax revenue increased by over 78%
to Rs. 11.37 lakh crore
Tax Slabs: For companies with annual turnover of up to Rs.400 crore, Tax rate reduced to 25%
For individuals having taxable income from Rs.2 crore to Rs.5 crore and Rs. 5 crore and above,
Surcharge to be increased
Tax Simplification and Ease of Living: Leveraging technology to make compliance easier:
Interchangeability of PAN and Aadhaar– Those who don’t have PAN (Permanent Account N
umber is a ten-digit alphanumeric number) can file tax returns using Aadhaar. Moreover
wherever PAN is required, Aadhaar can be used.
Pre-filling of Income-tax Returns (ITR) for faster, more accurate tax returns- Pre-filled ITR with
details of several incomes and deductions to be made available and regarding this information to
be collected from Stock exchanges, Banks, mutual funds etc.
Faceless e-assessment– with no human interface to be launched soon. Initially it is to be carried
out in cases which require verification of certain specified transactions or discrepancies.
Other Direct Tax measures: includes Simplification of tax laws to reduce genuine hardships of
taxpayers such as-
Appropriate class of persons exempted from anti-abuse provisions of Section 50CA of Income
Tax (IT) Act and Section 56 of IT Act
Higher tax threshold for launching prosecution for non-filing of returns
Relief for Start-ups:
Scrutiny: Funds raised by start-ups to not require scrutiny from IT Department.
‘Angel tax’ issue resolved- start-ups and investors filing requisite declarations and also
providing information in their returns are not to be subjected to any kind of scrutiny in respect of
valuations of share premiums
Capital gains (a profit from sale of capital asset like property/investment/stocks)
exemptions from sale of residential house for investment in start-ups extended till FY 2021
Relaxation of conditions for carry forward and set off of losses
e-verification mechanism so as to establish identity of investor and source of funds
Special administrative arrangements for grievance redressal and pending assessments. In
such cases no inquiry by Assessing Officer (AO) would be done without obtaining approval of
Supervisory Officer.
No scrutiny of valuation of shares issued to Category-II Alternative Investment Funds
(AIF). Category II AIF are funds which are allowed to invest anywhere in any combination but
cannot take debts, except for day-to-day operation purposes
Affordable housing: For purchase of house which is valued up to Rs.45 lakh an additional
deduction of up to Rs.1.5 lakhs proposed for interest paid on loans borrowed up to 31st March
2020. Overall benefit would be around Rs.7 lakh over loan period of 15 years.
Boost to Electric Vehicles: Additional IT deduction of Rs.1.5 lakh on interest paid on electric
vehicle loans as well as customs duty exempted on certain parts of electric vehicles.
Non-bank financial institution (NBFCs): Interest on certain doubtful or bad debts by
deposit taking and systemically important non-deposit taking NBFCs to be taxed in year in which
interest is actually received
Securities Transaction Tax (STT): is restricted only to difference between settlement and
strike price in case of exercise of options. STT (a direct tax) is levied on every sale and purchase of
securities that are listed on recognized stock exchanges in India.
International Financial Services Centre (IFSC): Direct tax incentives proposed for IFSC
are as follows-
o Exempting interest payment on loan taken from non-residents
o 100 % profit-linked deduction in any 10 year block within a 15-year period
o Exemptions on capital gain to Category-III AIFs (are funds that make short-term
investments and then sell like hedge funds Category III).
o Exemption from dividend distribution tax from current and accumulated income to
companies and Mutual Funds
Indirect Taxes
Make In India: Custom Duty-
Imposed– Basic Customs Duty (a duty/tax imposed under Customs Act 1962) increased on
optical fibre cable, CCTV camera, auto parts, cashew kernels, PVC, tiles, marble slabs, etc.; 5%
Basic Custom Duty imposed on imported books.
Withdrawn– End use based exemptions on fatty oils, palm stearin withdrawn; Custom Duty
Exemptions on certain electronic items now manufactured in India withdrawn; Exemptions to
various kinds of papers withdrawn
Reduced– on certain raw materials such as: Capital goods required for manufacture of specified
electronic goods; Fuels for nuclear power plants and Inputs for artificial kidney and disposable
sterilised dialyser etc.
Exempted: Defence equipment not manufactured in India exempted from basic customs duty
Increased: on gold as well as other precious metals.
Other Indirect Tax provisions
Increase in Special Additional Excise Duty and Road and Infrastructure Cess each by Rs.1 per
litre on both petrol and diesel
Export Duty rationalised on raw and Semi-Finished Leather
Legacy Dispute Resolution Scheme (LDSR) for quick closure of pending litigations in Central
Excise and Service tax from pre-GST (Goods & Service Tax) regime
Context: All possible steps are being taken by the government to encourage more foreign investment in
the Indian capital markets by making it easier for such investors to come to India and invest in a hassle-
free manner.
Details:
It is proposed to rationalise and streamline the existing Know Your Customer (KYC) norms for
Foreign Portfolio Investments (FPIs) to make it more investor friendly without compromising the
integrity of cross-border capital flows.
The government has also proposed merging the investment route for Non-resident Indians
(NRIs) with that for the FPIs
Finance Minister stressed on the fact that foreign investors are a key source of capital to the
Indian economy and hence it is important to ensure a harmonised and hassle free investment
experience for FPIs.
KYC Norms for Foreign Investors are also based on factors such as The Foreign Account Tax
Compliance Act, Guidelines on Anti-Money Laundering (AML) Standards, Combating the
Financing of Terrorism (CFT) and Prevention of Money Laundering Act.
Foreign investors are often looked upon as prime drivers of any bull run in the Indian equity
market and have been pumping in huge money in the stock market.
This assumes significance also due to the fact that the government plans to raise the limit of
foreign holding in select public sector entities while eyeing Rs.1.05 lakh crore through
disinvestment.
Context: It was announced in the budget that a power sector package is likely to be introduced soon,
along with a new tariff policy to ensure uninterrupted power for all.
Details:
It was announced that the Centre is working on several initiatives such as “one nation, one grid”
and a new tariff policy to further reform the power sector.
The policy will have provisions for imposing financial penalty on discoms resorting to gratuitous
load-shedding instead of buying power to meet demand.
Discoms will not be allowed to pass on to consumers the financial burden of more than 15% of
power loss in their systems, which will force them to improve efficiency.
One Nation, One Grid would ensure power availability to states at affordable rates.
The government is going to work with the State governments to remove the barriers in the
implementation of the ambitious UDAY scheme for the turnaround of power distribution
companies.
o The government had launched the UDAY scheme in 2015 for the financial and
operational turnaround of power discoms.
o UDAY scheme has faced criticism of late owing to mounting debt and overdues of
discoms.
The Finance Minister also spoke about focussing on improving the performance of the gas-
fuelled power projects that have been performing at lower efficiency levels due to the limited
availability of natural gas in the country.
The Finance Minister proposed to set up a high-level empowered committee to look into
retirement of old and inefficient power plants and address low capacity utilisation of gas-based
power plants.
Highlights
The new scheme will also provide financial assistance for the appointment of Urdu
teachers in any locality where more than 25% of the population is from an Urdu-
speaking community, as well as Modern Indian Language Teachers to teach a third
language in those schools of Hindi speaking States that demand them.
The three-language formula has been official Central policy for decades, but has long been
opposed in a number of non-Hindi speaking States, especially Tamil Nadu. It came back into the
spotlight when the draft National Education Policy was released in May.
It was later amended to allow for the teaching of any Indian language as the third
language, apart from English and the mother tongue. This new scheme seems to enable
the implementation of the original formula by supporting the appointment of Hindi
teachers, but not other language teachers, in non-Hindi speaking States.
A scheme to strengthen teacher training institutions, which had received an allocation of Rs.488
crore last year, has been completely dropped this year. A scheme to incentivise girls to enrol in
secondary education has also seen its Budget slashed, from almost Rs.256 crore in last year’s
revised estimates to Rs.100 crore this year.
Allocations have risen for mid-day meals as well as for Samagra Shiksha, the flagship
scheme for school education, leading to an overall 12% rise in allocation to the department.
In her budget speech, Finance Minister Nirmala Sitharaman focussed on the draft NEP’s
recommendations for research, quality and governance in higher education. Stating
that India has the potential to become a hub for higher education, she proposed to start a “Study
in India” programme to encourage foreign students to enrol in Indian higher educational
institutions.
In fact, the scheme had already been given Rs.50 crore last year and the allocation has
been increased to Rs.65 crore this year. Overall, the department’s budget rose by 14%.
Context: Increased tax deductions for interest paid on loans for houses up to Rs. 45 lakh,
construction of 1.95 crore rural houses and finalisation of a model tenancy law were among the
proposals for the housing sector in Finance Minister Nirmala Sitharaman’s Budget speech
recently.
Highlights
Increased tax deductions for interest paid on loans for houses up to Rs.45 lakh, construction
of 1.95 crore rural houses.
“For realisation of the goal of ‘Housing for All’ and affordable housing, a tax holiday has
already been provided on the profits earned by developers of affordable housing. Also, interest
paid on housing loans is allowed as a deduction to the extent of Rs. 2 lakh in respect of self-
occupied property,” she said.
In order to “provide a further impetus”, she proposed an additional deduction up to Rs.1.5
lakh for interest paid on loans borrowed up to March 31, 2020 for buying “an affordable
house valued up to Rs.45 lakh”.
“Therefore, a person purchasing an affordable house will now get an enhanced interest
deduction up to Rs.3.5 lakh. This will translate into a benefit of around Rs.7 lakh to the
middle class home-buyers over their loan period of 15 years,” she said.
Speaking about what she called the “archaic” rental laws that “do not address the relationship
between the lessor and the lessee realistically and fairly”, she said a model tenancy law would
be finalised and circulated to the States.
On construction of affordable housing in the country, the Minister said 1.54 crore rural homes
had been completed under the Pradhan Mantri Awas Yojana-Gramin in the past five years
and 26 lakh houses under PMAY-Urban. “In the second phase of PMAY-G, during 2019-
2020 to 2021-2022, 1.95 crore houses are proposed to be provided to the eligible
beneficiaries. These houses are also being provided with amenities like toilets, electricity
and LPG connections,” she said.
The time taken to complete a house had been reduced from 314 days in 2015-16 to 114
days in 2017-18 using technology and the direct benefits transfer platform. The Budget,
however, reduced the total allocation for PMAY (both rural and urban) from last year.
It went down from Rs.31,164 crore in 2017-2018 to Rs.27,505 crore in 2018-2019 Budget
estimates to Rs.26,405 crore in 2018-2019 revised estimates to Rs.25,853 crore for 2019-2020
Budget estimates.
Terms in news
Emerging Market Index
• The MSCI Emerging Markets Index captures large and mid cap representation across 26
Emerging Markets (EM) countries.
• The index covers approximately 85% of the free float-adjusted market capitalization in each
country.
Sunrise Sector
• Sunrise sector simply means a very fast growing industry and chances of its rapid boom in future.
• Information Technology or simply IT industry is known as the "Sunrise sector of India."
Bimal Jalan Committee
• It is looking into the issue of sharing of RBI’s reserves with the government.
Context: In a bid to make tax filing easier, the Budget proposed making Aadhaar interchangeable with
PAN for tax filing.
Details:
People without PAN looking to file taxes can now do so using just their Aadhaar.
Those who have already linked their PAN with Aadhaar can choose which ID they want to furnish
in their returns.
Earlier both PAN and Aadhaar were needed to have both to file ITR.
The finance ministry has also taken another step to track high-value transactions by making it
mandatory to provide the quoting and authentication of PAN/Aadhaar for certain prescribed
transactions. The budget also introduced a provision that the person receiving relevant
documents shall ensure correct quoting and authentication of PAN and Aadhaar for the
prescribed transactions. To ensure compliance of these provisions it is also proposed to amend
penalty provisions.
Further, the Finance Minister proposed allotting Aadhaar to non-resident Indians, arriving in
India, on an expedited basis.
So far, non-resident Indians with an Indian passport had to wait for 180 days after their arrival in
India before they can apply for Aadhaar.
The Budget proposed to remove this waiting time.
Context: The government, in the budget has imposed 10% import duty on newsprint and 5% import
duty on printed books.
Details:
There was no import duty on newsprint so far.
To encourage domestic publishing and printing industry, 5% custom duty is being imposed on
imported books.
Under this, printed books including covers for printed books and printed manuals, will attract
duty.
In addition, imported newsprint, uncoated paper used for printing of newspapers and lightweight
coated paper used for magazines will now attract 10% custom duty.
This decision is expected to have a significant impact on the industry as most of India’s newsprint
requirements are met through imports.
The move could act as another roadblock for print media that is already under pressure from the
growing digital business.
Context: The government is estimating a fiscal deficit of 3.3% of GDP in financial year 2019-20.
Fiscal Deficit:
The difference between total revenue and total expenditure of the government is termed as fiscal
deficit. It is an indication of the total borrowings needed by the government. While calculating
the total revenue, borrowings are not included.
Generally fiscal deficit takes place either due to revenue deficit or a major hike in capital
expenditure.
A deficit is usually financed through borrowing from either the central bank of the country or
raising money from capital markets by issuing different instruments like treasury bills and
bonds.
Details:
The estimate is lower than the 3.4% estimated earlier in the interim Budget presented in
February.
The move signals government’s commitment to fiscal consolidation.
The main reason for this is an increase on the revenue side, while expenditure is being controlled,
Finance Secretary said.
To achieve this goal, it is relying on one-off disinvestment income, as well as higher taxes on the
rich, and increased excise duties on petrol, diesel, precious metals and tobacco products.
The government has budgeted a higher disinvestment target for 2019-20 of Rs.1.05 lakh crore,
compared to the Rs. 80,000 crore budgeted in the previous year.
However, ratings agencies and tax analysts say there is a risk of missing the 3.3% target if tax
revenue falls short of the target.
Notably, the government has cut the allocations for several major schemes. Most significant of
these is the Rs. 4,334 crore cut for the Swachh Bharat scheme.
It has also has significantly slashed allocations to its marquee plan to clean the Ganga.
Details:
Public sector banks are now proposed to be further provided Rs. 70,000 crore capital.
It is likely to help them meet their minimum capital requirements and boost credit growth in the
economy.
Announcement for capital infusion comes after cleaning up the balance sheets of the State-run
banks.
According to bankers, about 50% or Rs. 35,000 crore will be the growth capital after meeting
regulatory requirements.
The boost for MSME, affordable housing & infrastructure sector is expected to generate the
growth in the bank credit.
To further improve ease of living, PSBs will leverage technology, offering online personal loans
and doorstep banking, and enabling customers of one Public Sector Bank to access services
across all Public Sector Banks.
In addition, Government has assured to initiate steps to empower accountholders to remedy the
current situation in which they do not have control over deposit of cash by others in their
accounts.
Reforms would also be undertaken to strengthen governance in Public Sector Banks.
Context
In a radical move, the Union Budget has proposed an increase in the effective tax rate paid by
high net-worth individuals (HNIs) by hiking the surcharge paid by those earning more
than Rs.2 crore and Rs.5 crore a year.
Finance Minister suggested a hike in surcharge on taxable income from Rs. 2 crore to
Rs, 5 crore by 3%, Rs. 5 crore and above by 7%.
Highlights
“In view of rising income levels, those in the highest income brackets need to contribute
more to the nation’s development,” Finance Minister Nirmala Sitharaman said in her
Budget speech. “I, therefore, propose to enhance surcharge on individuals having taxable
income from Rs. 2 crore to Rs. 5 crore and Rs. 5 crore and above so that effective tax
rates for these two categories will increase by around 3% and 7% respectively.”
According to the government, this increase in the surcharge is expected to earn the
government an additional Rs. 12,000 crore a year.
Ms. Sitharaman highlighted the growth of direct tax revenue, which she said stood at 78%
from Rs. 6.38 lakh crore in financial year 2013-14 to around Rs. 11.37 lakh crore in
financial year 2018-19. She added that direct tax collections are now growing in double digits
every year.
The government estimates that it will collect Rs.5.69 lakh crore from income tax in
financial year 2019-20, which is 7.5% higher than the Rs.5.29 lakh crore revised
estimate for collections in 2018-19.
In continuation of former finance minister Arun Jaitley’s assurance that this government would
reduce corporate tax rates, Ms. Sitharaman also said that companies with a turnover of up to Rs.
400 crore a year would now have to pay tax at 25%. This turnover limit was earlier Rs. 250 crore
a year. The new limit will now cover 99.3% of companies, Ms. Sitharaman said.
India is progressively moving towards fulfilling our goal on that [reducing corporate tax
rates for all companies to 25%].
By bringing in more number of companies in that lowered rate, India is clearly sending a message
that it is not trying to stick to rigidity on the rates.
The revenue loss on account of this would be around Rs.4,000 crore a year.
A number of measures, such as electronic face-less assessments, to improve transparency in
income tax assessment process and also to ease the return filing process for tax filers will soon be
taken.
The existing system of scrutiny assessments in the income-tax department involves a high level of
personal interaction between the taxpayer and the department, which leads to certain
undesirable practices on the part of tax officials.
To eliminate such instances, a scheme of faceless assessment in electronic mode involving no
human interface is being launched this year in a phased manner.
e-assessments will be carried out in cases requiring verification of certain specified
transactions or discrepancies.
Under the new system, cases selected for scrutiny will be allocated to assessment units in a
random manner and notices will be issued electronically by a Central Cell, without
disclosing the name, designation or location of the Assessing Officer. This Central Cell will be
the single point of contact between the taxpayer and the Income Tax Department.
In a bid to ease the return filing process, the taxpayers will be able to access pre-filled tax
returns which will contain details of salary income, capital gains from securities, bank interest,
and dividends etc. and tax deductions.
A large number of items including petrol, diesel, gold, silver, cigarettes, fully-imported cars and split air
conditioners (ACs) will become more expensive due to hike in taxes, as proposed by Finance Minister
Nirmala Sitharaman in the Union Budget for 2019-20.
The list of things that got costlier after the budget of 2019
Petrol and diesel
Cigarettes, hookah and chewing tobacco
Gold and silver
Fully-imported cars
Split air-conditioners
Loudspeakers
Digital video recorders
Imported books
CCTV cameras
Cashew Kernels
Imported plastics
Raw materials for manufacture of soap
Vinyl flooring, tiles
Optical fibre
Ceramic tiles and wall tiles
Imported stainless steel products
Imported auto parts
Newsprint and paper for newspaper and magazines
Mountings for furniture
It will also help India to realise the highly mooted BS VI norms for which a 2 wheeler certificate has
already been issued recently.
Apart from the goods mentioned above, certain services will also become costlier. They are given below:
Cash transactions:
Cash transactions above Rs. 1 crore in a financial year by a business entity has been levied an
additional tax of 2%.
So, now transactions in cash will become little difficult for business entities. It will in turn help
India in its long term goal for moving towards a cashless economy.
Digital India got a boost after an increase in penetration of digital transactions through various
initiatives like Bharat Interface for Money (BHIM), Aadhar Linked Payment System (ALP) and
making the Merchant Transaction Rate to zero.
The Finance Minister, Mrs. Nirmala Sitharaman has mentioned spacially about the Electric Vehicles in
the Budget speech of 2019. Further details about the Electric vehicles is given below:
Electric Vehicles:
Electric Vehicles have got a huge boost after the budget speech of the Finance Minister Mrs.
Nirmala Sitharaman.
Not only the import of Electric Vehicle related goods were made easier by lowering GST
rate but also consumers were given huge relief in the overall interest rates of the loan that they
take from Public Sector Banks.
Consider a large consumer base, the government aim to leapfrog and envision Indiaas a
global hub of manufacturing of Electric Vehicles.
Inclusion of Solar Storage Batteries and charging infrastructure in the scheme will boost
effeorts in this direction.
The Government has consulted the GST Council to lower the GST rate on Electric
Vehicles from 12% to 5%.
Also, to make electric vehicle affordable to consumers, the government will provide
additional income tax deduction of 1.5 lakh rupees on the interest paid on loan taken topurchase
electric vehicles.
This amounts to a benefit of 2.5 lakh rupees over the loan period to the tax payer who takes loan
to purchase the electric vehicles.
So, by the time the entire period of the loan ends for you having taken loan for buying electric
vehicle, you would benefit to the level of Rs. 2.5 lakh rupess.
Background of Budget
What is Budget?
The Annual Financial Statement or the Statement of the Estimated Receipts and Expenditure of the
Government of India in respect of each financial year is popularly known as the Budget.
Presentation of the budget:
The Budget is presented to Lok Sabha on such day as the President may direct. Immediately after
the presentation of the Budget, the following three statements under the Fiscal Responsibility
and Budget Management Act, 2003 are also laid on the Table of Lok Sabha:
1. The Medium Term Fiscal Policy Statement.
2. The Fiscal Policy Strategy Statement.
3. The Macro Economic Framework Statement.
General Discussion on the Budget:
• No discussion on Budget takes place on the day it is presented to the House.
• Budgets are discussed in two stages—the General Discussion followed by detailed
discussion and voting on the demands for grants.
Consideration of the Demands for Grants by Departmentally Related Standing
Committees of Parliament:
• With the creation of Departmentally Related Standing Committees of Parliament in 1993, the
Demands for Grants of all the Ministries/Departments are required to be
considered by these Committees. After the General Discussion on the Budget is over, the
House is adjourned for a fixed period. During this period, the Demands for Grants of the
Ministries/ Departments are considered by the Committees. These Committees are required to
make their reports to the House within specified period without asking for more time and make
separate report on the Demands for Grants of each Ministry.
Discussion on Demands for Grants:
• The demands for grants are presented to Lok Sabha along with the Annual Financial Statement.
These are not generally moved in the House by the Minister concerned. The demands are
assumed to have been moved and are proposed from the Chair to save the time of the House.
After the reports of the Standing Committees are presented to the House, the House proceeds to
the discussion and voting on Demands for Grants, Ministry-wise. The scope of discussion at
this stage is confined to a matter which is under the administrative control of the
Ministry and to each head of the demand as is put to the vote of the House. It is open
to members to disapprove a policy pursued by a particular Ministry or to suggest measure for
economy in the administration of that Ministry or to focus attention of the Ministry to specific
local grievances. At this stage, cut motions can be moved to reduce any demand for grant but no
amendments to a motion seeking to reduce any demand is permissible.
Cut Motions:
• The motions to reduce the amounts of demands for grants are called ‘Cut Motions’. The object of
a cut motion is to draw the attention of the House to the matter specified therein.
Cut Motions can be classified into three categories:
1. Disapproval of Policy Cut.
2. Economy Cut.
3. Token Cut.
• The Speaker decides whether a cut motion is or is not admissible and may disallow
any cut motion when in his opinion it is an abuse of the right of moving cut motions or is
calculated to obstruct or prejudicially affect the procedure of the House or is in contravention of
the Rules of Procedure of the House.
Guillotine:
• On the last of the allotted days for the discussion and voting on demands for grants, at the
appointed time the Speaker puts every question necessary to dispose of all the outstanding
matters in connection with the demands for grants. This is known as guillotine. The guillotine
concludes the discussion on demands for grants.
Appropriation Bill:
• After the demands for grants have been passed by the House, a Bill to provide for the
appropriation out of the Consolidated Fund of India of all moneys required to meet the grants
and the expenditure charged on the Consolidated Fund of India is introduced, considered and
passed. The introduction of such Bill cannot be opposed. The scope of discussion is
limited to matters of public importance or administrative policy implied in the
grants covered by the Bill and which have not already been raised during the
discussion on demands for grants.
• The Speaker may require members desiring to take part in the discussion to give advance
intimation of the specific points they intend to raise and may withhold permission for raising
such of the points as in his opinion appear to be repetition of the matters discussed on a demand
for grant.
• No amendment can be proposed to an Appropriation Bill which will have the
effect of varying the amount or altering the destination of any grant so made or of
varying the amount of any expenditure charged on the Consolidated Fund of
India, and the decision of the Speaker as to whether such an amendment is
admissible is final. An amendment to an Appropriation Bill for omission of a demand voted
by the House is out of order.
• In other respects, the procedure in respect of an Appropriation Bill is the same as in respect of
other Money Bills.
Finance Bill:
• “Finance Bill” means a Bill ordinarily introduced every year to give effect to the financial
proposals of the Government of India for the next following financial year and
includes a Bill to give effect to supplementary financial proposals for any period.
• The Finance Bill is introduced immediately after the presentation of the Budget. The
introduction of the Bill cannot be opposed. The Appropriation Bills and Finance Bills may be
introduced without prior circulation of copies to members.
• The Finance Bill usually contains a declaration under the Provisional Collection of Taxes
Act, 1931, by which the declared provisions of the Bill relating to imposition or increase in duties
of customs or excise come into force immediately on the expiry of the day on which the Bill is
introduced. In view of such provisions and the provision of Act of 1931, the Finance Bill has to be
passed by Parliament and assented to by the President before the expiry of the seventy-fifth day
after the day on which it was introduced.
• As the Finance Bill contains taxation proposals, it is considered and passed by the Lok Sabha only
after the Demands for Grants have been voted and the total expenditure is known. The scope of
discussion on the Finance Bill is vast and members can discuss any action of the Government of
India. The whole administration comes under review.
• The procedure in respect of Finance Bill is the same as in the case of other Money Bills.
EDITORIALS
Editorial Analysis:
Experts opine that the maiden budget of Nirmala Sitharaman has many interesting features, but
it does not have a defining central theme.
There were expectations of a big growth push through either tax cuts or large expenditure
programmes even if it meant a rise in the fiscal deficit.
However, the Finance Minister has chosen to be fiscally conservative, opting to play the long-
term game, though it could lead to pain in the short term.
Having said this, she has permitted herself a ₹70,000 crore capital infusion in banks that will, it
is hoped, spur lending to growth sectors in the economy.
Concluding Remarks:
The budget documents show that the government has stuck to the glide path for fiscal deficit,
which will be at 3.3% this fiscal.
This is, however, based on exaggerated growth projections in tax revenues.
The estimated total revenue receipts this fiscal is ₹19.62 lakh crore, which implies a 25.56%
growth compared to the actual receipts of ₹15.63 lakh crore (as presented in the Economic
Survey) in 2018-19.
Experts opine that this is an extremely ambitious projection, especially given the ongoing
slowdown in the economy.
It is important to note that the Finance Minister could get a comfortable buffer if the Bimal Jalan
committee that is going into the sharing of RBI’s reserves with the government comes up with
favourable recommendations.
The government also appears to be sliding into a protectionist mode, going by the increase in
customs duty on everything from cashew kernels to PVC, newsprint and even auto parts.
While some of it may be well-intentioned to promote domestic manufacturing, this sends out a
retrograde signal on the reforms front.
Editorial Analysis:
Experts opine that the first Budget of the new government in the 17th Lok Sabha powerfully
recommits to the vision guiding the last term emphasising continuity, individual empowerment
and infrastructure for nation building, fiscal consolidation, discipline, and process
improvements.
Importantly, the rural sector comes in for special attention, but even there the focus is on value
addition and transformation rather than income transfers as the means to double farmer
incomes.
A Critical Assessment:
Experts opine that there is hardly any discussion of the current growth slowdown, and
how the Budget can contribute to alleviating it.
Critics opine that this is a pity, because this is expected of the major macroeconomic policy
statement of the government.
Further, markets are looking for a big spending boost from the government to revive growth.
However, there are many aspects of the Budget that will contribute to reviving growth but
unfortunately they are not brought out explicitly.
The Budget is presented as part of the longer-term creation of a new India.
Macroeconomic stimulus:
The Budget gives many examples of the present government’s faster speed of delivery in
infrastructure, such as road building or construction of low-income housing.
Since the same government is back, it will be able to front-load expenditure on ready projects.
The spending comes before taxes are raised and, therefore, is stimulatory.
Apart from creating incomes it boosts demand for the cement and steel industries.
Moreover, although the fiscal deficit ratio has come down from 3.4 in the interim Budget to 3.3, a
larger share of resources are to be raised by privatisation.
Since this does not reduce private demand as taxation does, there is a larger net expenditure
stimulus which supports demand and growth.
(a) Perspective on Schemes:
Completed schemes are being built upon, as some funds from Swachh Bharat are being re-
allocated to piped water and to obtaining energy from solid waste management.
It is important to note that the substitution of LED bulbs under the Unnat Jyoti by Affordable
LEDs for All (UJALA) Yojana for earlier energy guzzlers led to an estimated cost saving of
₹18,341 crore per year.
Now solar stoves and battery chargers will be promoted.
Concluding Remarks:
As argued above, some stimulus is possible without raising deficits.
In the long run, however, the macroeconomic framework constraining the Budget needs to be
revisited to allow policy to counter growth slowdowns and booms.
The present framework gives very little space for this. The Fiscal Responsibility and Budget
Management adjustment path should be in terms of a cyclically adjusted fiscal deficit, with
incentives to protect the quality of expenditure.
A target for revenue deficit is also required since it is easiest to cut public investment, which also
hurts growth. The 15th Finance Commission should consider this reset.
Lastly, reducing the level of debt and interest payments is a desirable objective, since it would
release much more government funds for productive expenditure.
However, growth raises tax revenues and a rise in GDP increases the denominator reducing
deficit ratios.
Therefore maintaining growth is one of the best ways to reduce debt and deficit ratios.
Editorial Analysis:
Experts opine that there were high expectations from the Budget to provide a clear road map for
much-needed reforms, given that the government received an unprecedented electoral mandate.
It is important to note that the GDP growth in the last quarter of 2018-19 was the
slowest in the last five years, and considering that the capacity utilisation in manufacturing
has already peaked, reviving the investment climate is critical to accelerate economic
growth.
As a matter of fact, the unemployment rate, which is 6.1%, is the highest in four decades. With
the Economic Survey making a pitch for creating a virtuous cycle of saving and investment, there
was hope that there would be far-reaching announcements in the Budget.
Finding a balance:
To be fair, Finance Minister Nirmala Sitharaman has a difficult job of balancing the books,
particularly when the revenues are not buoyant and demands for expenditure are high.
From that perspective, it is noteworthy that she has tried to show her commitment to
the process of fiscal consolidation by keeping the fiscal deficit budgeted at 3.3%.
The difference between the 3.4% budgeted in the interim Budget and this is mainly due to higher
GDP estimates (₹93,168 crore) used in the denominator.
The revenue is lower by ₹55,463 crore compared to the interim Budget estimate but this is offset
by non-tax revenue estimated to be higher by ₹40,532 crore.
Thus, there are not many significant departures from the estimates of revenue and expenditure
presented in the interim Budget.
The gross income tax revenue is estimated to be lower than the interim Budget by ₹90,000 crore,
mainly on account of lower GST (₹97,857 crore) and individual income tax ( ₹51,000 crore).
Despite taking lower estimates, the revenue estimates look far too optimistic in
comparison with the pre-actuals given by the Controller General of Accounts.
To realise the Budget estimates, the increase over the actual tax collected in 2018-19 in gross tax
revenue will have to be 21.2%, net tax revenue must rise by 25.3%, and the non-tax revenue will
have to increase by 27.2%.
Concluding Remarks:
Lastly, the Finance Minister speaks about the rejuvenated Centre-State dynamic and
commitment to cooperative federalism shown by the government during the last five years.
At the same time, most of the measures taken to raise additional revenues are by way of cesses
and surcharges.
The increase in income tax for people with more than ₹2 crore and ₹5 crore is by way of
additional surcharge.
Similar is the case with additional tax on petrol and diesel.
Critics opine that this is clearly to exclude the additional revenue raised from the
divisible pool and deny the share of the tax to the States.
Hopefully, the Finance Commission which is deliberating on the devolution will take note of the
issue. On any case, such measures do not promote cooperative federalism.
Union Minister of Finance while presenting the Union Budget 2019-20 in Parliament said that Indian
economy will become a 3 trillion dollar economy in the current year and is on the path of achieving the
Prime Minister’s vision of a 5 trillion dollar economy by 2024-25.
Context: In the Budget 2019-2020, the outlay for children has shown a marginal increase of 0.05%,
going up from 3.24% in the last fiscal to 3.29% in the current fiscal year.
Details:
HAQ Centre for Child Rights opined that the share is less than the low share of 5% that the
National Plan of Action for Children, 2016, has recommended.
Budgetary grant analysis carried out by Child Rights and You shows that the allocation for
education and health has declined and that for the ambitious plan for nutritional development
may be insufficient.
The share of education has increased marginally to 68.54% from 68.2%, but has declined by
more than 10 percentage points from the 79.02% of 2015-16. These include schemes such as
Samagra Shiksha, National Programme of Mid-day Meal in Schools and Navodaya Vidyalaya
Samiti.
The Anganwadi services and the Poshan Abhiyan (Nutrition Mission) are among the most
important government programmes aimed at reducing stunting, anaemia, low weight and low
birth weight.
While the former has registered an increase of 19% and the latter of 14% in this latest Budget
announcement. However it is argued by experts that it is inadequate.
There is also a cut back of 16% for the National Child Labour Project Scheme.
Details:
The connectivity theme comes out strongly in the Budget presentation with emphasis on
roadways and waterways.
Aviation gets coverage through higher FDI, facilitating maintenance, repair and operations
(MRO), One Nation One Power Grid, National Gas Grid and DISCOM reforms.
Public-Private participation in railway infrastructure is also a welcome move. However, its
success would depend upon building consensus on this sensitive topic.
Emphasis on creating liquidity and capital raising is lauded. Given the global headwinds that
India faces due to trade wars and the like, and the slowing domestic economy, liquidity is key to
pump-priming the economy.
NBFCs that play such an important role in the unbanked sector clearly need liquidity solutions.
Deepening the bond market is a step in the right direction. This reduces corporate’s dependence
on banks for the corporate sector.
Quality of life for all is another positive in the Budget. The target of two crore affordable houses
by 2022, along with drinking water, electricity and gas for all is a much-needed infrastructure
that has multiple benefits.
Increasing interest subsidy for loans to purchase affordable houses will help to stimulate
demand.
These initiatives will positively impact employment besides providing stimulus to sectors such as
cement, steel and the capital durables sector.
Conclusion: The Finance Ministry is complimented for having conjured up a document that articulates
the vision of the $5 trillion economy that the Prime Minister has envisioned for India. The effectiveness
of the budget, however depends upon implementation and building consensus on the way forward.
Context: It is opined that the Union Budget 2019-2020 is a truly agriculture and rural development-
focussed Budget and that it has adequately met the twin objectives of growth and inclusiveness.
Details:
An announcement of formation of 10,000 new FPOs over the next five years is a step towards
sustainability.
The crux of the Budget is sustainability in every aspect, be it agriculture practices or economic
viability.
With this, the economies of scale can be harnessed to achieve the goal of doubling farmer’s
income by reduction in input costs and assuring better price realisations by the farmers for their
output.
The incentives proposed for women SHGs will not only lead to livelihood generation and women
empowerment, but also nurture first-generation entrepreneurs though the MUDRA loans of ₹1
lakh.
With the proposed interventions, not only farmers, but also rural entrepreneurship will get the
necessary boost.
The government’s impetus is to promote non-farm activities to boost economic viability of
farmers.
A new scheme — Pradhan Mantri Matsya Sampada Yojana — will give enough confidence to
those who are in fisheries sector, to enhance their income with better fisheries management,
infrastructure creation, increasing production and productivity, improved post-harvest
management bringing economic viability of the sector.
The government has shown that every person having potential to bring economic revolution will
be given an equal opportunity. Another new scheme — Scheme of Fund for Regeneration of
Traditional Industries (SFURTI) — is an attempt in this direction.
Under Pradhan Mantri Gram Sadak Yojana, a road network of 1.25 lakh km will bring more
villages to rural markets.
Enhancing the prospects of agripreneurs, the ASPIRE scheme will create 50,000 skilled rural
entrepreneurs, especially in the rural agriculture sector.
To expand the income sources of our farmers, there is a proposal to enable them to take up power
generation activities on their field to transform the Annadata to an Urjadata.
In the dairy sector, cooperatives will be encouraged to create infrastructure for cattle field
management, milk production, processing and marketing.
For relieving farmers from uncertain prospects, the States will be forced to implement e-NAM
mechanism for better operations under the APMC Act.
The concept of zero-budget farming, which some farmers have exemplarily proved to be viable,
will boost the confidence of farmers.
The goal of “Har Ghar Jal” by 2024 shows the sensitivity to the issue of water availability and its
scarcity, equally. Striking a balance between the demand and supply of clean water, we can see a
robust infrastructure being created for tackling ground-water recharge, rain water harvesting,
etc.
However, a strong regulatory framework will be needed to implement this resolve.
Context: The Union Budget 2019-2020 is a budget for the masses. It is seen as budget that focuses on
growth touching every aspect of the economy, especially job creation.
Details:
The Finance Minister presented a budget that focuses on growth touching every aspect of the
economy, especially job creation.
The most reassuring aspect was the fiscal deficit target of 3.3% for FY20.
The government’s focus on international borrowings will prevent crowding out the private sector
borrowing in the domestic market as well as help establish sovereign yield curve.
o The crowding out effect is an economic theory arguing that rising public sector spending
drives down or even eliminates private sector spending.
Lower borrowing in the domestic market should be positive for currency, interest rate, and
therefore interest cost will come down.
Housing:
Housing has been and continues to be a priority for the government.
The budget speech reassured that the target of Housing for all by 2022 would be met. The
Finance Minister said that the government had already built 1.5 crore houses and will build 1.95
crore houses under the Pradhan Mantari Awas Yojna (PMAY) – Gramin over the next two years.
People buying affordable houses have been incentivised by increasing fiscal incentives on a home
loan.
The budget has provided for an increase of up to ₹1,50,000 deduction p.a. on the interest
component of a home loan borrowed before March 31, 2020, provided the property value is
under ₹45 lakh. With this, the total fiscal incentives on a home loan by way of interest deductions
are ₹3.5 lakh p.a.
This additional fiscal benefit also will lead to increase in the loan eligibility of the borrower.
Apart from this there is already a tax benefit on repayment of principal of up to ₹1.5 lakh.
This should provide a huge boost to affordable housing.
NBFCs:
The ₹70,000 crore recapitalization plan will adequately bolster the PSU Banks’ capital base and
improve credit uptake.
Acknowledging the role played by the NBFCs in the growth of the economy it has been said that
the government will provide one-time six-month partial credit guarantee to PSU banks for first
loss up to 10% for the purchase of high-rated pooled assets of financially-sound NBFCs. This will
incentivise banks to lend to NBFCs.
Taxation:
The tax rate has been cut to 25% for all the corporates with an annual turnover of up to ₹400
crore from the earlier ₹250 crore.
Thereby, 99.30% of all corporates in India are covered.
This is a step in the right direction to support the smaller companies as they have the ability to
provide more jobs with the same amount of capital as compared to large corporates.
Prelims level : Not Much Mains level : Read the attached story
It is now clear that the main goal of the government will be to make India a $5-trillion economy
by the end of this term.
But what does it mean for India to become a $5-trillion economy? How likely is India to achieve
the target? Will every Indian gain from it?
Global comparison
The first column of the table alongside
provides a snapshot of where India
stood as of 2018 according to World
Bank.
In terms of overall GDP, this data
shows that India is very close to
overtaking the United Kingdom.
It also shows that Indonesia’s GDP is
almost one-third of India’s.
How will GDP per capita change when India hits the $5-trillion mark?
If by 2024 India’s GDP is $5.33 trillion and India’s population is 1.43 billion (according to UN
population projection).
India’s per capita GDP would be $3,727.
This would be considerably more than what it is today, still it will be lower than Indonesia’s GDP
per capita in 2018.
Context
Navy and Air Force have no money left for new deals and may default on earlier
payments as well.
Highlights
The IAF which has signed major deals in the last few years including the 36 Rafale jets, S-400
air defence systems and CH-47F Chinook heavy lift and AH-64 Apache attack
helicopters have committed liabilities of ₹47,400 crore . In contrast, it's capital
allocation is ₹39,300 crore.
Similarly, the Navy’s committed liabilities stand at ₹25,461 crore while the capital
allocation is ₹22,227 crore.
The Navy has major deals lined up and they are in advanced stages. A deal for 24 MH-60R
Multi-Role Helicopters from the U.S. valued at $2.6 billion is expected to be concluded
by year-end.
A proposal for 10 more P-8I long-range maritime patrol aircraft estimated to cost
over $3 billion is waiting for clearance from the Defence Acquisition Council (DAC).
This means the Navy and Air Force have no money left for new deals, and may default on earlier
payments as well.
The Army with its large size has a huge revenue burden and a significant part of it
goes for salaries. For the coming year, the Army has a total shortfall of ₹12,000 crore of which
₹6,300 crore is in the capital head and around ₹5500 crore in non-salary expenditure.
Raising of FDI in insurance broking to 100% upsets domestic brokers
1. Finance Minister has proposed a 100% foreign direct investment (FDI) in the insurance
intermediaries in the Union Budget 2019.
2. Insurance intermediaries are the backbone of the industry. They help in distribution of insurance
policies and also help customers get attractive rates for the products.
3. Insurance intermediaries include insurance brokers, insurance repositories, surveyors and loss
assessors and third-party administrators (TPA).
4. In 2014,a panel formed by the IRDAI under Suresh Mathur had also suggested that 100% FDI be
allowed over three years. However, the suggestions of the panel were not implemented as FDI
cap in the overall insurance industry was raised from 26% to only 49%.
5. However, experts have said that this would move will decimate most of the lndian brokers
engaged in direct insurance and reinsurance broking and who do not have a joint venture with
any overseas broker.
6. On the other hand, some experts have said that the hike in FDI will bring in more technology and
efficiency in the segment and boost insurance penetration.
The Union budget 2019-20 has expanded the Reserve Bank of India’s powers by bringing
Housing Finance Companies (HFCs) under its ambit and deepening its governance over Non-
Banking Finance Companies (NBFCs).
Increase in RBI’s autonomy can be attributed to the crisis at Infrastructure Leasing and
Financial Services Ltd (IL&FS), which led to a liquidity crisis in NBFC sector.
o With reference to IL&FS crisis , Serious Fraud Investigation Office (SFIO) had also
noted that timely RBI intervention could have averted the crisis.
Wider Regulatory Powers: The Union budget 2019-20 has proposed to amend the RBI Act 1934, in
order to strengthen the central bank’s autonomy and regulatory powers in following domains:
It can supersede the board of NBFCs (other than those owned by the government) in the public
interest or to prevent the affairs of NBFC being conducted in a manner detrimental to the
interests of the depositor or creditor.
It can remove and can further appoint the director of a board of NBFC.
The proposed amendment to the RBI act will allow it to frame schemes for amalgamating,
splitting and reconstructing an NBFC that will enable resolution of financially troubled
NBFCs through a merger or by splitting them into viable and non-viable units called bridge
institutions.
RBI can also remove auditors, call for audit of any group company of an NBFC, and have
control over the compensation of senior management.
The Union Budget 2019-20 included several incentives for developing electric vehicle industry
(EV Industry) in India.
Income tax rebates of up to ₹1.5 lakh to customers on interest paid on loans to buy electric
vehicles, with a total exemption benefit of ₹2.5 lakh over the entire loan period.
Customs duty exemption on lithium–ion cells, which will help lower the cost of lithium-
ion batteries in India as they are not produced locally.
o This is in addition to the ₹ 10,000 crore allocated for EVs under the FAME II scheme.
Makers of components such as solar electric charging infrastructure and lithium storage
batteries and other components will be offered investment linked income tax exemptions.
Proposal to reduce GST rate on electric vehicles from the current 12% to 5%.
Way Forward
The government can think of giving a mandate to leading manufacturers that they should have a
certain share of their sales from EVs after a particular time period.
o The NITI-Aayog is considering a policy proposal to ban all internal combustion engine
two-wheelers under 150cc by the year 2025 and three-wheelers by the year 2023.
Access to fast-charging facilities must be fostered to increase the market share of electric
vehicles. Investments from private players is required for the same.
Context
The first trading session of the equity markets
after the Union Budget saw stocks in a free-
fall mode as a mix of global factors and domestic
concerns emanating from some of the proposals in
the Budget spooked investors.
Highlights
The government’s proposal to levy a surcharge
on the high-income group coupled with the
tax on buyback and increase in public
holding in listed entities dampened investor
sentiments.
The overall negative trend in emerging markets on
account of a robust U.S. jobs data lowering the
prospect of a rate cut by the Federal Reserve
further played spoilsport.
The market breadth was also very weak with nearly
2,000 stocks losing ground on the BSE, as against
only 534 gainers.
Most of the broader indices lost more than
the benchmarks with some of the sectoral indices representing banking, automobiles, capital
goods, power and realty falling over 3%.
The market fall was primarily on account of concerns over future fund flow into the
secondary market due to the hike in surcharge on the income of high-income individuals.
The increased surcharge also has a bearing on FPIs coming in through the trust route and
taxation of Category 3 AIFs (Alternative Investment Funds).
This potentially reduces the post-tax attractiveness of India, vis-a-vis other markets,
where such a high rate doesn’t exist.
Globally, a positive payroll expansion, ahead of estimations, has led to a fear of anticipated Fed
rate cut not coming through.
This fear of the consequential impact on global flows has been felt across emerging markets.
The weakness in the equity markets also spilled over in the currency market with the rupee
weakening 24 paisa against the dollar. The rupee closed at 68.66 a dollar as compared to
the previous close of 68.42.
Context: The stock markets went into a tailspin on Monday as a mix of global and domestic concerns
stemming from some budget proposals spooked investors.
Reasons
• Robust U.S. jobs data that lowered the prospects of a rate cut by the Federal Reserve.
• The budget proposal to increase tax surcharge on the high-income group.
• The imposition of a tax on buyback by listed companies.
Cess and Surcharges
• A cess imposed by the central government is a tax on tax, levied by the government for a
specific purpose.
• Generally, cess is expected to be levied till the time the government gets enough money for
the earmarked purpose and not for any other purposes. In simple words, a cess tax is
an earmarked tax.
If the purpose for which the cess is created is fulfilled, it should be eliminated.
• Article 270 of the Constitution describes a cess.
• Cesses may be levied by the union or state governments.
• Cesses are named after the identified purpose; the purpose itself must be certain and for
public good.
• At present, the main cess are: education cess, road cess or (fuel cess), infrastructure cess, clean
energy cess, krishi kalyan cess and swachh bharat cess.
• On the other hand, ‘Surcharge’ is an additional charge or tax levied on an existing tax imposed
for the purposes of the Union.
• Unlike a cess, which is meant to raise revenue for a temporary need, surcharge is usually
permanent in nature.
• In case no tax is due for a financial year, then no surcharge is levied.
• A surcharge is dealt with under Article 271 of the Constitution.
• Surcharges, in India, are used to make the taxation system more ‘progressive’.
They are used to ensure that the rich contribute more to the tax kitty than the poor.
• An example of surcharge is one where individuals earning more than ₹1,00,00,000 annually are
required to pay an extra sum amounting to 15% on their income tax.
Following are the difference between the usual taxes, surcharge and cess.
• The usual taxes goes to the consolidated fund of India and can be spend for any purposes.
Surcharge also goes to the consolidated fund of India and can be spent for any purposes.
Cess goes to Consolidated Fund of India but can be spend only for the specific purposes
for which they have been created.
• The proceeds collected from a surcharge and a cess levied by the union need not be shared with
the State governments and are thus at the exclusive disposal of the union government.
• The use of usual taxes, cesses and surcharges requires appropriation bill to be passed in
the Parliament.
• Hence, it can be seen that the Constitution makes a distinction between a cess and a surcharge
and the two cannot be used interchangeably.
Economic Survey and the Union Budget project different rates of nominal GDP growth for
2019-20
Context
The government clarified that the Economic Survey and the Union Budget project
different rates of nominal GDP growth for 2019-20 because the government uses
different base figures. However, the two rates were consistent with each other.
While the Union Budget presented on July 5 projected nominal GDP growth of 12%
for the financial year 2019-20, the Economic Survey pegged this figure at 11%.
Highlights
The growth rate in the nominal GDP for 2019-20 in the Budget document has been
projected at 12% over the advance nominal GDP estimates of Rs. 1,88,40,731 crore for
2018-19.
The growth rate of nominal GDP for 2019-20 in the Economic Survey has been projected
at 11% over the provisional nominal GDP estimates of Rs. 1,90,10,164 crore of 2018-19.
Both the projections are consistent with each other as each of them project the nominal GDP of
Rs. 2,11,00,607 crore for 2019-20, the government holds the Economic Survey, which is
produced by the Chief Economic Advisor.
The explanation for the lower GDP base being used in the Budget was that the same
number was used in the Interim Budget presented in February.
Using the same GDP base ensures comparability from Budget to Budget, interim
Budget to regular Budget, and this Budget to last year’s Budget.
Using the same base ensures comparability of the deficit ratios used in the July Budget
and the interim Budget.
Merchant Discount Rate
Merchant Discount Rate (alternatively referred to as the Transaction Discount Rate or TDR) is
the sum total of all the charges and taxes that a digital payment entails.
For instance, the MDR includes bank charges, which a bank charges customers and merchants
for allowing payments to be made digitally.
Similarly, MDR also includes the processing charges that a payments aggregator has to pay to
online or mobile wallets or indeed to banks for their service.
Concerns
MDR is a charge a merchant pays to a bank for accepting customer payments through debit or
credit cards, BHIM/UPI/Aadhaar-Pay payment ecosystem, when any payment is made at a
merchant Point of Sale (POS) machine or QR “scan & pay” systems or an online mode of
payment.
A percentage of the transaction amount is then split between the stakeholders.
The primary fear among industry players is that banks that have been asked to bear
the cost might try to recover from non-bank payment providers and fintech
companies.
The card issuing banks, payment service providers, and the whole ecosystem should be able to
find value in acquisition and payments. However, zero MDR will make the acquiring industry
collapse, fears Payments Council of India (PCI).
Non-Bank payment service providers (PSPs) like aggregators/ processors are a significant part of
the ecosystem. If there is no commercial model, they will be forced to shut down. Banks may
have multiple ways to recover money from the merchants, but non-bank players do not have any
other avenue than the MDR. These PSPs are employing at least over a several lakh jobs,
and in the absence of revenue, there will be survival issues and the industry will eventually
collapse.