ECONOMICS

SVKM’S NMIMS SCHOOL OF LAW

NAVI MUMBAI

ECONOMICS RESEARCH PAPER

UNION BUDGET 2020: INDIA’S ECONOMIC FUTURE

SUBMITTED TO:
Prof. SHASHIKANT MUNDE

SUBMITTED BY:
NAME -- LAVANAYA ANEE
BATCH -- BBA-LLB
SEMESTER -- 2nd SEMESTER
SAP ID-- 81022019408
ROLL NO. -- A110

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ECONOMICS

TABLE OF CONTENT

S.no. Content Page no.

1. Abstract 3
2. Introduction 4-5
3. Review of Literature 5
4. Structure of Paper
- Statement of Purpose 6
- Research Question 6
- Objectives 6
- Hypothesis 6
- Research Methodology 6
5. The Macroeconomics of Budget 7
6. Revenues 8-9
7. Expenditure 9
8. Reforms and Growth 10-11
9. Conclusion 12
- Findings 12
10. REFERENCES 13-14

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UNION BUDGET 2020: INDIA’S ECONOMIC FUTURE

LAVANAYA ANEE
NMIMS, SCHOOL OF LAW, NAVI MUMBAI
Email id: lavanaya.anee408@nmims.edu.in

ABSTRACT
The Union Budget is a part of a larger national fiscal landscape. State governments are also
critical, while local governments should be, but are not - they remain unduly stunted. Fiscal
deficits are undesirable if they're linked to wasteful government spending, crowding out of
productive private-sector investment, expensive future interest payments, higher inflation
pressures, unsustainable commitments to foreign creditors, or any combination of these
problems. In this paper, the Union budget of 2020 will be discussed along with India’s Economic
Future.

Keyword- Union Budget, Expenditure, Reforms and Growth

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I. INTRODUCTION

“According to Article 112 of the Indian Constitution, the Union Budget of a year, also referred to
as the annual financial statement, is a statement of the estimated receipts and expenditure of the
government for that particular year.”1 The federal budget accounts for the government's finances
during the fiscal year, which runs from April 1 to March 31. The Union Budget is divided into
two parts: revenue and capital.
The government's revenue collections and expenditures are included in the revenue budget. Tax
and non-tax revenue are the two types of revenue received. Revenue expenditures are the costs of
the government's day-to-day operations and the many services it provides to its inhabitants.
The government runs a revenue deficit when revenue expenditures exceed revenue revenues.
The government's capital receipts and payments are included in the Capital Budget. The
government's capital receipts are largely made up of loans from the public, foreign governments,
and the RBI. The term "capital expenditure" refers to money spent on the development of
machinery, equipment, buildings, health care facilities, and education, among other things. When
the government's entire expenditures exceed its total receipts, a fiscal imbalance is created. The
Union Budget is a component of a larger national budgetary structure.
State governments are likewise important, and municipal governments should be, but aren't; as a
result, they remain severely hampered. The Fifteenth Finance Commission just released its
proposals for revenue sharing and other devolution from the federal government to the states.
There are also a slew of government-owned businesses whose finances don't always show up in
government books. The Union Budget is concerned with all of these elements of government
finances. Even when everything is taken into account, India's government is small.
Following the previous Finance Commission's recommendations for distributing the states' share
of tax income and other devolution,“the net revenue of the Union government, commonly
referred to as the Centre, was just 9.45% of GDP (gross domestic product), based on 2019-20
Revised Estimates. Its expenditure was only 13.20% of GDP.”2 The commonly cited fiscal
deficit of 3.75 percent of GDP is the difference. However, as assessed by its budget accounts, the

1
India Const. Art. 112
2
India Gross National Income | 2011-2020 Data | 2021-2023 Forecast | Historical | Chart. Tradingeconomics.com.
Retrieved 9 July 2021, from https://tradingeconomics.com/india/gross-national-product.

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Centre's revenue was less than 72% of its spending. This highlights how vulnerable the Centre's
revenue-raising capability is, as well as how limited its power to actively impact the economy
through its spending.

II. LITERATURE REVIEW

1. Dr. Shyama Prasad (2020): The goal of this research was to have a better understanding
of the current economic condition. In order to create a healthy IP ecosystem in the
country, it is necessary to enhance our Human Resource through education, training, skill
development, and incubation of ideas through effective research and development in
order to bridge the gap between Human Resource and Intellectual Resource. We must
develop our technology to a worldwide level in the current information and technology-
driven economy, where innovation is the key to transformation and which is generating
disruptions and the production of new technical advances on a regular basis. Setting goals
to make India competitive in the current global climate by creating innovative and high-
quality products to fulfil domestic demand while also generating export surpluses is
necessary.
2. Union Budget (2020): In 2021, the education sector would receive a total of 99,300 crore,
with around 3,000 crore allocated to skill development. For a year, urban municipal
governments provide internships to young engineers. Degree-level full-fledged online
education programmes, notably for poor students, offered by schools listed in the top 100
in the NIRF rankings. It is recommended that a national police university and a national
forensic science university be established. IND SAT exam for Asian and African students
to promote the "study in India" initiative.
3. Dharmakirti Joshi (2021):To begin, it paints an economic prognosis for the following
fiscal year and the assumptions that go along with it. Furthermore, its thoughts on the
broader budgetary situation in order to aid recovery and address some of the flaws that
the epidemic exacerbated. Lastly, its recommendations for increasing the economy's
medium-term potential, as well as the fiscal stabilization path it proposes in that context.

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PROBLEM OF STATEMENT
The purpose of this study will be to analyze the Union Budget of India 2020 for ICA at NMIMS,
School of Law, Navi Mumbai. At this stage in the research the concept of Budget and India’s
future economy will be discussed.

RESEARCH QUESTIONS
What is India’s economic future with analysis of the Union Budget of 2020?

OBJECTIVES
1. The understand the Budget 2020
2. To analyze the budget and India's economic future.

HYPOTHESIS
H1: The Future of India’s Economy is stable.
H01: The future of India’s Economy is not stable.

RESEARCH METHODOLOGY
The research paper uses a secondary method for drawing analysis. The data are taken from
reliable sources and for reviews of literature and the research reports are taken from google
scholar, academia, ProQuest, ResearchGate etc. There were some other online resources that
were used such as Blogs, Newspaper articles and Books available online.

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III. THE MACROECONOMICS OF THE BUDGET

Fiscal deficits are undesirable if they're linked to wasteful government spending, crowding out of
productive private-sector investment, expensive future interest payments, higher inflation
pressures, unsustainable commitments to foreign creditors, or any combination of these
problems. These worries prompted legislation that set rules and objectives for the federal
government's budgetary deficits. The Budget had to utilise a "escape clause" this year to
accommodate for an anticipated deficit that was higher than the objective. Indeed, despite a
weakening economy and the difficult implementation of the Goods and Services Tax, last year's
deficit objective was not fulfilled (GST).
The correct size of the budget deficit is not determined by economic theory. On the basis of
theory, one may argue that the revenue deficit, which excludes net capital expenditures, is more
relevant, because capital investment should contribute to future growth. The Centre, on the other
hand, borrows off-budget through state businesses and captive home savings, causing the actual
fiscal deficit to grow by 1-2 percent. There are also the deficits of state legislatures and their
public businesses, which are entirely at the discretion of the Centre because state defaults would
be terrible.
In the end, the Union Budget alone only gives a limited amount of information regarding
macroeconomic effects. Markets appeared to believe that the Budget's accommodative effect was
insufficient on Budget Day, but they have already reversed much of that early pessimism (as the
Finance Minister herself predicted). The stimulus is also being implemented in the face of
growing inflation; however, one may argue that the inflation is concentrated in food products and
should be addressed through economic reforms in agriculture production and markets rather than
contractionary monetary policy. Another problem in forecasting any transmission to inflation
(via monetary accommodation) is, of course, the ongoing use of financial repression — albeit at
a lower level than in the past. It's also worth noting that government income estimates might be
too optimistic, implying that the actual stimulus would be larger if spending continues. In the
lack of compelling evidence to the contrary, one might argue that the Budget performed a
reasonable job in terms of macroeconomic stability and short-term stimulation.

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IV. REVENUES

The Budget's impact is determined by the quantities and types of income and expenditures, since
who gets more or less, and how much they spend or save, determines the aggregate impact.
Almost everyone in India pays indirect taxes because they purchase products and services, which
is where the GST comes in. The GST, which was first excessively difficult and complicated to
design and execute, is being improved in the Budget. For the time being, the GST will be a work
in progress, but it may prove to be a critical component in improving India's low tax-to-GDP
ratio.

On the other hand, only a small percentage of Indians pay direct taxes, such as income taxes. It
will take more time to change this. The Budget's attempt to streamline the income tax system by
decreasing rates in the intermediate categories while also requiring the elimination of numerous
exemptions or deductions looks promising. According to the government's estimations, many
middle-income households do not take use of all exemptions and will be better off opting for the
new tax system. Because they can keep the old system if their exemptions are large, the overall
impact will be to put money in the pockets of some households while taking money away from
others. Standardizing tax prep and filing might encourage individuals to submit returns in the
long run. However, even after almost three decades of economic reform, considerably extending
the tax base would need huge structural changes in the Indian economy and the creation of many
more formal-sector employment, both of which have yet to occur. There's more on that later.
Aside from that, city property taxes are presumably where substantial changes may be made, but
it will be left to the states to address. The primary change in this budget is the removal of the
Dividend Distribution Tax - dividends will instead be taxed as income of the receivers, thus it is
not a huge revenue concern. On the income side, the expected revenues from spectrum auctions
and the disinvestment of state companies are the two largest unknowns and concerns. Auctions
are well-designed for producing money, but the difficulty, as we are witnessing today, is that
attaining goals of high-quality telecommunications infrastructure, wide access via affordability,
and long-term competition among providers are not always supported by revenue-maximizing
auctions.

On the other hand, public telecom providers are inefficient, and assigning spectrum without
employing an auction, as we have seen in the past, is prone to corruption. Apart from the

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Centre's excessive reliance on money from this source, this is a difficult challenge to fix.
Disinvestment faces ongoing resistance from a variety of sources. Disinvestment is opposed by
both impacted employees and those who value status (airlines) or equity (stocks) (job
protection). The government's strategy of disinvestment, as well as fulfilling numerous goals of
better efficiency and income generation, have proven to be continuous problems, and the current
Budget provides little indication that answers have been discovered.

Customs duties, often known as tariffs, are taxes, albeit they are no longer as important as they
once were as a source of income. This Budget, like many others before it, has several tariff
adjustments, although they appear to be aimed to protect specific industries or categories of
businesses rather than to generate money. It's difficult to say if Indian tariff policy is beneficial to
the economy, but it appears that there is an overreliance on such measures, when more direct
means of assisting certain sorts of companies or sectors would be more effective. This is, of
course, a fundamental element of most international trade economic models.

V. EXPENDITURE

The Union administration is still mired in a convoluted web of programmers and discretionary
transfers aimed at achieving a wide variety of economic policy objectives, including health,
education, and income support for households, as well as infrastructure development. There are
no substantial new initiatives in the current Budget, and it is usually difficult to estimate the
aggregate or distributional effects of spending plan changes (less for employment guarantees,
more for payments to farmers, etc.). The actual concerns are spending quality, the capacity to
monitor and assess outcomes, and whether spending is allocated to the appropriate level of
government, where it can be done most efficiently and with the highest possibility of
accountability. These are all structural-reform concerns that are outside the realm of basic
budgeting, but they are the ones that count in the end. That said, the Centre has an astonishing
variety of more-or-less targeted expenditures, which provide numerous safety nets to the
populace in a relatively impoverished country with a tiny government.

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VI. REFORMS AND GROWTH

Policy ideas that have the potential to impact the economy's future trajectory are not a basic
component of the Budget's revenue-expenditure-borrowing accounting, but they have become an
essential aspect of the process. Again, there are several particular ideas that are currently being
fleshed out, and their eventual impact is dependent on both design and execution. The continuing
impact of import substitution and mercantilist attitudes may be seen in the Budget address and
accompanying documents, but there is also a significant shift from the ‘old days' in the desire to
encourage foreign investment, whether in government bonds or new industries. Whether the
overall effect is beneficial for the investor target groups will also rely on the government's ability
to control its cultural purity inclinations and enable India's diversity to flourish.

Fears of tax evasion are also included in the Budget discourse, although there are plans to ensure
that internationally nomadic Indians do not completely avoid paying taxes in their own country.
There is a persistent conflict between the moralistic tendency that has long characterised Indian
governments of all ideological stripes (but is perhaps especially prominent in the current
government) and the recognition that proper incentives for conducting business in India are
required. These moralistic inclinations will also need to be restrained in order to allow for a
quick expansion of higher education, with more foreign entrants and wages that are competitive
worldwide.

In the end, India will need to produce much more formal-sector employment than it already does,
which will need the formation of many more businesses and the successful expansion of existing
businesses. Some investors may have hoped for a repeal of the long-term capital gains tax, which
did not happen, but continuing to focus on making risk-taking more appealing to start-ups in this
Budget might be a smart way to go. If ‘Assemble in India' and its elder sibling, ‘Make in India,'
can be made operational by targeted infrastructure investments and integration into regional
production networks, tax advantages – particularly for large businesses – may become less
significant. The inability of India's manufacturing proportion of GDP to change during three
decades of economic reform is the most damning criticism of the process so far. Changes in
governance and the behavior of politicians, bureaucrats, and judges will be more important than
large changes in income or spending. The elephant in the room continues to be the need to clean

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up the banking sector's balance sheets, which will need government budgetary resources as well
as speed and concentration.

The current Union Budget, like many others in previous years, has a variety of suggestions and
ideas, some of which are promising and others of which are not. However, in terms of its
prospective economic impact on India, it is definitely good. The difference from prior years is
that there is a need for concentration and implementation with a sense of urgency that hasn't been
felt in a long time. It's not about income, expenses, or deficits; it's about people and
organizations. On this scale, one must be more ambivalent towards India's present
administration.

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VII. CONCLUSION

The COVID-19 epidemic has taken a tremendous toll on humanity, not only in terms of lives lost
and human well-being, but also in terms of lost revenue and livelihoods. According to the
International Monetary Fund's (IMF) 2017 World Economic Outlook, global growth would
decline by 3.5 percent in 2020, with India's GDP falling by 8.0 percent over the previous year.
Despite the IMF's prediction of 11.5 percent growth in FY22, there is clearly a permanent
residual loss to the economy that will take a long time to reverse. Assessing the pandemic's
influence on India's informal sector is still a work in progress. In the aftermath of the pandemic,
the budget has significantly increased investment in areas like infrastructure development to help
boost economic growth and absorb more of the approximately 12 million young people who
enter the national employability cohort each year. The long-awaited announcement of the legally
empowered Development Financial Institution (DFI) with a corpus of INR20,000 crores, which
aims to catalyse infrastructure spending of at least INR5 trillion over the next three years, will
hopefully lead to a resurgence of the economy's animal spirits and a flood of now-dwindling
private investment flows into infrastructure. The government has also recently launched a host of
measures aimed at building a strong rural infrastructure from the farm gate to agricultural
markets, as well as increasing farmer value realization and customer choice.

FINDINGS

1. The Union Budget alone only gives a limited amount of information regarding
macroeconomic effects.
2. The Budget's impact is determined by the quantities and types of income and
expenditures, since who gets more or less, and how much they spend or save, determines
the aggregate impact. Almost everyone in India pays indirect taxes because they purchase
products and services, which is where the GST comes in.
3. India will need to produce much more formal-sector employment than it already does,
which will need the formation of many more businesses and the successful expansion of
existing businesses.

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REFERENCE

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2. Joshi, D. (2021). Budget 2021 comes in an unusual macroeconomic backdrop. Economic
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ning%20point%20An%20economic%20agenda%20to%20spur%20growth%20and%20jo
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