Tax tweaks, big spends & a prized sale

Budget cuts taxes and boosts spending on LIC stake sale hopes

Union Finance Minister Nirmala Sitharaman, holding a folder containing the Union Budget documents, poses for photographers along with her deputy Anurag Thakur and a team of officials, outside the Ministry of Finance, North Block in New Delhi, Saturday, Feb. 1, 2020. (PTI Photo/Kamal Singh)

The Narendra Modi government’s first Budget in the new decade, presented against a backdrop of the slowest economy in six years and rampant joblessness, tried to put money in people’s pockets to spur spending but offered no magic bullet to kick-start growth.

Nirmala Sitharaman’s marathon 161-minute speech, which an exhausted finance minister had to truncate with a couple of pages left unread, sought to lift the economy largely on government spending, which was substantially raised in the Budget to over Rs 30 lakh crore, and set an ambitious disinvestment target that hinged on a stake sale in crown jewel Life Insurance Corporation of India (LIC) through an offering of shares to the public.

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The government, which cut corporate taxes a few months ago, also unveiled a detailed income tax cut. But part of what the finance minister offered with one hand in terms of tax cuts was taken away by the other through a removal of income tax exemptions. The new income tax regime cuts rates by 5 to 10 percentage points for slabs of income between Rs 5 lakh per annum and Rs 15 lakh per annum, resulting in the government forgoing Rs 40,000 crore in taxes. Taxpayers can opt to stay with the old regime and pay taxes at a higher rate while availing of exemptions.

The Budget also abolished the tax that the companies pay on dividend distributed to their shareholders, which had been a major hindrance to foreign investors. But this was a widely expected move and both major Indian stock market indices fell sharply on the absence of more substantive measures to drive growth.

The government is battling unhappiness over its economic agenda, unrest due to a contentious citizenship Act, and poor results in state elections after a landslide Lok Sabha election win last May. So the Budget was woven around three populist themes: Aspirational India, economic development and caring society.

The Budget gave Rs 3.60 lakh crore to a central water scheme, followed by Rs 2.83 lakh crore to agriculture and allied sector, Rs 1.70 lakh crore for transport infrastructure and Rs 1.38 lakh crore to the welfare of SC/STs.

A new education policy, a new logistics policy, 100 new airports, viability gap fundings for setting up hospitals under Ayushmaan Bharat and setting up warehouses were other measures to finance health and agriculture sectors.

Tamil, Kashmiri verses

The finance minister quoted a poem in Kashmiri, perhaps to soothe feelings in the region that has been in virtual lockdown for months, and fell back on Thiruvalluvar, the Tamil poet saint also beloved of one of her predecessors, P Chidambaram.

After widespread criticism of the way it handled the failure of a cooperative bank last year, the government proposed a sharp increase in depositor insurance to Rs 5 lakh from current Rs 1 lakh.