Budget 2021

Budget 2020: FM to push for growth despite fiscal headwinds and tough balancing act

K.R.Srivats New Delhi | Updated on February 01, 2020

Finance Minister Nirmala Sitharaman

People’s budget likely to cheer markets, provide some income tax relief to salaried

Budget day is upon us and by all counts Finance Minister Nirmala Sitharaman is likely to in the next few hours deliver a “growth-oriented, capital market-friendly and pragmatic” budget with main thrust on increasing demand in the economy, especially in semi-urban and rural India.

With economy reeling under a sharp slowdown — CSO brought more negative news on Friday, revising down 2018-19 GDP growth to 6.1 per cent from 6.8 per cent estimated earlier — Sitharaman is widely expected to bite the fiscal bullet, and put off the fiscal consolidation targets by a year or two to stimulate economy.

One thing is for sure: Budget 2020-21 will make a more realistic assumption of nominal GDP growth, lower than 12 per cent projected in Sitharaman’s first budget in July last year. It is expected that nominal GDP growth projection will be scaled to 8-10 per cent.

The Budget will definitely not be an exercise of setting outlandish tax revenue mop up targets — as seen in recent years — and then cutting a sorry figure at the revised estimate stage.

Going by the current sluggish trend in revenue mop up because of the economic slowdown and the big corporate tax rate cut give away in September 2019, the Government’s net tax shortfall in 2019-20 is expected to be around ₹2 lakh crore. Add to this the expected 0.5 lakh crore shortfall in disinvestment receipts.

The Government has little choice but to scale down the tax revenue targets at the revised estimate stage, which it will be doing for the second time this fiscal.

Despite trimming of expenditure in big way in the recent months and expected carry forward of unpaid subsidy to the next year, there is going to be fiscal deficit slippage to the tune of about 50 basis points, above the 3.3 per cent (as percentage of GDP) estimated earlier for the current fiscal.

Sitharaman is expected to be guided by the Fifteenth Finance Commission’s report for 2020-21 in deciding the tax revenue targets for 2020-21. The softening trend in global oil prices is also expected to aid the economy in 2020-21.

Capital markets

The Union Budget will have a lot to cheer for the stock markets. So much so that the stock markets will be open for trading during her budget speech, despite it being a Saturday.

Sitharaman is unlikely to give a rude shock to the markets like she did in her first budget in July last year with buyback tax. Besides rationalisation of securities transaction tax, the long term capital gains tax regime may also see a tweak this time round. With Government set for even bigger disinvestment mop up agenda for 2020-21, it can ill afford to dampen market sentiments with narrow tax policies.

Improving sentiments

Sitharaman will have to really think out of the box in stimulating demand in the economy.

Private investments have not been too inspiring and whatever GDP growth one has seen has been largely propelled by public investments.

This budget will look to put more money in the hands of the common man through higher allocation for rural employment guarantee programme, PM Kisan etc.

The Finance Minister is expected to go in for personal income tax slab rejig, albeit only providing marginal relief for the salaried. Foreign direct investments are going to get the push with Sitharaman expected to announce increase in FDI cap in insurance sector.


Infrastructure will also see the impetus in this budget with the Government looking to invest more than ₹100 lakh crore in building modern infrastructure in next five years.

India needs to spend $ 1.4 trillion on infrastructure over next five years to become to a $ 5 trillion economy by 2025, Economic Survey said on Friday.

Other reforms

Sitharaman is also likely to make announcements (deregulation) around Urea. On the cards is increase in customs duty on certain products to help domestic manufacturing.

The Budget will have goodies for the domestic industry (higher effective protection) and trading community. For the stressed assets in the shadow banking sector, budget could go in for creation of a “bad bank” or a US-type Troubled Assets Relief Programme (TARP).

Published on February 01, 2020

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