Personal Finance

Budget 2020: A missed opportunity

Nikhil Kamath | Updated on February 09, 2020

The Budget 2020, set against the complex backdrop of a slowing Indian economy, has proven to be an incremental rather than transformational roadmap.

Outlays for last-mile physical infrastructure in rural areas, skilling and education, reduced tax burdens on MSMEs, decriminalisation of tax offences, gradual reform of the personal income-tax slabs — many of the proposals are directionally sound and continue the government’s roadmap.

Those who wished for a heady fiscal stimulus would be disappointed, and rightfully so, as even at the current expenditure levels, the government’s plans to finance its programme depend on difficult divestments from large PSUs (including a potential IPO of LIC) and collecting telco dues which are still being appealed in the Supreme Court. Fiscal conservatism and gradualism in spending may have seemed cautious, yet will likely prove more sustainable in the long run.


What was far more notable was what the Budget left out in terms of structural reform. There was a complete absence of initiatives to address the NBFC liquidity crisis, which has stymied lending and investment across major sectors.

The real-estate industry, straddled with over ₹5-lakh crore of bad debt, record high inventory levels and an IBC/restructuring process riddled with inefficiencies, remains a ticking time bomb that could create further stress on the economy. Power, auto and other infrastructure companies face similar sector-specific shocks deriving from the liquidity crisis — many of which have not yet surfaced to the macroeconomic stage.

The government had a significant opportunity to address decades-long structural issues in productivity and credit in the Indian economy.

Yet, there seems to be little political will to address the hairy issues of structural reform, which may raise fewer headlines than personal income-tax revisions, but create much more sustainable processes and institutions for the future of corporate and industrial India.

For capital markets participants, the Budget denied all expectations for positive reform and tax rationalisation. The long-awaited rationalisation of long-term capital gains tax didn’ t happen. The dividend distribution tax is now the burden of individual investors, creating more headaches and little reprieve. The rationalisation of surcharges for on-shore investment vehicles did not happen.

Security transaction tax, which continues to make our markets less robust by adding a significant impact cost, continues to remain; this has been a long-standing demand from the financial markets, and it’s disappointing that nothing has been done about this. Category III AIFs (Alternative Investment Funds), which bring in a significant amount of inflows into the capital markets, continue to be taxed.

Number game

People seem to be losing faith in the numbers our government is putting out, and this might do some serious harm to the long-term reputation of our stock markets. In times of stress, there are no easy paths to reform.

We recognise that the government is working with a complicated set of macro conditions and juggling the interests of innumerable stakeholders. But let us all hope that beyond the Budget, pressing issues in the credit and industrial sectors are addressed in due course.

The writer is co-founder of Zerodha as well as True Beacon

Published on February 09, 2020

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