While the government is walking a tightrope with respect to fiscal deficit, especially due to corporate tax cuts, despite higher receipts from the Reserve Bank of India (RBI), there was a case for a fiscal stimulus expected in the Budget, as the RBI has called for in the recent policy statement.
The government acknowledged its fiscal challenges, resorting to the escape clauses in the FRBM [Fiscal Responsibility and Budget Management Act] — pushing up the deficit to 3.8% in FY20 and 3.5% in FY21 — with total expenditure increase by 13% (higher increase in capex) resulting in incremental improvements across sectors.
While continuing to remain committed to the doubling of farmer’s income, the government has laid out a longer term plan for the agricultural sector, detailing 16 broad initiatives that would help achieve the government’s objective. The government’s move to make the sector market oriented through contract farming, land leases etc., provides a positive push to this sector. The government’s recognition of the importance of non-farm activities and their role in enhancing farmers’ income is a welcome move. However, the lower allocation for the MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) compared to the Revised Estimates may not be par for the course.
The change in SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002) norms for debt recovery for the NBFC (non-banking finance company) sector could aid in improving recoveries and help ease some of the stress in this sector. With the recent challenges in the cooperative banking sector and increasing uncertainty amongst the depositor community, the government’s move to increase deposit guarantee to ₹5 lakh from ₹1 lakh will help restore some calm.
Co-operative federalism
The decision of the 15th Finance Commission to keep the net proceeds of the Union Government’s tax pool unchanged at 42% to the States bodes well with the government’s agenda of cooperative federalism.
The changes made in personal income tax space may reduce the tax burden of a large section of the taxpayers. However, the options need to be weighed against each other to understand the new scheme’s attractiveness.
Overall, having taken cognisance of the challenges in the economy, the government has laid out its focus areas and policy direction, which could help in navigating through these challenging times. However, as with any policy, execution is the true measure of success.
(The writer is an executive chairman, Murugappa Group)
Published - February 02, 2020 10:38 pm IST
