Highlights of Union Budget 2020-21

Key highlights of the Union Budget presented today:

  • Central government debt reduced to 48.7% of GDP from 52.2% in 2019
  • Fiscal deficit target pegged at 3.8% of GDP for FY 19-20 and 3.5% for FY 20-21
  • Nominal GDP growth for FY 20-21 has been estimated at 10%

On taxation:- A new tax regime has been proposed with tax payers having the option of whether they want to opt for the new regime. The changes in the new regime are as below

Income between 5 Lacs & 7.5 Lacs: reduced to 10% from 20% | Income between 7.5 Lacs and 10 Lacs: reduced to 15% from current 20% | Income between 10 Lacs and 12.5 Lacs: reduced to 20% from current 30% | Income between 12.5 Lacs and 15 Lacs: reduced to 25% from 30% | Income above 15 Lacs: continues at 30%

However, in the new regime, more than 70 deductions will not be available.

(i) Corporates have been made exempt from payment of dividend distribution tax. (ii) Corporate tax for existing companies slashed to 22%. (iii) Govt proposes 100 per cent tax concession to sovereign wealth funds on investment in infra projects. Moreover, concessional tax rate of 15 per cent extended to power generation companies.

On banking & finance:- (i) bank deposit insurance cover has been increased from 1 Lac to 5 Lac per depositor (ii) Government plans to amend the Company’s Act to decriminalise civil offences. (iii) Government to sell part of its stake in LIC through an IPO. Government will also sell stake in IDBI to private investors.

On agriculture:- (i) the budget allocates 2.83 Lac crores for the agriculture & allied activities sector (ii) the budget targets to double farmer income by 2022 (iii) agri-credit availability target set at 15 Lac crore for FY 20-21 (iv) the budget proposes comprehensive measures to help 100 severely water stressed districts (v) the budget proposes to help 20 lakh farmers set-up standalone solar pumps and another 15 lakh in solarizing their power grid. (vi) Indian railways to have refrigerated coaches in kisan trains for carrying perishable commodities. Krishi Udan schemes to national & international routes to be launched.

On healthcare:- (i) the budget announces allocation of 69000 crore for the healthcare sector (ii) also announces 12300 crore for Swachh Bharat this year (iii) proposals tabled for construction of hospitals in tier II & III cities through public-private partnership (PPP) (iv) Jan Ausadhi scheme to be expanded to provide for all hospitals under Ayusmann Bharat by 2025. (v) 3.6 lac crores allocated towards piped water supplies to households (vi) 35600 crore allotted for nutritional related programs in the coming year.

On Education:- (i) budget announces 99300 crore for the Education sector and 3000 crore for skill development in the coming year. (ii) urban local bodies to provide 1 year internships to young engineers (iii) Degree-level full fledged online education programmes by institutions ranked in top 100 in NIRF rankings, especially to benefit underprivileged students. (iv) proposal to setup a national police university and a national forensics university (v) 8000 crore allotted for National Mission on Quantum Technology & Computing.

On infrastructure:- (i) budget proposes 1.7 lakh crores in transport infrastructure for coming year (ii) a national logistics policy to be released soon (iii) 100 new airports by 2024 (iv) 5 new smart cities (v) government to monetize 20 lots of national highways by 2024 (vi) target electrification of 27000 Kms of lines. 1150 trains will be run under the PPP scheme. 4 stations to be redeveloped through private participation (vii) plans to develope large solar power capacity for Indian railways (viii) work to start on Chennai-Bengaluru expressway. Budget also allocates 18600 crores for a suburban railway project in Bangalore (ix) 9000 Kms of economic corridor to be created. Work on Delhi-Mumbai expressway to be completed by 2023 (x) 550 wi-fi facilities have been commissioned at railway stations. 1 lakh gram panchayats to get optical fibre link. 6000 crore to be provided for BharatNet scheme.

On industry & commerce:- (i) Allocation of 27300 crore for development of industry and commerce (ii) 20000 crore allotted to renewable energy (iii) National Textiles Mission to be launched with 1480 crores

Others:- (i) 28600 crores allocated for women linked schemes for coming year (ii) allocation for senior citizens and ‘divyang’ increased to 9500 crores (iii) 85000 crores has been budgeted for development of scheduled castes and other backward classes (iv) 4400 crores announced for tackling Delhi’s air pollution problem.

Major Challenges faced by the Indian Economy

As we are just two days away from the budget, 2020 and a day away from the economic survey to be released, here are a few charts explaining the major challenges faced by the Indian Economy today.

SLOWDOWN IN GDP GROWTH AND RISING INFLATION

Source: MINISTRY OF STATISTICS AND PROGRAMME IMPLEMENTATION, GOVERNMENT OF INDIA

RISING UNEMPLOYMENT

Source: CMIE Data

RISING POVERTY AND HUNGER: Drop in Index for No Poverty and Zero Hunger

Soure: NITI Aayog

DROP IN MONTHLY PER CAPITA EXPENDITURE

SOURCE; BUSINESS STANDARD

LACK OF DEMAND IN RURAL INDIA

Source: Business Standard

MASSIVE SLOWDOWN IN PRIVATE CONSUMPTION, EXPORTS AND INVESTMENT

Source: MINISTRY OF STATISTICS AND PROGRAMME IMPLEMENTATION, GOVERNMENT OF INDIA

SLOWDOWN IN GROWTH OF PEOPLE INTENSIVE SECTORS (AGRICULTURE, MANUFACTURING AND CONSTRUCTION)

Source: MINISTRY OF STATISTICS AND PROGRAMME IMPLEMENTATION, GOVERNMENT OF INDIA

Over and above this, there are also media reports of declining collection of Direct taxes.

The charts depict the challenges faced by the government before the budget. IPD intends to provide no explanation of the above charts. The charts are self explanatory.

Status Report on SDG: Increased Gender Equality But Increased Inequality Overall for Indian States

The NITI Aayog published the status report on Sustainable Development Goals -2019 on 27th December, 2019. United Nations in 2015 has set up 17 sustainable development goals for countries like India. NITI Aayog started publishing a status on 13 of these 17 sustainable goals since 2018. The first such report was published in December, 2018. The report published in 2019 therefore not only talks about the status in terms of the SDG, but also provides a comparison of the situation with respect to 2018. In this article IPD focuses on the performance for SDG 5 and SDG 10

SDG Goal 5: Gender Equality is measured using seven themes: (a) addressing gender based discrimination (b) eradicating sex selection and post birth discrimination (c) access to reproductive health and wellness (d) social protection and economic empowerment (e) women entrepreneurship and economic leadership (f) empowerment through technology and (g) political participation, representation and leadership . The measure is calculated for the all India level as well for the state level separately. ‘SDG Goal 10: Reduced Inequalities’ index comprises of 4 themes – (a) poverty and inequality (b) inequality of opportunities and outcome (c) vulnerable groups and (d) financial inclusion. Higher the value of the index better is the performance for both SDG 5 and SDG 10.

Source: NITI Aayog

In terms of SDG 5: Gender Equality goal, there has been a slight improvement in the index value in 2019 as compared to previous year. However the index value itself is very low till now even with the increase. In terms of SDG 10: Reduced Inequalities goal, there is a decline in performance at the all India level with the index showing a decline in 2019 as compared to 2018. This should be looked in conjecture with the performance in terms of SDG 1 which talks of eradicating poverty and SDG 2 which talks about achieving zero hunger. In both the indices there has been a decline in performance. To add to that there is a growing inequality and while gender inequality shows some reduction but still the inequality is much higher than the desirable levels.

Source: NITI Aayog

Himachal Pradesh, Kerala and Punjab are the top ranked states in terms of the index of gender equality while Telengana, Assam and Jharkhand are the bottom three. The more worry is apart from Himachal Pradesh and Kerala, all other states have index score below 50. In terms of change 11 of the 20 states have seen positive movement in the index value while the performance of 9 states deteriorated. The bottom ranked states have seen a higher drop while the top ranked states showed some improvement.

Source: NITI Aayog

Telengana, Himachal Pradesh and Kerala are the top three states in terms of index on reduced inequality while Uttar Pradesh, Punjab and Haryana are the bottom three states. When we look into change in the index value in 2019 compared to 2018, it is seen that apart from three states ( Uttar Pradesh, Kerala and Karnataka) all other major states showed a decline in the performance. This is really worrisome. Only silver lining is that the bottom ranked state, Uttar Pradesh has shown a significant improvement even though it is still in the bottom ranked position.

So what we see is a deterioration in the performance in terms of index of reduced inequality while in spite of improvement the index of gender equality is still at a very low level. This is over and above the decline in performance in terms of indices of reduced poverty and zero hunger. So all of this indicate a growing inequality in the society. The economy is already witnessing a slowdown. Growing inequality along with a slowdown is worrisome moreover when we are witnessing a lack of demand specially in the rural side. Growing inequality means a vast majority remain deprived and hence will spend less leading to continued lack in demand. Focus needs to be given to reduce inequality while leading the economy out from this slowdown. The upcoming budget will surely focus into this.

Status Report on SDG: Improved Health Quality & Unchanged Quality of Education for Indian States

The NITI Aayog published the status report on Sustainable Development Goals -2019 on 27th December, 2019. United Nations in 2015 has set up 17 sustainable development goals for countries like India. NITI Aayog started publishing a status on 13 of these 17 sustainable goals since 2018. The first such report was published in December, 2018. The report published in 2019 therefore not only talks about the status in terms of the SDG, but also provides a comparison of the situation with respect to 2018. In this article IPD focuses on the performance for SDG 3 and SDG 4

SDG Goal 3: Good Health & Well Being’ index is measured using five themes: (a) reducing the maternity mortality ration (b) reducing mortality for kids with below 5 age (c) addressing the burden of communicable diseases (d) adopting a focused approach for non communicable diseases and (e) ensuring universal health coverage. The measure is calculated for the all India level as well for the state level separately. ‘SDG Goal 4: Quality Education’ index comprises of 5 themes – (a) free, equitable and quality primary and secondary education (b) access to quality early childhood development, care and pre-primary education (c) accessible, affordable and quality higher education (d) skill development and economic growth and (e) conducive education facilities that are child disabled and gender sensitive. Higher the value of the index better is the performance for both SDG 3 and SDG 4.

Source: NITI Aayog

In terms of the SDG 3 index on health, there has been an improvement in the performance at an all India level with the index value showing a 9 point increasein 2019 as compared to 2018. In terms of SDG 4 index on education, there is no change in the index value at an all India level in 2019 and 2018.

Kerala, Maharashtra, Andhra Pradesh and Tamil Nadu are the top performing states in terms of health index while Uttar Pradesh, Bihar and Assam are the bottom ranked states. In terms of improvement of index in 2019 as compared to 2018, it has been seen apart from 3 states, all the other states have shown considerable improvement. There has been considerable improvement for the low ranked states. The decline in index value is noted for few of the high ranked states, the major being the top ranked state of Kerala. However Kerala still has a very high value.

Source: Union Budget * Revised Estimates

It has been the actual expenditure on health has been more than that the budgetary estimates and there is a slight increase in the percentage of total budget spend on health over the years. This definitely has its impact on the improved performance not only at the national level with the increase in the overall index value but also with the improvement in index value of almost all the states with the lower ranked states showing considerable improvement.

Himachal Pradesh, Kerala and Tamil Nadu are the top three ranked states in terms of SDG 4: ‘quality of education’ while Bihar, Odhisa and Jharkhand are the three bottom ranked states in 2019. In terms of change in performance with respect to 2018, it is seen that apart from 3 states ( Madhya Pradesh, Punjab and Haryana), all the other states has shown a decline in the index in 2019 as compared to the last year. Moreover, the low ranked states also witness a significant decline in the performance in 2019 as compared to 2018. The decline in the performance in low ranked states has been severe.

Source: Union Budgets, *Revised Estimates

In terms of education however there has been a steady decline in the percentage of total budget spend on education both in terms of budgetary estimates and actual estimates. Moreover the government was not able to spend the whole amount allocated as the actual estimates have been lower than the budgetary estimates with the exception of 2018-19 where for the first time both the estimates are similar. This decline in education share has its impact on the performance of the education index, it being showing no improvement. Moreover seventeen of the 20 major states has witnessed a significant decline in the performance in terms of the education states. The more important is the fact that the decline is severe in the low ranked states.

So what we have seen is that the trends in budgetary expenditure estimates on health and education has a significant impact in the performance of the SDG indices, With more share being spent on health then the budgetary estimate, we see an improvement in the Good Health & Well Being index. But with a steady decline in the share of total budget spent on education, we see no improvement in the Quality of Education index with over eighty percent of the major states showing a decline in performance.

IPD sincerely hopes that in the upcoming budget, we will see more focus given to education with the continued focus on health.

Threat of Corona virus : Facts & Figures

The outbreak of Corona virus has emerged as a major challenge to Chinese authorities. As of today, more than 800 people have been diagnosed with Corona virus problem in China, with the number increasing by more than 200 in the last 24 hours. The number of deaths stand at 26 – increasing by more than 1/2 a dozen in the last 24 hours. Chinese authorities have imposed travel restrictions in 13 cities to prevent the virus from spreading. With 25th January being the day of Chinese New Year – typically the busiest travel season, the travel ban is likely to emerge as a major impediment. The travel ban is likely to affect 35 million Chinese. Millions of people are likely to travel during this weekend, increasing risks of the disease spreading.

The city of Wuhan, capital of the Hebei province was the “ground zero” for the breakout of the epidemic – majority of the deaths have occured in the Hebei province but now, 2 deaths have been confirmed which are far from the epicentre. One patient died more than 600 miles from Wuhan while another death took place in Heilongjiang, a province bordering Russia, more than 1100 miles from Wuhan. So far, the virus has also spread to South Korea, Japan, Vietnam, Taiwan, Thailand, Saudi Arabia, Singapore and 1 confirmed case in USA – through people who have recently travelled to China. Disease modelling experts from Imperial College, London have stated that they consider China’s estimates of affected cases to be “too conservative” and projected a figure closer to 4000.

Corona viruses are a family of microbes which affect the respiratory system and have a deadly recent history. The one causing the current outbreak in China has been classified as 2019-nCOV. A corona virus, Severe Acute Respiratory Syndrome (SARS), had infected 8098 in 2002-03 and killed 774. Another one, Middle East Respiratory Syndrome (MERS), was first observed in 2012 and has killed 858 till date, mostly in the Arabian peninsula. The 2019-nCOV though, is different from both SARS and MERS and has never been seen in humans before. The current outbreak started from Hua Nan seafood market in Wuhan from what is likely an animal – human “spillover” incident. The Hunan market was shut down on Jan 1st but the virus is now spreading from human – human.

It is still not completely clear how the 2019-nCOV is transmitting from human to human. But the fact that 15 health workers in Wuhan tending to Corona virus patients have been affected makes it likely that it is spreading from affected hosts to normal bodies. Corona viruses typically spread through the air, as a result of victim sneezing or coughing, therefore it is believed that face masks will offer some protection against them. Experts also strongly recommend frequent hand washing since droplets from patients’ cough/sneeze often ends up on surfaces, enabling corona virus to spread through touch also. As of now, there is no medicine or vaccine known to counter 2019-nCOV with the knowledge about the virus still very nascent.

The outbreak of the virus has already hit the Chinese economy hard. Apart from blow to the tourism sector, also suffering is the Chinese film industry with 7 films set to premiere on the Chinese New Year standing cancelled. 2020 Olympic qualifying games have been shifted from Wuhan hitting the revenues of the city further. The Chinese stocks have suffered their worst fall in last 5 months this week. Goldman Sachs has predicted that reduced travel due to the outbreak is likely to see a drop in fuel prices especially aviation fuel.

Increase in unemployment, sluggish automobile sales increases gloom surrounding the economy

After a positive growth in the festive months of October and November, retail sales of passenger vehicles as well as commercial vehicles again slumped in December, 2019, as per figures released by the Federation of Automobile Dealers Association (FADA). The vehicle registrations in Regional Transport Offices (RTO) has been considered as a surrogate for vehicle retail sales by FADA. The December data shows that passenger vehicle sales in Dec’19 fell to 2,15,716 units from 2,36,586 units a year back – a decline of 9%. The only segment which showed a positive trend in December was 3-wheelers which grew by a mere 1% from corresponding period a year back. 2-wheelers registrations declined by 16% while the sharpest drop was seen in commercial vehicles segment which fell to 67,793 units in Dec’19 vis-a-vis 85,833 units in Dec’18.

Registration by vehicle type – Dec’19 vs Dec’18 (source : FADA)

As per FADA’s official statement, despite attractive discounts and robust customer enquiries, conversion to actual sales remained subdued in December, with weak consumer sentiment being considered the main reason for this decline – sharpest so far in the current financial year.

In more gloomy news, according to figures released by the Center for Monitoring Indian Economy (CMIE), unemployment levels in the country rose to 7.5% in the period Sep-Dec 2019. According to CMIE estimates, this was the seventh consecutive wave in which unemployment has increased, starting May-Aug, 2017 when the unemployment rate stood at 3.8%. The CMIE data is based on survey of 1, 74, 405 households across the country.

In a most worrying trend, it emerges that unemployment increases with higher education, suggesting that quality of employment is also a major challenge. Unemployment among age group 20-24 years, typically the career starting age is at 37.0%, while the same jumps to 63.4% among graduates in that age group.  

Unemployment by Education level and Age groups

Last year, the NSSO data for the period July 2017-June 2018 estimated unemployment at 6.1% – a 45 year high figure. However, government said due to change in methodology, was not comparable to past data.

All eyes are now on the Union Budget 2020 to see the steps planned by the government to pull the economy out of the current state of doldrums.

Status report on SDG: Increased Poverty and Hunger for Indian States

The NITI Aayog published the status report on Sustainable Development Goals -2019 on 27th December, 2019. United Nations in 2015 has set up 17 sustainable development goals for countries like India. NITI Aayog started publishing a status on 13 of these 17 sustainable goals since 2018. The first such report was published in December, 2018. The report published in 2019 therefore not only talks about the status in terms of the SDG, but also provides a comparison of the situation with respect to 2018. In this article IPD focuses on the performance for SDG 1 and SDG 2.

SDG Goal 1: No Poverty’ index is measured using five indicators: (a) population living below the poverty line (b) household with health cover (c) people getting employment under MGNREGS (d) social protection and (e) those living in ‘kuchha’ houses. The measure is calculated for the all India level as well for the state level separately. ‘SDG Goal 2: Zero Hunger’ index comprises of 7 indicators – (a) rural households covered under PDS (b) stunted children under 5 years (c) anaemic pregnant women (d) 6 to 69 months old children who are anaemic (e) underweight children in 0-4 years (f) rice, wheat and coarse cereals produced in kg/ha (g) gross value added in agriculture per worker. Higher the value of the index better is the performance for both SDG 1 and SDG 2.

Source: NITI Aayog

In terms of both SDG 1 and SDG 2 index, there is a decline in performance observed in 2019 as compared to 2018. The drop in performance is more severe for SDG 2- Zero Hunger where we see a 13 point drop in the index in 2019 as compared to the previous year. This is an alarming situation where we see a deterioration in terms of poverty and hunger. The results are in hands with the findings of the global hunger index where India holds a dismal 102 nd rank.

In terms of poverty, media reports recently cited that the unpublished report on Consumption survey of National Statistical Organization (NSO) cites a decline in monthly per capita expenditure in 2016-17 as compared to 2011-12. This was the first time after independence that a decline in MPCE is noted hinting increase in poverty. Government however discarded the survey citing data quality issues and initiated the process for a new survey. The findings of NITI Aayog that there is a deterioration of the poverty index hints to similar results as the unpublished report.

Source: NITI Aayog

When we look at the state level, it is found that Tamil Nadu, Andhra Pradesh and Uttarakhand are the top 3 states in terms of ‘SDG Goal 1 – No Poverty’ index in 2019. Jharkhand, Bihar and Uttar Pradesh are the bottom three states. These three low performing states also showed severe decline in performance in 2019 as compared to 2018. Apart from Andhra Pradesh, no other major states showed improvement with the decline severe in already bottom ranked states. So while majority of the states performed badly in terms of poverty, the poorer states became more poorer. This is an alarming trend.

Source: NITI Aayog

In terms of the ‘SDG Goal 2 – Zero Hunger’ index, Kerala, Punjab and Tamil Nadu are the top ranked states and Jharkhand, Madhya Pradesh and Bihar are the bottom ranked states in 2019. In terms of comparison with 2018, Kerala is the only state which showed improvement while all other states showed significant deterioration. Here also the deterioration is severe for bottom ranked states as compared to the top ranked states.

So in terms of both poverty and hunger it is seen that not only there is a decline in India’s overall performance in eradicating poverty and hunger, almost all states has sees a decline. The states with low performance showed a higher drop in performance. This is a severe problem. This needs to be addressed as soon as possible. NITI Aayog provides no explanation in terms of the change in performance.

Why India is witnessing rise in poverty and hunger after having registered extraordinary improvement between 2005-06 and 2015-16 – as was revealed by the 2018 UNDP-Oxford report on multidimensional poverty index (MPI) remains a reason to worry. The unreleased consumption survey could have provided some explanation on how severe is the problem and could have helped in providing explanations. There has been a significant rise in unemployment, with the unemployment rates are highest ever in last 45 years. Further to that there has been a slowdown with the quarterly GDP growth declining to 4.5%. This is a result of slowdown in domestic demand as well as a decline in exports. All of these factors have an impact directly or indirectly on poverty and hunger and can be the potential reasons for this deterioration.

IPD sincerely hopes that action in this regard will be taken with regard to this in the upcoming budget and thorough focus will be given to reverse the trend in the Indian economy.