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Impact of Budget 2020 on Economy

Updated: Apr 16

An estimate of Government’s income and expenditure for 2020-2021 was presented by our Finance minister Mrs. Nirmala Sitharaman on 1st February 2020 as Union Budget 2020. The big bet of the government to boost growth to revive the economy is a push for investments in its industrial sector and a push for India’s participation globally and reduce direct taxes to increase expenditure capacity to boost expenditure chain of economy. For instance, an increase in direct taxes would decrease disposable income, thus reducing demand for goods. Another focus area of the government is to increase investments in infrastructure. Another focus area of the government is to increase investments in infrastructure 20% more than last year. Sectors that are likely to benefit the most from the Budget 2020 are electric manufacturing companies, footwear companies, companies operating in natural gas, water pumps, transport infrastructure, IT companies, Agriculture related companies, companies under data science, analytics, and related fields. Borrowings would go towards Capital expenditure of the Government that has been scaled up by more than 21%. Income tax rates significantly reduced for those who forego reliefs and exemptions. Now, let us try to understand its impact in detail on different sectors and overall economy.


Impact of Budget 2020 on various sectors

Agriculture- Among the budget announcements for this sector was the setting up of Kisan Rail through the PPP model to transport perishable goods quickly. The government also plans to expand the PM KUSUM scheme for solar pumps to cover 2 million farmers. This pumped up the energy of farmers.

AUTOMOBILE- This sector is going through prolonged slowdown. Many manufacturers had cut down their staff and many new car dealerships with big brand names including small used car business dealers are going through rough phase. This sector again not only gives employment but is allied with many other businesses catering to its final product. In this sector govt. has introduced lower GST rates which would encourage new car buying and increase in re registration to cut down used car sales. Abolition of duty on lithium- ion battery cells will help and encourage electric vehicles. Tax benefit on purchase of new car before 31st March was some of the measures taken to revive this sector. It does boost up some growth in the sector.

EASY TAXATION- Single investment clearance window had made the lives of entrepreneurs easier.

Dividend distribution tax (DDT) removed. Dividends will have to be taxed based on the recipient’s income tax slab.

The Additional Rs. 1.5 Lakh tax deduction on interest paid for affordable housing loans has been extended to March 2021. This would give some relief to those who are planning to buy new homes.

Individual income tax payers are likely to get benefit with the reduction in rates.

INFORMATION TECHNOLOGY– Its impact could be positive on IT industry as there has been an allocation of Rs. 8,000 crore for a National Mission on Quantum Computing and Technology. Internet connectivity to 100,000+ Gram Panchayats which will boost this sector’s growth in terms of employment and widespread both.

INFRASTRUCTURE- We can expect this one to perform good as well, as the budget announced that it would extend the gas grid by 11,000 km, giving a boost to gas stocks. New Power generation companies will have to pay only 15% corporate tax, which should help meet growing power needs. 100 new airports are to be developed by 2025 under the UDAN scheme .Enlarged capital expenditure on roads and highways as one of the ways to boost the core sector as it has a multiplier effect on the economy‘s growth on the whole. Increment in no. of Tejas trains to support Tourism growth and create employment.

REAL ESTATE- There was a hope that the budget will boost up the real estate sector too but it was not like that. Easy and lower rates on home loans have attracted the end users but the investors have restricted themselves to invest in this sector and actual rotation of cash actual works out in market through real estate only on lower scale. Not only this real estate creates employment as well as cater to various businesses.

CONCLUSION

India has transformed into a private-sector-led economy like most other economies. Too much attention is paid to MNREGA or infrastructure investment by govt. but not enough to the course of the private sector investment. This change in the character of the economy is not likely to be realised by political parties yet which is the reason for negative growth of economy as economy’s growth is directly related to business. In all budget 2020 had a bigger picture on screen but on ground does not have that impact as could not give benefit in current to revive the economy from growth recession. These schemes have long term benefit. Last year the predicted growth rate was 5% and this year prediction is about 6-6.5% which can be either way +/-1%. Budget had worked upon many sectors but still a lot is required to boost economy growth.

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