EUR 125.00 For Business Accounts Only

MOSL: UNION BUDGET 2020-21-Lacks the punch; no fiscal stimulus; Fiscal deficit broadly in line with expectations

UNION BUDGET 2020-21: Lacks the punch; no fiscal stimulus

** The Union Budget 2020-21 was presented on 1st Feb’20 amidst a very challenging economic environment. Although it was not acknowledged explicitly, the budget appears to have realized the fiscal limits. Not surprisingly then, it did not enough excite the market, where expectations were running very high.

** Headline numbers suggest that the government has relaxed its fiscal deficit target for FY20 and FY21 by 0.5 percentage point (pp) of GDP each to 3.8% and 3.5% of GDP, respectively – broadly in line with expectations. However, while the government has reduced its FY20 receipt target by INR1.5t, the actual shortfall could be as large as INR3t, posing challenges to the fiscal math for FY20/21. Most surprisingly, the government has reduced the devolution rate of taxes to states at 30.5% in FY20RE, as against 35-36% in previous years (and 33% in FY20BE).

** In terms of major announcements, the government has tried to rationalize personal income taxation on the lines of the corporate income tax changes announced in Sep’19. Personal income taxpayers now have an option to either continue with the current regime or choose the new lower tax regime (for taxpayers with annual income below INR15lakh) provided they give up on all major exemptions. Total cost of these exemptions to the government was INR1.16t in FY20 and the estimated revenue forgone on the new personal income tax rates is INR400b. Second, the government has proposed to remove the dividend distribution tax (DDT), which will lead to estimated annual revenue forgone of INR250b.