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Union Budget Explained: Boosting consumption by leaving people with higher disposable incomes is the key strategy

Union Budget important points Explained, highlights: Here's an explanation and analysis of the Budget presented by Finance Minister Nirmala Sitharaman in Parliament today.

Written by Sandeep Singh , Anil Sasi , Harish Damodaran , Ishan Bakshi , Udit Misra , Edited by Explained Desk | New Delhi | Updated: February 1, 2020 10:30:20 pm
Union Budget 2020 Live News Explained as Nirmala Sitharaman presents in Parliament today Union Budget Explained: Finance Minister Nirmala Sitharaman presents her second Budget Saturday.

Union Budget 2020-21 Highlights, Important Points Explained: The Union Budget 2020 presented by Finance Minister Nirmala Sitharaman Saturday has the objective of boosting the disposable incomes of the Indian consumers, at a time when the country is facing its worst economic slowdown in over a decade. The Finance Minister’s announcements for the salaried class proposes a new tax regime slashing income tax rates and rejigging income tax slabs to ostensibly prune total tax payable by individuals.

Another focus of the Budget was giving a “level-playing field” to domestic manufacturers in a bid to boost Prime Minister Narendra Modi’s ambitious ‘Make in India’ scheme.

The government’s announcement that it will sell a part of its holding in Life Insurance Corporation of India (LIC) through an initial public offering (IPO) is being seen as a bold decision but will need a law change first.

Follow our live blog as we bring you the latest news and updates from Sitharaman’s speech, and provide an explanation and analysis of it.

Live Blog

Here's a live explanation and analyses of the Union Budget 2020, as presented in Parliament by Finance Minister Nirmala Sitharaman today. Follow latest news and updates on the Budget in Malayalam, Tamil, Bangla and Hindi and Marathi.

22:30 (IST)01 Feb 2020
Budget 2020: Govt targets Rs 2.1 lakh crore via divestment, LIC IPO

The Budget 2020-21 Saturday announced an ambitious disinvestment agenda, aiming to raise Rs 2.1 lakh crore through stake sales next year, including plans to sell part of the Centre’s stake in the country’s largest insurer Life Insurance Corporation (LIC) through an initial public offer (IPO). READ HERE

22:29 (IST)01 Feb 2020
Budget 2020: With little room to spend, Govt hopes for a demand boost

Union Finance Minister Nirmala Sitharaman has kept a tight leash on spending despite a sputtering economy, tacitly admitting there is little fiscal space, and settled for a growth rate of just about 6 per cent for 2020-21, assuming an average inflation of about 4 per cent for the year.

Despite a sharp cut in expenditure, necessitated more by falling receipts, the Centre’s fiscal deficit was 0.5 percentage points higher than budgeted for 2019-20 at 3.8 per cent of the GDP. For the next year too, the Budget has curtailed spending across sectors including in flagship schemes, hoping to rein in the deficit at 3.3 per cent of GDP. READ HERE

18:59 (IST)01 Feb 2020
Union Budget 2020 in pics: Sitharaman carries ‘bahi khaata’ to Parliament

Finance Minister Nirmala Sitharaman carries the Union Budget 2020 papers in a 'bahi khaata' while leaving her office to present it in the Parliament today. She is accompanied by MoS Finance Anurag Thakur and Chief Economic Advisor Krishnamurthy Subramanian. (Express photo by Praveen Khanna)

Finance Minister Nirmala Sitharaman arrived at the Finance Ministry earlier today ahead of its presentation in the Parliament. (Express photo by Praveen Khanna)

Following last year's tradition, Finance Minister Nirmala Sitharaman, who started a tradition last year by carrying a 'bahi khaata' instead of a leather briefcase for the Budget papers. (Express photo by Praveen Khanna)

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18:06 (IST)01 Feb 2020
Union Budget 2020 showed ‘vision and action’: PM Modi

Prime Minister Narendra Modi on Saturday lauded Finance Minister Nirmala Sitharaman and her team, saying the first Budget of the decade showed “vision as well as action”.

“The new reforms announced in the budget will work to speed up our economy, financially empower every citizen of the country and strengthen the foundation of the economy in this decade,” PM Modi said in a video address to the nation. READ HERE

17:42 (IST)01 Feb 2020
Explained: How govt plans to reboot the economy with this budget

The fine print of the Union Budget for 2020-21 notwithstanding, the central strategy of the government seems to be to boost the disposable incomes of the Indian consumers. Here's why 

16:40 (IST)01 Feb 2020
Budget 2020: What’s got costlier and cheaper

In a bid to boost consumption to pull the economy out of the worst slowdown in 11 years, Finance Minister Nirmala Sitharaman, presenting her second Union Budget, announced cuts in personal income tax and extended tax benefits for affordable housing.

Another focus of the Budget was giving a “level-playing field” to domestic manufacturers in a bid to boost Prime Minister Narendra Modi’s ambitious ‘Make in India’ scheme. To encourage domestic companies, Sitharaman announced that customs duty would be raised on a variety of products ranging from tableware and kitchenware to electrical appliances, footwear, furniture, stationery and toys. Read more here

16:33 (IST)01 Feb 2020
LIC IPO, a big-bang announcement

LIC is India’s largest financial institution, and if LIC shares are listed on stock exchanges, it could easily emerge as the country’s top listed company in terms of market valuation, overtaking current leaders Reliance Industries Ltd and Tata Consultancy Services. Read more

16:29 (IST)01 Feb 2020
How does the govt plan on boosting the economy via this budget?

Boosting consumption by leaving people with higher disposable incomes is the key strategy. So what was the problem slowing down the economy, and how does the government plan on tackling it via this budget? Read here

15:32 (IST)01 Feb 2020
Budget 2020: The five 'iconic' archaeological sites mentioned by Finance Minister Sitharaman

The government proposes to set up an Indian Institute of Heritage and Conservation under the Ministry of Culture, and develop five archaeological sites as “iconic sites” with onsite museums in Rakhigarhi (Haryana), Hastinapur (Uttar Pradesh), Sivsagar (Assam), Dholavira (Gujarat) and Adichanallur (Tamil Nadu). Know about these five sites

15:21 (IST)01 Feb 2020
Budget 2020: Full list of exemptions that new income tax regime will take away

Finance Minister Nirmala Sitharaman’s Budget 2020 announcements for the salaried class proposes a new tax regime slashing income tax rates and rejigging income tax slabs to ostensibly prune total tax payable by individuals. But the rider: most key exemptions are gone if one were to go for this option: home loan interest, HRA, LTA, health insurance. And standard deduction. Know what are the exemptions here

14:27 (IST)01 Feb 2020
Explained: What raising bank insurance cover means

The insurance cover for bank deposits has been raised to Rs 5 lakh from Rs 1 lakh, Finance Minister Nirmala Sitharaman has announced in her Budget speech. This has been a major talking point in the previous months. The failure of the Punjab and Maharashtra Co-operative (PMC) Bank had reignited the debate on the low level of insurance for deposits held by customers in banks in India. Read our explainer on what this means

14:15 (IST)01 Feb 2020
Union Budget Explained: Why LIC divestment is a big, bold decision

LIC is India’s largest financial institution, and if LIC shares are listed on stock exchanges, it could easily emerge as the country’s top listed company in terms of market valuation, overtaking current leaders Reliance Industries Ltd and Tata Consultancy Services. This is because of the insurer’s financials. On a capital base of Rs 5 crore, LIC last reported a valuation surplus — or profit — of Rs 48,436 crore for FY2018, and assets under management of Rs 31.11 lakh crore. Read our explainer here

13:42 (IST)01 Feb 2020
Nirmala Sitharaman has now delivered the longest Budget speech

Finance Minister Nirmala Sitharaman has created history with the longest Budget speech. She has broken her own record of 2 hours, 17 mins. As she crosses 2 hours 30 minutes, she tells the Lok Sabha she has only two pages left...

13:36 (IST)01 Feb 2020
Budget Explained: Govt announces Vivaadh sey Vishwas Scheme

The Finance Minister has announced the 'Vivaadh sey Vishwas Scheme' for direct tax payers to reduce tax litigations. There are currently 4.83 lakh direct cases pending in various appellate forums. Get complete waiver of interest and penalty by paying dispute amount by March 31, 2020.

13:32 (IST)01 Feb 2020
Markets tank on Budget announcements

Sensex has tanked over 650 points, or 1.61 per cent, to 40,067. The broader Nifty is down 225 points, or 1.88 per cent, to 11,773.

13:15 (IST)01 Feb 2020
Here are the new income tax rates

Finance Minister Nirmala Sitharaman has proposed 15% tax for income between 7.5 lakh to 10 lakh; 20% tax for income between 10 lakh to 12.5 lakh; 25% tax for income between 12.5 lakh to 15 lakh; 30% tax for income above 15 lakhand no income tax for those with taxable income below Rs 5 lakh. Sitharaman says Rs 40,000 crore per annum will be revenue foregone from new income tax rates. How much income tax you need to pay now? Check slab

13:04 (IST)01 Feb 2020
Union Budget Explained: Fiscal deficit estimated at 3.5 per cent in 2020-21

Fiscal deficit has been estimated at 3.5 per cent in 2020-21, and revised for the current year upwards to 3.8% from 3.3%. The Budget does not succumb to pressures of expanding fiscal deficit. That should be positive for bond markets.

13:00 (IST)01 Feb 2020
Govt estimates nominal GDP for FY21 at 10%

The government estimates nominal GDP for 2020-21 at 10 per cent. It is lower than the 12 per cent that was projected in 2019-20, which turned out to be only 7.5 per cent. Recalibration of expectations.

12:58 (IST)01 Feb 2020
Union Budget Explained: FPI limits in corporate bonds raised to 15%

Foreign Portfolio Investment (FPI) limits in corporate bonds being raised from 9 per cent to 15 per cent is a major move. That, along with fiscal deficit not being allowed to spiral much, should help prevent domestic interest rates from going up.

12:57 (IST)01 Feb 2020
Union Budget Explained: Gross tax revenue estimate may not be achieved

The 15th Finance Commission has received gross tax revenues at Rs 22.55 trillion in 2019-20. The Budget estimate for 2020-21 is Rs 24.6 trillion. There is anecdotal, analytical, and other evidence to suggest that this may not be achieved.

Union Budget 2020 Live News Explained as Nirmala Sitharaman presents in Parliament today Budget 2020 Explained: Finance Minister Nirmala Sitharaman arrives at the Finance Ministry on Saturday morning. (Express Photo: Praveen Khanna)

Budget 2020 Explained: Live News explanation and analysis

Finance Minister Nirmala Sitharaman presents her second budget in Parliament today. At a time when the economy is in the doldrums, Sitharaman is expected to announce measures to increase government growth to boost overall demand and put India back on track to achieve the ambitious $5 trillion economy by 2025.

The process of drafting the budget is not easy. This is especially at a time when almost all sectors, from agriculture to manufacturing to some service sectors, are witnessing a slowdown in economic activity. While some people expect the government to increase expenditure to spur economic growth, others have warned of rising fiscal deficit.

N R Bhanumurthy, Professor at the National Institute of Public Finance and Policy (NIPFP), told The Indian Express that the nominal gross domestic product (GDP) is the most fundamental building block of a Budget. “I always call nominal GDP the Lord Ganesh of the Budget," Bhanumurthy said.

“The Budget is the financial plan of the Union government for the next financial year. Essentially, it is an exercise in determining how far can the government exceed its expenditure over its revenues, given that the government is required to meet a fiscal deficit target that is provided by the Fiscal Responsibility and Budget Management Act (FRBM) Act,” he added.

So, what are the key steps of Budget-making? Udit Misra, Deputy Associate Editor, lists them:

Step 1: The Finance Ministry has to first ascertain the nominal GDP of the current financial year.

Step 2: Then it has to take this number and “project” the likely nominal GDP for the coming year.

In the “Budget at a Glance” document that is supplied at the time of the Budget presentation, the government mentions this calculation.

For instance, in the Budget for 2019-20, that was presented in July, the government stated, “GDP for BE 2019-2020 has been projected at Rs 2,11,00,607 crore assuming 12.0 % growth over the estimated GDP of Rs 1,88,40,731 crore for 2018-2019 (RE)”.

In other words, the nominal GDP (the market value of all goods and services produced within the domestic boundaries of India) to be Rs 1,88,40,731 crore in 2018-19.

The Finance Ministry then assumed that this nominal GDP would grow by 12% in 2019-20 and as such arrived at the nominal GDP figure of Rs 2,11,00,607 crore for 2019-20, which is the current financial year.

Step 3: Given the nominal GDP, the government can look at the FRBM Act target and figure out the absolute level of fiscal deficit (or borrowings or the difference between the expenditure and revenues) that it can have.

Step 4: After having a sense of how the overall economy will do in the coming year, the next logical step for a government making the Budget is to figure out how much money would it get in terms of revenues.

The absolute amount of revenues that the government will get is calculated by looking at revenue buoyancy. A tax buoyancy of 1 means that if the nominal GDP increases by 12% in the next year, the tax revenues would also increase by 12%.

Step 5: By now, the government knows what its revenues are likely to be and maximum allowable fiscal deficit. Now it is the turn of determining the level of expenditure. The idea is to contain the level of total expenditure in such a matter that fiscal deficit is not breached.

Step 6: Once the government has the fix on the total expenditure, it can go about allocating the absolute amount of money it intends to spend on different schemes.

Read more on our reportage on the Union Budget 2020:

Live Updates on the Union Budget 2020

Live Updates on the markets' reaction to the Union Budget 2020

Here are the Income Tax slabs and rates

Five things to watch out for in Budget 2020

What ails the credibility of India’s Budget numbers?

Is the push towards organised manufacturing the answer to India’s jobs crisis?

The ugly truth about India’s adherence to the FRBM Act

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