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.
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.
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: