The Union Budget for FY21 has budgeted a fiscal deficit at 3.5 per cent of the GDP, and the current year deficit is at 3.8 per cent. The Budget numbers reflect pragmatism as far as the tax revenue is concerned, with the projected tax revenue supposed to expand at 8.7 per cent in consonance with a sombre 10 per cent nominal GDP growth rate. The tax buoyancy (based on gross tax revenues) for FY21 is estimated at 1.2.

Coming to FY21 projections, corporate tax growth rate has been kept at 11 per cent, income tax growth rate at 14 per cent, customs growth at 10.4 per cent and excise growth at 7 per cent. Given the past trends, the growth numbers look reasonable for FY21; except the personal income tax, which seems a tad ambitious given the growth concerns in the economy.

For the GST revenue, the growth rate for FY21 is projected at 12.8 per cent. Notably, so far, during 2019-20, despite the rationalisation of GST rates, the gross GST monthly collections have crossed the mark of ₹1 lakh crore, for a total of five times, including the consecutive months of November 2019 and December 2019. The Budget has however set ambitious disinvestment targets and a much higher non-tax revenue, basis higher dividends from PSBs and financial institutions. The proposed buoyancy in disinvestment stems from the government resolve to list LIC in the next financial year.

For FY21, the gross government borrowing is budgeted at ₹7.8 lakh crore against ₹7.1 lakh crore in FY20, while net borrowing after considering of repayment (₹2.39 lakh crore) is pegged at ₹5.40 lakh crore compared to revised estimate of ₹4.74 lakh crore in FY20.

The Budget proposed 16 action points for agriculture, irrigation and rural development. Agriculture credit target set at ₹15 lakh crore for FY21. The Kisan Rail is to be set-up by Indian Railways through PPP and the Krishi Udaan will to be launched by the Ministry of Civil Aviation. ‘One-Product One-District’ scheme has been introduced for better marketing and export in the Horticulture sector.

Making it less taxing

The Budget proposes to bring a new personal income tax regime, wherein income tax rates will be significantly reduced for the individual taxpayers who forgo certain deductions and exemptions. The new personal income tax rates will entail estimated revenue forgone of ₹40,000 crore per year. There will be no deductions under Section 80C (investments like ELSS), 80CCC (insurance premium), 80D (medical insurance), 80EE (interest on Home Loan), and other Chapter VIA (except for NPS employer contribution), if new tax rate is availed.

Taxpayers can choose to stay with the current slabs to avail of the various exemptions, but the government plans to slowly remove these, which will eventually push all taxpayers to the new tax slabs.

While the proposed decision of whether to migrate to a personal tax regime will be by choice, we believe the trade-off between the new and the old tax regime is still a work in progress, as tax liabilities could increase under the new dispensation. Also, India is a country with limited social security and household savings, and old-age medical expenses need to be incentivised. The current exemptions under 80C were a big contributor to flows into mutual funds (ELSS), insurance companies, etc. With these being taken away, flows to these savings schemes can see a drastic drop.

Perhaps keeping this in mind, the Budget has announced two important measures also in the pension sector. These measures can be seen considering the Code on Social Security, 2019.

The Budget also proposes a scheme to encourage manufacturing of mobile phones, electronic equipment and semi-conductor packaging proposed. This proposal comes very close to proposal to ‘Assemble in India’, suggested in the Economic Survey. It may be noted that the Survey recommends integrating Assemble in India into Make in India to focus on labour-intensive exports and thereby create jobs at large scale. The underlying logic is like what was done in China.

With the rise in wage rate and economic restructuring in China, the wage arbitrage does not exist. Hence there is opportunity to divert some the semi-processed trade of South-East Asia with China to India.

The Budget has also allowed the Deposit Insurance and Credit Guarantee Corporation (DICGC) to increase deposit insurance coverage to ₹5 lakh per depositor from ₹1 lakh.

The writer is Group Chief Economic Advisor, State Bank of India. The views are personal