Budget macros: Lot of hope and optimism in the numbers

Here are the key macro highlights of the Budget 2020.

February 04, 2020 10:21 IST | India Infoline News Service
Union Budget 2020
On the macro front, the big focus was on the fiscal deficit, disinvestments, tax revenues and the infrastructure. On all these fronts, the government has given some food for thought and some points to ponder.

Key macro highlights of the Budget 2020

  • There were no surprises in the fiscal deficit which spilled over by 50 bps for FY20 and for FY21. The budget expects to end FY20 with fiscal deficit of 3.9% and FY21 with 3.5%.
  • The saving grace for the fiscal year was the jump in non-tax revenue by Rs32,335cr reflecting the AGR payments by the telecom payments.
  • Income tax estimates for FY21 appear to be optimist, growing at 18% (vs. 20% in FY20 BE). This does look bit ambitious considering that till December, growth was just 5.1%.
  • The nominal GDP growth for FY21 is estimated at a realistic 10% so the real GDP growth could be closer to 5.5% to 6%; which would be achievable on a low base of FY20.
  • Interestingly, the Budget has set all-time high disinvestment target of Rs210,000cr largely on the strength of the LIC IPO, even as FY20 divestment target is revised down from Rs105,000cr to Rs65,000cr.
  • Gross tax revenue for FY21 is expected to grow by 12% to Rs24.2 lakh crore. This is expected to be supported by 10.4% growth in custom duty, 14% in income tax, 11.5% rise in corporation tax and GST collections at 12.8%.
  • Total dividend from RBI, nationalised banks and financial institutions is estimated at Rs89,648cr for FY21. This is 41% lower factoring lower transfers from RBI.
  • Government borrowing for FY21 is budgeted at Rs780,000cr and net borrowing requirement is pegged at Rs540,000cr, which could  put some pressure on rates.
  • Deposit Insurance and Credit Guarantee Corporation (DICGC) has increased deposit Insurance coverage from Rs1 lakh to Rs5 lakh per depositor, largely in the aftermath of the PMC Bank fiasco.

Macro action points in Budget 2020

  • The credit target for agriculture, Irrigation and rural development has been set at Rs15 lakh crore for FY21. Kisan Rail is proposed to be setup by Indian Railways through PPP. In addition, the budget has reiterated commitment to doubling farm incomes by 2022  via other focus areas like horticulture, fisheries,  doubling of milk production etc.
  • Infrastructure sector is likely to get a big boost with 100 more airports by 2024 to support Udaan scheme, operation of 150 more passenger trains through the PPP mode and privatization of one major port and four railway stations.
  • Focus on soft infrastructure via apprenticeship embedded courses through 150 higher educational institutions by March 2021 with a view to bringing industry and academic closer in collaboration.
  • In terms of health infrastructure, the Budget proposed more than 20,000 empanelled hospitals under PM Jan Arogya Yojana for poor people and expansion of the  Jan Aushadhi Kendra Scheme to all districts by 2024.
  • Towards making the financial system robust, cooperative banks will be strengthened by amending Banking Regulation Act and enabling access to capital and improving governance for sound banking through the RBI.
  • MSMEs are the heart of job creation and need personal attention. The turnover threshold for audit was increased to Rs5cr from Rs1cr. In addition, Factor Regulation Act 2011 to be amended to enable NBFCs to extend invoice financing to MSMEs. Banks have been asked to provide subordinate debt for MSMEs.
  • To address the liquidity constraints of NBFCs, the Partial Credit Guarantee scheme for the NBFCs will be formulated to address their liquidity constraints.
  • For deepening Bond Market certain specified categories of Government securities are to be opened fully for NRIs. FPI limit in corporate bonds has been increased to 15% from 9% of outstanding stock. This is likely to bring depth to the bond markets.

Addressing the consumption riddle

The budget process began with the task of giving a boost to consumption. Whether it is achieved or not only time will tell, but there have been some earnest attempts. The new personal income tax regime will significantly reduce tax payouts for individual taxpayers who forgo certain deductions and exemptions. According to the Budget estimates, the new personal income tax rates will entail annual  revenue forgone of Rs40,000cr per year. Now comes the bigger picture! Assuming a marginal propensity to consume of 0.70 for the lower to middle class of tax payers, the proposed revenue foregone of Rs40,000cr will translate into a consumption boost of Rs133,000cr. Even if only part of the taxpayers migrate, the impact on consumption will still be substantial. That seems to be the big bet. Also, the ‘Vivaad se Vishwaas’ scheme will allow dispute resolution without litigation and could unlock billions of dollars of consumption ready funds.

There are some broad macro stories the budget has tried to address. A lot will depend on the eventual acceptance and implementation.

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