Union Budget 2020-21 Review
Please refer to important disclosures at the end of this report
Government tries to balance growth with fiscal
As widely expected by the markets the Government decided to strike a balance
between growth and fiscal prudence and did not cut back aggressively on
expenditure. Fiscal deficit for for FY20 was relaxed to 3.8% while fiscal deficit for
FY21 was also relaxed by 50bps to 3.5%. Total Government expenditure for the
year was cut back to ` 26.98 lakh cr. against budget estimates of ` 27.86 lakh cr
up by 16.6% yoy. Cutback in expenditure was largely on account of lower
subsidies (` 74,596 cr.) and interest payments (` 35,366 cr.).
The cutback in food subsidy clearly reflects the Government’s focus to shift away
towards a more targeted spending regime. Some of the highly successful targeted
schemes are the DBT, Ujjawala, PMAY, Ayushman Bharat, Swach Bharat and Jal
Jeevan scheme. Targeted spending allows the Government to achieve the desired
results by lower spending as they are able to plug leakages.
Key highlight of the Budget was the Government’s focus on boosting domestic
manufacturing as they increased import duties on a wide range of goods which
will help domestic manufacturing companies. Some of the sectors which are
expected to be the key beneficiary would be consumer durables, household
appliances, pipes and solar pumps.
Government trying to boost consumption by spending and tax cuts
The Government is clearly looking to stimulate the economy through increased
spending and tax cuts. Government expenditure in budgeted to grow by 12.7% yoy
to ` 30.45 lakh cr. in FY2021. Revenue expenditure is budgeted to grow 11.9%
yoy to ` 26.3 lakh cr., while capital expenditure is budgeted to grow at 18.1% yoy
to ` 4.12 lakh cr.
On the direct tax front the Government has introduced a new optional tax regime
wherein individual earning less than ` 15 lakh can take advantage of lower tax
rates but will have to forego deductions like sec 80 C, HRA, Sec 80 D, standard
deduction and interest deduction on housing loan. The new regime would be
beneficial only for individuals who are not able to fully utilize the deductions
available. As per Government estimates revenue foregone on account of new tax
regime will be to the extent of ` 40,000 cr.
Hike in import duties in line with make in India theme
In order to boost domestic manufacturing the Government has hiked import duties
on various items:
Import duties on household appliances like fans, mixer, grinder, water heaters,
etc. have been hiked from 10% to 20%.
Custom duties on various kitchenware items have been increased from 10% to
Custom duties on water cooler, Refrigerated farm tanks, industrial ice cream
freezer have been increased from 7.5% to 15%
Custom duties on footwear have been increased from 25% to 30%.
We believe that the hike in import duties would boost local manufacturing and is in
line with the Government’s make in India theme.
Fiscal deficit for FY2021 at 3.5%, while
fiscal deficit for FY2020 was revised up
Government trying to stimulate the
economy through mix of spending and
Key highlight of budget was focus on
make in India.
Government to forego revenues of
40,000cr.due to New optional
income tax regime
Government decision to hike import
duties on many items in line with