Union Budget 2019-20

The 13th 5-Institute Budget SeminarNew Delhi, 22 July, 2019

Shekhar ShahNCAER

1

•Grameen Bharat/Rural India

Agriculture & Farm

Non-agricultural rural

• Industry: the $5 trillion economy

Sectors covered

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GCF growth in agriculture since 2013 has been 0.5%, GVA growth 3.1%

3

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

GVA and Gross Capital Formation Agriculture 2012-13 to 2018-19 (% yoy)

GVA Agriculture (%yoy) GCF Agriculture (%yoy)

Note: Average growth rate over 2012-13 to 2017-18. 2016-17 are Second Revised Estimates.; 2017-18 are First Revised Estimates; 2018-19 are Provisional Estimates.Source: CSO

Agricultural GVA growth and rural retail prices fell in 2018-19

4

Source: CSO

-4.0-2.00.02.04.06.08.0

10.012.014.0

20

12-1

3:Q

12

012

-13

:Q2

20

12-1

3:Q

32

012

-13

:Q4

20

13-1

4:Q

12

013

-14

:Q2

20

13-1

4:Q

32

013

-14

:Q4

20

14-1

5:Q

12

014

-15

:Q2

20

14-1

5:Q

32

014

-15

:Q4

20

15-1

6:Q

12

015

-16

:Q2

20

15-1

6:Q

32

015

-16

:Q4

20

16-1

7:Q

12

016

-17

:Q2

20

16-1

7:Q

32

016

-17

:Q4

20

17-1

8:Q

12

017

-18

:Q2

20

17-1

8:Q

32

017

-18

:Q4

20

18-1

9:Q

12

018

-19

:Q2

20

18-1

9:Q

32

018

-19

:Q4

20

19-2

0:Q

1

GVA Agricultural Sector and CPI Rural2012-13:Q1 to 2018-19:Q4 (% yoy)

GVA of Agricultural Sectors (2011-12, %yoy) CPI Rural (2011-12, %yoy)

Agricultural productivity has remained low

2007-08 (tonnes/hectare)

2017-18(tonnes/hectare)

CAGR

Total foodgrains(kg/hectare)

1,860.0 2,235.0 1.86

Oilseeds (kg/hectare)

1,115.0 1,284.0 1.42

Horticulturalcrops (tonnes/hectare)

10.45 12.3 1.64

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Source: https://eands.dacnet.nic.in/APY_96_To_06.htm, Ministry of Agriculture, Annual Report, 2017-18 and https://www.ers.usda.gov/webdocs/publications/82639/ldpm-272-01.pdf?v=0.

Budget Speech AnnouncementsGaon, Garib, aur Kisan

• Ujjwala Yojana and Saubhagya Yojana: By 2022, every rural family wanting a connection will have electricity and a clean cooking facility

• Housing for All by 2022: Pradhan Mantri Awas Yojana–Gramin (PMAY-G)• Pradhan Mantri Matsya Sampada Yojana (PMMSY) –Fisheries Department to

establish fisheries management framework—including infrastructure, modernization, traceability, production, productivity, post-harvest management, and quality control—to address critical gaps in value chain

• Pradhan Mantri Gram Sadak Yojana (PMGSY): All-weather connectivity has now been provided to over 97% of habitations. PMGSY-III to upgrade 125,000 km of road length over next 5 years

• SFURTI (Scheme of Fund for Upgradation and Regeneration of Traditional Industries) aims to set up more Common Facility Centres (CFCs) to boost cluster based development focused on honey, bamboo and khadi: 100 new clusters in 2019-20 to enabling 50,000 artisans to join value chain

• ASPIRE (Scheme for Promotion of Innovation, Rural Industry, and Entrepreneurship) will set up 20 technology and 80 livelihood business incubators to foster 75,000 skilled entrepreneurs in agro-rural industry in 2019-20

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Budget Speech AnnouncementsGaon, Garib aur Kisan

• Establish 10,000 new Farmer Producer Organizations over 5 years to garner economies of scale

• Union government to work with State governments to allow farmers to benefit from e-NAM

• Adopt “zero budget [natural] farming”: go back to basics …”steps such as this can help in doubling farmers’ income” by 2022

• Work with States to ensure Har Ghar Jal (piped water supply) to all rural households by 2024 under the Jal Jeevan Mission. New Jal Shakti Mantralaya combing Water Resources, River Development & Drinking Water & Sanitation

• Jal Shakti Abhiyan to tackle 1592 overexploited blocks in 256 districts• Under the Pradhan Mantri Gramin Digital Saksharta Abhiyan, over two

crore rural Indians have so far been made digitally literate. Bharat-Net to connect local bodies in every Panchayat to the Internet

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Rural & Agriculture: Budget 2019-202017-18

(Actual, Rs crore)

2018-19 (Revised, Rs crore)

2019-20 (Budgeted, Rs crore)

Department of Agriculture, Cooperation and Farmers’ Welfare, MoAFW

37,396.7267,800.00 1,30,485.21

Department of Rural DevelopmentMoRD

1,08,559.63 1,12,403.92 1,17,647.19

Ratio of MoAFW/MoRD

0.3 0.6 1.1

Fertiliser subsidy,MoCF

66,467.57 70,085.70 79,9960

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Source: Union Budget 2019-20

Rural & AgricultureBudget 2019-20 by schemes

2017-18 (Actual,

Rs crore)

2018-19 (Revised, Rs crore)

2019-20 (Budgeted, Rs

crore)

Crop Insurance Scheme 9,419.2 12,975.7 14,000.0

Interest Subsidy for Short-term Credit to Farmers

13,045.7 14,987.0 18,000.0

Pradhan Mantri Kisan Samman Nidhi(PM-Kisan)

N.A. 20,000.0 75,000.0

Pradhan Mantri Kisan Pension Yojana N.A. N.A. 900.0

Pradhan Mantri Krishi Sinchai Yojana(PMKSY)- Per Drop More Crop

2,819.25 2,954.69 3,500.0

Green Revolution 11,056.74 11,802.26 12560.55

MGNREGA 55,166.04 61,084.09 60,000

PMGSY 16,862.12 15,500 19,000

PMAY 22,572.99 19, 900 19,000

National Rural Livelihood Mission 4,327.2 5,783.5 9,024

9Source: Union Budget 2019-20

Southwest Monsoon 2019Considerable state-wise variation

3

17

14

2

0

2

4

6

8

10

12

14

16

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Rainfall Category

No

. o

f S

tate

s

State-wise Rainfall Distribution June 1, 2019 to 19th July, 2019

Large Excess Excess Normal Deficient Large Deficient

10Source: IMD.

Southwest Monsoon 2019Also considerable temporal variation

-37%

-45% -43%

-36%

-28%

-15% -16%

-50%

-40%

-30%

-20%

-10%

0%

Dif

fere

nce

bet

wee

n A

ctu

al

Ra

infa

ll a

nd

LP

ADistribution of Cumulative Rainfall on a Weekly Basis from

June 1, 2019 to 19th July, 2019

5th June 2019 12th June 2019 19th June 2019

26th June 2019 3rd July 2019 10th July 2019

17th July 2019

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Source: IMD. LPA=Long period average

Total live storage available in 91 reservoirs maintained by CWC as of 18th July, 2019, was 24% of total live storage capacity of these reservoirs, 76% of last year and 88% of last 10 years

Area sown under Kharif lower in 2019 vs 2018

12Source: Ministry of Agriculture.

-70.0-60.0-50.0-40.0-30.0-20.0-10.0

0.010.0

Increase/Decrease over Normal of Corresponding Week, 2018 and 2019 (lakh hectare)

2018 2019

Key Questions

• PM-Kisan is an income support programme that started for landed farmers, and will now be extended to cover all farmers to give them Rs 6000/yr. Will this raise productivity and participation in value chains?

• Does the Budget tackle the problem of falling incomes, weather risks and weak sentiment?

• Is there a resolve, and are programmes being developed to work closely with the States to tackle structural issues in agriculture?

• What is the strategic vision? NITI Aayog is working on a new policy for agricultural growth

• Doubling Farmers’ Income by 2022: what are follow-up actions?

• Climate change?

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Services sector has slowed down since 2015-16 and industry growth volatile

3.33.8

7.0

9.6

7.7

5.96.9

8.37.7

9.8 9.48.4 8.1

7.5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

GVA Industry and Services (%yoy), 2012-13 to 2018-19

Industry Services

14Source: MoSPI

Average growth of GCF Industry was 2.7% and GCF Services 7.3% over 2012-13 to 2017-18

2.5

-5.8

1.5

11.1

-0.7

7.67.8

0.9

12.0

3.9

7.2

11.8

-10.0

-5.0

0.0

5.0

10.0

15.0

2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

GCF Industry and Services (% yoy), 2012-13 to 2017-18

Industry Services

15Source: MoSPI

Slide in volume of industrial activity continues….

-4

-2

0

2

4

6

8

Manufacturing General

IIP Manufacturing and General (2014-15:Q1 to 2018-19:Q4 and 2018-19 and 2019-20:April-May, %yoy)

2014-15:Q1 2014-15:Q2 2014-15:Q3 2014-15:Q4 2015-16:Q1

2015-16:Q2 2015-16:Q3 2015-16:Q4 2016-17:Q1 2016-17:Q2

2016-17:Q3 2016-17:Q4 2017-18:Q1 2017-18:Q2 2017-18:Q3

2017-18:Q4 2018-19:Q1 2018-19:Q2 2018-19:Q3 2018-19:Q4

2018-19:April-May 2019-20: April-May

16Source: MoSPI

In 10 out of last 24 quarters, Capital Goods has shown negative yoy growth

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

Capital Goods (%yoy), 2013-14:Q1 to 2018-19:Q4 and 2018-19:April-May and 2019-20:April-May

17Source: MoSPI

PMI for Manufacturing and Services have declined in 2019-20:Q1

46

48

50

52

54

56

58

20

11-1

2:Q

4

20

12-1

3:Q

1

20

12-1

3:Q

2

20

12-1

3:Q

3

20

12-1

3:Q

4

20

13-1

4:Q

1

20

13-1

4:Q

2

20

13-1

4:Q

3

20

13-1

4:Q

4

20

14-1

5:Q

1

20

14-1

5:Q

2

20

14-1

5:Q

3

20

14-1

5:Q

4

20

15-1

6:Q

1

20

15-1

6:Q

2

20

15-1

6:Q

3

20

15-1

6:Q

4

20

16-1

7:Q

1

20

16-1

7:Q

2

20

16-1

7:Q

3

20

16-1

7:Q

4

20

17-1

8:Q

1

20

17-1

8:Q

2

20

17-1

8:Q

3

20

17-1

8:Q

4

20

18-1

9:Q

1

20

18-1

9:Q

2

20

18-1

9:Q

3

20

18-1

9:Q

4

20

19-2

0:Q

1

PMI, 2011-12:Q4 to 2019-2020:Q1

Manufacturing Services Composite

18Source for Purchasing Managers’ Index: https://www.markiteconomics.com/Public/Release/PressReleases

Business sentiment has remained muted

19

80.0

90.0

100.0

110.0

120.0

130.0

140.0

150.0

160.0

170.0

180.0

NCAER Business Confidence Index, April 2016 to April 2019

Business Confidence Index Political Confidence Index

Source: NCAER

Budget Speech Announcements 2019

• India requires investments averaging 20 lakh crores every year (USD 300 billion a year) – many financial instruments announced to facilitate

• E-invoicing introduced to ease compliance of GST

• Corporate rate tax of 25 % will now extend to all companies with annual turnover up to Rs 400 crore (was Rs 200 crore), covering 99% of firms

• The Government is developing 17 iconic tourism sites into world class tourist destinations and to serve as model for other tourism sites

• Pradhan Mantri Karam Yogi Maandhan Scheme: Pension benefit to about three crore retail traders & small shopkeepers whose annual turnover is less than 1.5 crore.

• A Public Sector Enterprise, New Space India Limited has been incorporated as a new commercial arm of Department of Space to tap the benefits of the Research & Development carried out by ISRO

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Entrepreneurship and start-ups

• Encouragement to start-ups to resolve angel tax issue

• A DD Television Channel exclusively devoted to Start-ups

• Expand the Women SHG interest subvention programme to all districts. Furthermore, for every verified women SHG member having a Jan DhanBank Account, an overdraft of Rs 5,000 shall be allowed. One woman in every SHG will also be made eligible for a loan up to 1 lakh under the MUDRA Scheme

• Stand-up India Scheme continued

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Mega Investment in Sunrise and Advanced Technology Areas

• Government will launch a scheme to invite global companies through a transparent competitive bidding to set up mega-manufacturing plants in sunrise and advanced technology areas such as Semi-conductor Fabrication, Solar Photo Voltaic cells, Lithium storage batteries, Solar electric charging infrastructure, Computer Servers, Laptops, etc. and provide them investment linked income tax exemptions under section 35 AD of the Income Tax Act, and other indirect tax benefits.

• Electric vehicles:

• Government has moved GST Council to lower the GST rate on electric vehicles from 12% to 5%

• Additional income tax deduction of 1.5 lakh on the interest paid on loans taken to purchase electric vehicles. This amounts to a benefit of around 2.5 lakh over the loan period to the taxpayers who take loans to purchase electric vehicle

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Customs Duty Announcements

• Make in India: Basic customs duty is being increased on items such as cashew kernels, PVC, Vinyl flooring, tiles, metal fittings, mountings for furniture, auto parts, certain kinds of synthetic rubbers, marble slabs, optical fibre cable, CCTV camera, IP camera, digital and network video recorders etc. Also, exemptions from custom duty on certain electronic items which are now being manufactured in India are being withdrawn. Further, end use based exemptions on palm stearin, fatty oils, and exemptions to various kinds of papers are also being withdrawn. To encourage domestic publishing and printing industry, 5 % custom duty is being imposed on imported books.

• Customs duty reductions are proposed on certain raw materials and capital goods

• Customs duty is being exempted on certain parts of electric vehicles

• Customs duty is also being exempted on capital goods required for manufacture of specified electronic goods

• Export duty is being rationalised on raw and semi-finished leather to provide relief to this sector

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Questions

• Budget proposes “a number of initiatives as part of a framework for kick-starting the virtuous cycle of domestic and foreign investments”

• Does the Budget 2019-20 do the job?

• Does it spur an India that can compete?

• To do so is a huge and politically difficult agenda: new land laws, new labour laws, and a range of other shifts that make India more internationally competitive

• The Economic Survey focuses on export-led growth, but Budget talks about import-substitution and reducing import dependence, protecting the MSME sector, and curbing non-essential imports

• Is this a Budget that will draw global value chain industries to come to India as they exit China? Or will they continue their journey to Vietnam and Bangladesh?

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