Mumbai, New Delhi & Hyderabad: The Narendra Modi government’s first budget in its second term had the highest ever allocation for health, cut funding for its flagship Swachh Bharat programme, and increased funding for skill development and child health. Agriculture and rural drinking water saw the highest increase in funding, 92% and 70% respectively, to provide for the input support scheme for farmers and the government’s aim to supply piped water to every household by 2024.

On the renewables front, tax benefits for electric vehicles and a custom duty waiver on lithium-ion cells will help achieve a “brighter future” for electric vehicles, industry experts say. Finance minister Nirmala Sitharaman also focused on supporting start-ups and expanding physical infrastructure including roads, railways, waterways and housing.

India will be a $5 trillion economy in the next few years, Sitharaman--India’s first full-time woman finance minister--said, adding that in purchasing power parity terms, the country is already the third largest, next only to China and the United States.

No clear roadmap for doubling farmers’ incomes by 2022

Allocation to agriculture rose 92%--from Rs 67,800 crore in the revised estimates for 2018-19 to Rs 130,485 crore in 2019-20. Of this, Rs 75,000 crore was allocated to the Pradhan Mantri Kisan Samman Nidhi Yojana (called PM KISAN or PMKSNY), which will provide Rs 6,000 per year as income support to small and marginal farmers.

This allocation has raised the share of the agriculture ministry in the union budget to 4.9%, up from around 2.3%-2.4% since 2014-15 when the BJP came to power, according to this IndiaSpend analysis published on February 12, 2019.

Agriculture generates only 18% of gross domestic product but sustains 600 million people--half of India’s population. Nearly 69%, or 833 million Indians--most of them poor--live in rural areas.

“Under PMKSNY, the government is investing Rs 75,000 crore. Now, this sounds like a lot of money, but if you break it down, it is only Rs 500 per month per family, which is inconsequential,” G V Ramanjaneyulu, an agriculture expert at Telangana-based Centre for Sustainable Agriculture told IndiaSpend. “They should have invested this Rs 75,000 crore in improving areas which can support farmers in the long term."

“The government is still not able to recognise tenants as farmers, which creates confusion when it comes to direct benefit transfer,” he added, “Whether it is PMKSNY, interest subvention scheme for crop loans or the pension scheme, the benefit is extended only to landowners. At the core of this is the fact that none of the states have been able to legalize tenancy with formal contracts. But, all of this is missing from government priorities.”

“We will work with state governments to allow farmers to benefit from e-NAM [the government’s online portal for selling agricultural produce],” said finance minister Sitharaman, adding that the agri-marketing cooperatives law should not hamper farmers from getting a fair price for their produce.

The government also intends to replicate the “zero-budget” natural farming model currently underway in Andhra Pradesh, which promotes farming methods that do not require credit or spending money on purchased inputs. “Steps such as this can help doubling farmers’ income in time for our 75th year of Independence,” Sitharaman said. She added that the government hopes to form 10,000 new ‘Farmer Producer Organizations’ over the next five years to promote economies of scale.

“Zero budget farming is a concept that depends on local resources for agriculture, I think, it is a good approach and should be promoted,” G. V. Ramanjaneyulu, an agriculture expert at Telangana-based Centre for Sustainable Agriculture told IndiaSpend. “But for it to happen on a large scale, government support is needed--this budget did not have that.”

“The government has been aiming to double the farmers' income through factors like cost reduction, risk reduction, yield increase and pricing. You need institutional changes for this, but the government is completely silent on that,” he added.

The Pradhan Mantri Krishi Sinchayee Yojana (Prime Minister's irrigation scheme), critical as several parts of the country experience drought, saw an 18% rise in funding over the revised estimates of 2018-19. Yet, the Rs 3,500 crore allocated for 2019-20 is 12.5% lower than the Rs 4,000 crore budget estimate for 2018-19.

Tax benefit, lower GST on electric vehicles

To boost the sales of electric vehicles, considered essential to reduce air pollution for which Indian cities are now infamous, Sitharaman announced the government will now offer an income tax benefit of Rs 1.5 lakh on the interest on electric vehicle loans. The government will also lower the goods and services tax (GST) on these motor vehicles, she said.

"We have already moved the GST council to lower the GST rate on electric vehicles from 12% to 5%," Sitharaman said.

“The electric vehicle industry recorded a 100% growth in the 2018-19 fiscal year, and with these key measures announced today, we anticipate a brighter future ahead for the industry,” Sohinder Gill, chief executive officer of HERO Electric and the director-general of the Society of Manufacturers of Electric Vehicles (SMEV), told IndiaSpend.

After the interim budget was approved earlier this year, the government sanctioned Rs 10,000 crore to promote the use of electric vehicles through the second phase of the Faster Adoption and Manufacturing of Hybrid and Electric vehicles (FAME II) scheme, offering financial incentives and charging infrastructure.

The minister also announced a complete waiver on customs duty for lithium-ion cells--the primary component for manufacturing electric vehicles. “This will not only cut down the cost of car batteries but also help local manufacturers scale-up their businesses,” Gill said.

In the 2018-19, India sold 129,600 electric vehicles--1.3 times more than the number purchased in 2017-18. About 98% of these were two-wheelers and 2% were cars.

Still, it will take some time to raise the demand for electric vehicles in India, experts told IndiaSpend.

“[These incentives] will not lead to an overnight demand explosion in the electric car industry,” Shantanu Jaiswal, head of India research at Bloomberg New Energy Finance, told IndiaSpend.

“The additional tax break of Rs 150,000 is going back to the first phase of FAME policy, where the government gave an upfront equal to the same amount,” said Karthik Ganesan, research fellow, Council on Energy, Environment and Water (CEEW), a think-tank. “No doubt about it that it is a smarter way to deliver the subsidy. For early adopters, it is a good start but this alone cannot sustain the momentum.”

Start-ups

Giving impetus to the start-up ecosystem in the country, the finance minister announced several tax reliefs to boost investments and funding.

NDA launched the Startup India initiative in January 2016, and set up a corpus fund of Rs 10,000 crore.

As many as 19,351 start-ups have been recognised across the country as on June 24, 2019, government informed the Rajya Sabha (upper house of parliament) in a reply on June 28, 2019.

“Funds raised by start-ups will not require any kind of scrutiny from the Income Tax Department,” the finance minister said in her speech.

The government aims to resolve the issue of “angel tax” wherein start-ups and their investors will not be subjected to scrutiny of valuations of share premiums while filing their returns. The identity and source of investors funds will be established through e-verification.

The Central Board of Direct Taxes will make special administrative provisions for pending assessments of startups and redressal grievances, the finance minister said.

Sitharaman proposed to extend the period of exemption of capital gains from the sale of residential house for investment in start-ups up to March 31, 2021. Adding on to the incentives, the condition of minimum holding of 50% share capital or voting rights in the start-up will now be relaxed to 25%.

Start-ups in India raised a record $3.9 billion in the first six months of 2019, from venture capitalists, Livemint reported on June 30, 2019. This is a 44% increase in investments received by domestic startups compared to first half of 2018. Investments in 2019 are also significant compared to those received in the full year of 2016 ($4.2 billion) and 2017 ($4.3 billion), the report highlights.

Continued focus on physical infrastructure

Physical infrastructure--including rural roads, railways, waterways, metrorail and housing--was another key focus in the finance minister’s speech.

Sitharaman announced a plan to upgrade 125,000 km of rural roads under the Pradhan Mantri Gram Sadak Yojana (PMGSY) over the next five years with a planned expenditure of Rs 80,250 crore.

Between 2018-2030, the railways would need an investment of Rs 50 lakh crore, the finance minister said, adding that with annual capital outlays of Rs 1.5-1.6 lakh crore, “completing even sanctioned projects would take decades”. The minister proposed to use the public-private-partnership route to expedite progress.

Currently, 657 km of metro rail network is operational nationwide, Sitharaman said, adding that projects for a further 300 km were approved in 2018-19.

Under the Pradhan Mantri Awas Yojana - Gramin (PMAY-G), which aims to achieve “housing for all” by 2022, 15.4 million rural homes have been completed in the last five years, the finance minister said, adding that in the second phase, 19.5 million homes are proposed to be built by 2021-22.

Sitharaman allocated Rs 19,000 crore for PMAY-G, down 5% from Rs 19,900 crore in the revised estimates for 2018-19, and 10% from the Rs 21,000 crore budgeted for 2018-19.

Under PMAY - Urban (PMAY-U), over 8.1 million houses with an investment of Rs 4.83 lakh crore have been sanctioned, of which construction has begun for 4.7 million houses, the finance minister said. While 2.6 million houses have been completed, 2.4 million have been handed over to beneficiaries, she added.

Recapitalisation of public sector banks

One of the major announcements was the initiative to stabilise public sector banks (PSBs) with an infusion of Rs 70,000 crore for their recapitalisation. This, Sitharaman said, is “to boost credit for a strong impetus to the economy”.

In 2018-19, the government had pumped in Rs 1.6 lakh crore--the highest ever--for recapitalisation of PSBs.

Non-performing assets (NPAs) of commercial banks have reduced by over Rs 1 lakh crore over the last year, said Sitharaman, adding that there was a record recovery of over Rs 4 lakh crore on account of implementing the Indian Bankruptcy Code and other measures over the last four years. However, total NPAs for PSBs alone accounted for Rs 8.96 lakh crore in 2017-18, according to this Reserve Bank of India report from December 2018, revealing a lot of ground has yet to be covered in the move to stabilise banks.

“The government has smoothly carried out consolidation... At the same time, as many as six public sector banks (PSBs) have come out of the Prompt Corrective Action (PCA) framework,” Sitharaman said. “Provision coverage ratio [using profits to cover bad debts] is now at its highest in seven years, and domestic credit has grown at a rate of 13.8%.”

The Reserve Bank of India's prompt corrective action framework, imposes certain restrictions on lending operations of banks which are deemed financially unstable. Five of the six PSBs the finance minister mentioned, could emerge from the RBI’s PCA framework, only after the government had pumped in Rs 1.6 lakh crore in 2018-19, according to an Economic Times report from June 2019.

“Public sector banks have structural issues and one part of the problem is lack of capital, so allocating Rs 70,000 crore after infusing close to Rs 2 lakh crore in the past two years should help tide over the situation because these banks lack growth capital--the bigger question is will this be able to solve all the problems?” Sachchidanand Shukla, chief economist of the Mahindra Group, told IndiaSpend.

“It only addresses one part of the problem--in banking right now, you see a fear psychosis where senior bankers do not take any decisions because they are not free from government interference,” Shukla said

Without banking reform that encourages better corporate governance, NPAs will continue to be an issue, he added. “We keep having these issues every five years-- if you keep giving banks the capital time and again without institutional reform--it’s the same cycle again.

Health

The Centre’s allocation to the department of health and family welfare was the highest this year: Rs 62,659 crore was allocated--2.25% of total expenditure, and Rs 1,261 crore (2%) more than the allocation in the interim budget.

This figure, combined with the states’ health funding, comes to 1.4% of the gross domestic product (GDP) and is still much below the 2.5% of GDP goal set by the National Health Policy of 2017, and even the 2010 target of 2% of GDP, as IndiaSpend reported in April 2017.

Funds for the National Health Mission (NHM), India’s largest health programme on maternal and child health, rose 7.5% from Rs 30,683 crore in the revised estimates for 2018-19 to Rs 32,995 crore in 2019-20.

Meanwhile, allocations for Pradhan Mantri Ayushman Bharat Yojana, well known as Ayushman Bharat, that provides a cover of Rs 5 lakh to 100 million poor families, rose to Rs 6,400 crore, up from Rs 2,400 crore in the revised estimates for 2018-19.

Skill development

The Bharatiya Janata Party, in its 2019 manifesto, promised to introduce a National Policy for Reskilling and Upskilling for developing a “flexible and industry responsive workforce”, that can provide new opportunities and protect from technological shocks.

Allocations to the ministry of skill development and entrepreneurship (MSDE) rose 6% to Rs 2,989 crore from Rs 2,820 crore in the revised estimates of 2018-19. But this was still 12% lower than the Rs 3,400 crore allocated in 2018-19.

The ministry asked for Rs 7,696.5 crore for 2018-19, but was given 44% of that amount due to underutilisation of funds in the previous years, a March 2018 parliamentary committee report revealed, as IndiaSpend reported in January 2019.

Under the Pradhan Mantri Kaushal Vikas Yojana (PMKVY), the government aims to skill 10 million youth between 2016 and 2020 with an allocated sum of Rs 12,000 crore. An estimated 5.2 million candidates have been trained under PMKVY as on June 12, 2019, Mahendra Nath Pandey, minister for MSDE informed the Rajya Sabha (upper house of parliament) in his reply on June 28, 2019. That leaves the ministry 48% short of the target 18 months ahead of the deadline.

Education

Funding for school education has been consistently decreasing for the last seven years, as IndiaSpend reported in January 2019. The allocation for school education department as a percentage of the total budget reduced from 3.24% in 2012-13 to 2.03% in 2019-20.

Meanwhile, allocation for the higher education department has been stagnant between 1.29%-1.62% of the total budget for over a decade starting 2007-08.

Although India spends more than other South Asian countries on education, it lags in terms of quality. Only half of class V students can read a class II level text and more than 70% cannot do division, said the Annual Status of Education Report (ASER) 2018.

The school education system also faces a shortage of trained teachers and lack of infrastructure. 92,275 government schools at both elementary and secondary level have only one teacher to teach all the subjects and 25% of the schools in rural india do not have an electricity connection.

The BJP manifesto states special importance for improving the learning outcomes and for teacher training. Teacher training, which was an independent scheme till 2018, was merged along with Sarva Shiksha Abhiyan and Rashtriya Madhyamik Shiksha Abhiyan to form an umbrella scheme called Samagra Shiksha.

Samagra Shiksha, which makes up the National Education Mission, constituted a major chunk (64%) of the school education budget in the 2019-20 budget.

Rural jobs programme

The allocation to the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), at Rs 60,000 crore, is the highest ever. But, revised estimates for 2018-19 already show an expenditure of Rs 61,084 crore.

In 2014-15, 93% of approved compensation was paid to workers. This figure dropped to 77% in 2017-18 and 54% in 2018-19, as IndiaSpend reported in May 2018.

National rural drinking water programme

The finance minister allocated Rs 9,150 crore to the National Rural Drinking Water Programme (NRDWP)--up 70% from the revised estimate for 2018-19 (Rs 5,391 crore). The programme failed to achieve its targets, IndiaSpend reported in November 2018 based on an August 2018 report from the Comptroller & Auditor General of India, the government’s auditor.

The BJP’s 2019 manifesto proposed to launch the ‘Nal Se Jal’ (water from the tap) to ensure piped water connection to every household by 2024. To achieve Har Ghar Jal (water supply to all), the Jal Jeevan Mission will work with states, the finance minister said, adding that the mission will focus on local demand-supply management of water, creation of local infrastructure for rainwater harvesting, groundwater recharge and recycling household wastewater in agriculture.

Integrated child development scheme

Allocation to the ministry of women and child development rose 18%--from Rs 24,758 crore in the revised estimates for 2018-19 to Rs 29,164 crore in 2019-20.

Allocations to the Integrated Child Development Scheme (ICDS)--also rose. While the allocations to the ICDS umbrella that includes national nutrition mission, national creche services and others--rose 18% to Rs 27,584 crore, the funding for core ICDS rose 11% to Rs 19,834 crore.

Sanitation

India is on track to become free of open defecation by October 2, 2019--the 150th birth anniversary of Mahatma Gandhi--finance minister Sitharaman said in her speech, adding that the Swachh Bharat Mission will now focus on sustainable solid waste management in every village.

However, the scheme (including urban and rural components) saw a 25% drop in allocation--from Rs 16,978 crore in the revised estimates of 2018-19 to Rs 12,644 crore in 2019-20.

As many as 96 million toilets have been constructed since October 2014, more than 560,000 villages and 95% cities have declared themselves open defecation-free (ODF), Sitharaman said. However, 10% of villages that declared themselves ODF have not been verified, and only 20% have been verified at the second level, Swachh Bharat Abhiyan data show.

Almost a quarter (23%) of those who own a latrine defecated in the open, a figure that has remained unchanged since 2014, researchers found, as IndiaSpend reported on January 7, 2019. The Swachh Bharat campaign was largely focused on latrine construction and it did little to address attitudes to latrine pits, rooted in notions of purity and pollution, said Aashish Gupta, research fellow at RICE, PhD candidate at the University of Pennsylvania, and the lead author of the paper told IndiaSpend.

We welcome feedback. Please write to respond@indiaspend.org. We reserve the right to edit responses for language and grammar.

IndiaSpend Team