Impact of Budget 2020 on Various Sectors

How Budget 2020 Would Impact Various Sectors in India?

Introduction

In this article, we will analyse the impact of Budget 2020 on various sectors in India, will the budget raise the investors’ spirit and boost growth amidst economic slowdown?

Impact of Budget 2020 on Various Sectors

Lets discuss how the budget will affect different sectors, which sector is happy and which sector has been disappointed with the Budget 2020.

1. Insurance

• Insurance sector will be the worst hit due to the introduction of new tax regime.
• Many taxpayers buy life insurance products to get tax benefit.
• However, under the new tax regime, taxpayer will have to forgo the deductions under 80C.
• If majority taxpayers adopt the new regime, the premiums of insurance companies will get hampered and this will have a negative impact on the insurance sector.
• Though, taxpayer can switch tax regimes every year, it is unclear for how many years this will continue.
• Companies like ICICI Prudential Life, SBI Life Insurance will be impacted more.

2. Banking & NBFCs

• Government has increased insurance cover on bank deposits from Rs.1 Lakh to Rs.5 Lakhs.
• Banks will pay more insurance premium to Deposit Insurance and Credit Guarantee Corporation (DICGC), wholly owned subsidiary of RBI, provides insurance for bank deposits such as savings, current, fixed and recurring.
• All commercial banks (public, private & rural) including branches of foreign banks functioning in India and cooperative banks are insured by the DICGC. DICGC insures principal as well as interest amount.
• In case of bank failure or liquidation, depositors get the insured amount or total amount deposited including interests whichever is lower.                                              
• Increased insurance cover will boost in banks and depositors would now keep large amounts of money in banks. So, banks would now be viewed as safer options to park money. Even though the profitability of banks would be hurt, this would definitely give security and comfort to the depositors.
• Extension of credit guarantee scheme will help the NBFCs to some extent.

3. Infrastructure

• This year’s budget has given highest allocation to the infrastructure sector.
• Accelerated development of highways and monetisation of 12 lots of highways of over 6000 kms will be done.
• Four station redevelopment project and operation of 150 passenger trains and electrification of 27,000 km of tracks is also proposed under budget.
• 100 new airports will be launched under Udaan Scheme.
• Expansion of National Grid Gas from 16,200 kms to 27,000 kms will benefit gas distribution companies like Petronet LNG, Mahanagar Gas, Indraprastha Gas
• New Power generation companies will have to pay only 15% corporate tax, which should help meet growing power needs.
• National Logistics policy to be launched soon will benefit logistics companies.
• National Infrastructure Pipeline consisting of more than 6,500 projects has already been launched.
• Overall, this sector will benefit cement, logistics, gas distribution and other infrastructure companies.

4. IT

• The major impact on IT companies will be of removal of Dividend Distribution Tax (DDT).
• The removal of DDT would benefit companies in the long run as the quantum of profits available for distribution would be significantly higher.
• This will increase the attractiveness on Indian Equity Market and will help boost the economy.
• Also, there has been an allocation of Rs.8,000 Cr for a National Mission on Quantum Computing and Technology. Internet connectivity to 100,000+ Gram Panchayats.

5. FMCG

• Another major beneficiary of removal of DDT are the FMCG companies like HUL, ITC, Nestle etc.
• The tax paid by these companies will reduce due to abolition of DDT and this will increase the profitability.
• New Income tax regime should increase the disposable income in the hands of consumer which should help FMCG sector in long term

6. Real Estate

• In the last budget, announcement was made to avail additional deduction of up to Rs.1.5 Lakh for interest paid on loans. This was for low cost homes.
• Deduction was allowed on loans sanctioned on or before 31^st March 2020.
• A proposal has been made to extend the date for the same to ensure that more people avail the benefit