From economy to climate change, IIM and ISB students find Budget 2020 woefully wanting

Image: REUTERS/Anushree Fadnavis
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The Narendra Modi government’s budget for financial year 2021 was critical, given the slowdown in the Indian economy.

In her speech to parliament on Feb. 1, finance minister Nirmala Sitharaman offered income tax doles, increased spending on infrastructure, and proposed a 16-point action plan for the rural sector.

The measures, however, failed to cheer the country’s youth, who face an acute unemployment crisis, which could only worsen if the economy does not pick up soon.

“Relaxation of fiscal deficit targets is a welcome step. Increased insurance cover for depositors is also a step in the right direction,” Rajat Saha from Indian Institute of Management-Ahmedabad’s 2021 batch told Quartz. “But I am yet to see concrete plans to boost consumption by the masses. Further, selling the kitchen silver to make up for revenue shortfall isn’t the way to go. A damp squib, for a budget speech that long.”

As per tradition, Quartz invited graduate students from the Indian Institutes of Management in Shillong (IIM-S), Ahmedabad (IIM-A) and Calcutta (IIM-C), the Indian School of Business (ISB), among other schools, to share their reactions to the budget.

Their responses have been edited for length, grammar, and clarity:

GDP and income tax

Budget speech: We have estimated nominal GDP growth for year 2020-21 at 10%.

Ritesh Singh, IIM-A: The government’s calculations have been premised on the notion that India could potentially achieve nominal growth rates, that is without factoring in rising prices, of 10%. The keyword here, however, is nominal. While 10% might seem impressive, it won’t matter all that much if inflation keeps up with current trends. For instance, if prices increase 6% and economic activity remains stagnant it can only mean one thing: the country hasn’t managed to produce more goods and services this year. And yet, you will still see nominal growth of 6% because everything is pricier now. Hence, one must take this number with a pinch of pepper (salt is too common to mention).

Speech: In order to provide significant relief to individual taxpayers and to simplify the income-tax law, I propose to bring a new and simplified personal income tax regime wherein income tax rates will be significantly reduced for individual taxpayers who forgo certain deductions and exemptions.

Those earning up to Rs5,00,000 shall not pay any tax either in the old regime or in the new regime.

The proposed tax structure will provide significant relief to taxpayers and more so to those in the middle class.

Pragti Rathore, IIM-C: The option of choosing between the new and the old tax regime is expected to create more confusion. The government’s claim of projected gains seems to be exaggerated. If all deductions and exemptions become taxable, then taxable income will go up and hence the tax burden will increase under the new regime. This is likely to have a bad effect on the already slowing economy, as a lower personal income tax regime is considered to be the most important factor to revive consumption and demand in the economy.

Rahul Gupta, IIM-A: The primary objective of incorporating exemptions and deductions in the direct tax structure is to push Indians to save for the future so that the overall burden on the government is contained. In the new tax structure, there is hardly any stimulus left by the government to promote the saving culture. That, too, when the gross domestic savings rate is at its lowest since 2004. The current structure will create more confusion for financial illiterates.

Keshav Khanna, Graduate Institute of International and Development Studies (GIID), Geneva: The heralding of income tax reform as revolutionary is a little misguided at best. Not only because of the small fragment of the Indian populace that pays direct income tax (about 80 million in 2018-19) but also because agricultural incomes are not subject to income taxes. This means that only a sliver of the population will benefit from this simplification.

The new tax regime removes important exemptions like rent payment, provident funds, and medical insurance. In this new tax regime devoid of most deductions, it is not clear if taxpayers will get more money in their pockets.

Speech: We estimate a fiscal deficit of 3.8% in RE 2019-20 and 3.5% for BE 2020-21.

Shreyank Jamar, ISB: One silver lining was that the finance minister has now pegged the fiscal deficit target to 3.8%, compared with the previous target of 3.3%. This will give the government some legroom to spend. I feel that being a growing economy, which is woefully lacking in critical infrastructure, India should invest its way to growth, overlooking fiscal deficit for a while.


Speech: Hon’ble Speaker, Sir, in his Independence Day speech 2019, Prime Minister had highlighted that Rs100 lakh crore would be invested on infrastructure over the next 5 years. As a follow up measure, I had launched the National Infrastructure Pipeline on Dec. 31, 2019 of Rs103 lakh crore. It consists of more than 6,500 projects across sectors and are classified as per their size and stage of development.

Government’s commitment for investment in infrastructure was reiterated when Rs103 lakh crore National Infrastructure Pipeline projects were announced. I would also like to inform that about Rs22,000 crore has already been provided, as support to Infrastructure Pipeline.

Jamar, ISB:  India is stuck in a catch-22 situation where lack of jobs is leading to a lack of growth, which is further reducing the number of jobs. Infra spending is the only way to break this vicious circle. The finance minister has set some ambitious targets for infra spending, I sincerely hope the government is able to walk the talk.

Investments and divestments

Speech: A good part of the borrowings for the financial year 2020-21 would go towards Capital expenditure of the Government that has been scaled up by more than 21%. As, I had previously mentioned another about Rs22,000 crore have been allocated for equity to fund certain specified infrastructure finance companies, who would leverage it manifold and provide much needed long-term finance to Infrastructure sector.

Rathore, IIM-C: The 21% rise in government capex, mostly on infrastructure, is promising. But the government has to keep in mind that enormous preliminary work is required before such a step. Financing capex through non-tax revenue than through borrowing is also impressive as it will help reduce the market interest rates.

Speech: Currently, companies are required to pay Dividend Distribution Tax (DDT) on the dividend paid to its shareholders at the rate of 15% plus applicable surcharge and cess in addition to the tax payable by the company on its profits.

In order to increase the attractiveness of the Indian Equity Market and to provide relief to a large class of investors, I propose to remove the DDT and adopt the classical system of dividend taxation under which the companies would not be required to pay DDT. The dividend shall be taxed only in the hands of the recipients at their applicable rate.

Niveshak, the finance and investment Club at IIM Shillong: The DDT abolition in the hands of corporates and mutual funds which goes in line with the lowering of corporate tax last year, which up till now has extensively been criticised for efforts being directed in the wrong direction.

Speech: (It) is proposed to sell the balance holding of Government of India IDBI Bank to private, retail and institutional investors through the stock exchange.

..Listing of companies on stock exchanges discipline a company and provides access to financial markets and unlocks its value. It also gives opportunity for retail investors to participate in the wealth so created. The government now proposes to sell a part of its holding in LIC by way of Initial Public Offer (IPO)

Niveshak: A slew of announcements about divestment and IPO of LIC, although late from the standpoint of loss of market share of these enterprises, is still necessary to keep up the government expenditure.

Abhijay Thacker, IIM-A: Sale of public assets in a fire sale manner, particularly when the previous fiscal’s original target of Rs1 lakh crore was not reached (and the future one of Rs2.1 lakh crore now depends on lumpy sales such as Air India, BSNL’s land assets, IDBI Bank, and LIC) is fraught with the risk of accepting lowball valuations in the rush to offload assets, thereby snatching valuable assets and leaving thousands of crores of public money on the table.


Speech: Our government is committed to the goal of doubling farmers’ incomes by 2022.

Prosperity to farmers can be ensured by making farming competitive. For this, farm markets need to be liberalised. Distortions in farm and livestock markets need to be removed. Purchase of farm produce, logistics and agri-services need copious investments. Substantial support and hand-holding of farm-based activities such as livestock, apiary, and fisheries need to be provided for. Farmers desire integrated solutions covering storage, financing, processing and marketing.

Kranthi Nanduri, IIM-Calcutta: Rural non-farm employment generation is key to reviving the consumption slowdown and economic growth. It is surprising that the word “rural non-farm” does not appear even once in the entire 2020-21 budget speech document.

The section on “Agriculture, Irrigation, and Rural Development” does not pay adequate attention to rural non-farm development. Liberalising farm markets without generation of supplementary incomes through rural non-farm employment will only worsen the farmers’ situation given the current agrarian distress in most parts of the country. The fall in the allocations to MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) in 2020-21 from the revised estimates for 2019-20 by 13% only adds to the disappointment in the light of the fact that net addition to non-manufacturing employment during 2011-12 to 2017-18 is only 3.6 million, a drastic fall from 29.6 million during 2004-05 to 2011-12. The non-manufacturing sector consists of labour-intensive sectors such as construction and mining.

Khanna, GIID: Reducing the funding for a DBT (direct benefit transfer) scheme, while also not increasing the minimum support price for crops, fails to address the intense rural distress the economy faces. There exists a pressing need to put more money in the hands of the Indian farmer. This budget doesn’t do that.

More importantly, export barriers on farm produce need to be removed. Production surplus distorts the market immensely by lowering prices and thus incomes of farmers.

Speech: As a backward linkage, a Village Storage scheme is proposed to be run by the SHGs. This will provide farmers a good holding capacity and reduce their logistics cost. Women, SHGs shall regain their position as ”Dhaanya Lakshmi”.

Sanjana Shroff, IIM-C: While the budget proposed the Village Storage scheme to be run by SHG that aims at providing farmers with a good holding capacity and provides the women of our country an opportunity to regain their position as Dhaanya Lakshmi, it still seems to miss the important problem of supply chain. The unavailability of produce in cities/states at times of shortage or crisis is still not a focus area. Also, the problems in terms of irrigation infrastructure were a miss.

Khanna, GIID: It is imperative that we speak about the rapid feminisation of Indian agriculture. Wherein women are increasingly the sole operators of farm holdings in rural India. However, due to the inherent patriarchy of Indian society, they aren’t seen as landowners and therefore not provided adequate protection and rights by the state.


Speech: In order to provide quality education to students of deprived sections of the society as well as those who do not have access to higher education, it is proposed to start degree level full-fledged online education programme. This shall be offered only by institutions who are ranked within top 100 in the National Institutional Ranking framework. Initially, only a few such institutions would be asked to offer such programmes.

Singh, IIM-A: On the educational front, really impressed with the initiative on the online platform with the collaboration of Top 100 institutions to provide education to the underprivileged. But still, the question is how will they make it reach those who are at the bottom of the pyramid, who can’t afford the digital devices. Let’s see if they have really thought through and can pull it off on the ground.

India should be a preferred destination for higher education. Hence, under its “Study in India” programme, lnd-SAT is proposed to be held in Asian and African countries. It shall be used for benchmarking foreign candidates who receive scholarships for studying in Indian higher education centres.

Sridhar P L, ISB: To improve access to higher education, the proposal to offer full-fledged online degree programmes through elite educational institutions is interesting. However, its potential impact needs to be assessed since there are comparable offerings in terms of MOOCs (massive open online courses) available, and the industry’s recognition of this full-fledged online degree programme needs to be seen.


Speech: In large cities having population above one million, clean air is a matter of concern. The government proposes to encourage such States that are formulating and implementing plans for ensuring cleaner air in cities above one million. Parameters for the incentives would be notified by the Ministry of Environment, Forests and Climate change. Allocation for this purpose is Rs4,400 crore for 2020-21.

Total allocation for Swachh Bharat Mission is about Rs12,300 crore in 2020-21.

Faize, IIM-C: There is an urgent need for strong collaborative synergy between the states and the central government on issues such as curbing pollution and taking proactive measures, rather than reactive measures that slipped India’s rank from 14th (2017) to the 5th (2018) in Global Climate Risk Index 2020.

The reduction in allocation for Swachh Bharat Mission may hit the emerging clean-tech and waste management industry.