First things first. Union budget, which is a statement of government’s revenue and expenditure presented every year, should not be the considered as the single-most important document that can dictate how the nation’s economy progresses during the financial year. It is, indeed, one of the most important building blocks out of many (others include cabinet decisions, legislative actions and policy initiatives) that work in tandem with each other to pave the way for socio-economic progress. That said, it now becomes imperative to understand what the 2019 budget promises for India. The new Finance Minister, although a seasoned politician, had faced immense expectations from a range of sectors- farmers, rural economy, young entrepreneurs, MSMEs, corporate and individual taxpayers. It’s time to know what she has delivered in her maiden budget presentation.
First budget of Modi 2.0 has all the underpinnings of budgets presented by Mr. Arun Jaitley during his stint as the Finance Minister. He stressed on progressive taxation that taxes the rich more as against the poor. This is why he has hailed GST, which ended cascading effect and has lowered the prices of many goods and services, except luxury ones. Mrs. Sitharaman’s budget has kept the income tax slabs for individuals unchanged and the common man can continue remaining untaxed for yearly income upto Rs. 5 lakh. India Inc. can also find peace in the declaration that companies with turnover of upto Rs. 400 crore (erstwhile Rs. 250 crore) will now be under the reduced 25 percent tax bracket. What this translates into is savings for big corporates that can now spend more on research and expansion, thereby creating new jobs in the market. Since the taxation stance is progressive, those earning more than Rs. 2 crore will now have to pay an increased surcharge of 3 percent, while those with more than Rs. 5 crore income will pay 7 percent surcharge.
USISPF welcomes the reform-oriented Union Budget
“US-India Strategic Partnership Forum (USISPF) welcomes the reform- oriented, inclusive, and farsighted announcements by the Finance Minister in the first Union Budget by the Modi Government in their second term. The budget scores high on intent, targeting country’s priorities and objective of being the $ 3 trillion economy by the end of current year and $5 trillion by 2024.”, expressed Dr. Mukesh Aghi, after the Finance Minister – Nirmala Sitharaman released the new budget for the fiscal year 2019-20 in the assembly today.
There is a focused strategy on opening FDI in aviation, media (animation, AVGC) and insurance sectors along with intent of allowing 100% Foreign Direct Investment in insurance intermediaries. We also welcome the proposal for easing FDI norms in Single Brand Retail which the forum believes will provide a necessary push to this sector.
The announcement of the annual Global Investors shows the intent of Government to continue its engagements to encourage FDI and FII into the country as well as further improve its ease of doing rankings.
Government ‘s plan to create MRO (Manufacturing, Repair and Operate), PPP model under Indian Railways and adoption of PPP to unleash faster development and the delivery of passenger freight services are positive announcements.
Announcements on technology adoption across sectors, investment in agriculture infrastructure merging the NRI-Portfolio Investment Scheme Route with the Foreign Portfolio Investment Route are all positive indicators.
We thank the Finance Minister for increasing the revenue threshold for reduced corporate Tax rates of 25%. This will reduce the tax burden on many mid-sized companies thereby spurring expansion and job creation. Specific direct and indirect tax incentives to attract investments in the mega-manufacturing plants in sunrise and advanced technology is indeed a welcome step. Electric mobility incentives will also draw attention of players in this segment to invest in India.
Measures such as simplified GST returns, quarterly returns for taxpayers with INR 5Cr turnover, interchangeability of PAN and Aadhaar, pre-filing of tax returns, faceless assessments will further enhance India’s image from an ease of doing business perspective.
In the quest to making Indian economy more cashless, MDR charges levied by businesses on cashless payments have been completely waived off. This will encourage even such small business as grocery shops to switch to digital payments and hence, bring more transparency into the financial transactions of businesses and individuals. Despite multiple initiatives that include PM Awas Yojana for credit linked interest subsidy and Real Estate (Regulation and Development) Act for regulating errant builders, real estate market is yet to witness substantial activity. In order to achieve this, additional deduction of Rs. 1.5 lakh is provided to home buyers in the 2019 budget. The rental law, which critics have often complained is tilted towards tenants’ interests, will soon witness a change with a model modern tenancy law as promised by the Finance Minister. This shall boost the rent market, more so in urban places where migrants and small businesses create demand for rented spaces.
Another notable aspect of 2019 budget is its focus on real issues facing the farmers and rural areas of India. Connecting all rural homes to water has been a longstanding demand apart from sanitation, an issue already addressed under the effective Swachh Bharat Scheme. Har Ghar Jal Yojana proposed by the Finance Minister can be seen as the redressal. It envisages tapped water to all rural households by 2024. To serve twin purposes in one go, 80 livelihood business incubators and 20 technology incubators have been proposed to be set up in the current financial year. These incubators can promote tens of thousands of skilled rural youth as entrepreneurs in rural and agro-based industries.
As mentioned earlier, budget alone cannot emancipate the needy. The cabinet decision of Modi 2.0 whereby farmers can now avail pension benefits after 60 was a landmark policy initiative. Add to this the budget announcement of zero budget farming technique that is aimed at bringing down debt crisis in farming by encouraging sowing of own seeds and use of natural, not chemical fertilisers.
To further remove impediments in daily lives of common people, the budget announces national transport card that can be used to avail not only various modes of transport including railways and road but also to withdraw money from ATMs. Aadhaar and Pan will now be made interchangeable and one can use the former in the latter’s field while filing income tax returns. Women too have gained from the budget presented by a woman finance minister. Now all districts of the country will be covered under the women self-help group (SHG) interest subvention programme, with an additional benefit of Rs. 1 lakh loan to women members of SHG. An overdraft facility for woman SHG member from the Jan Dhan account has also been announced as a step towards meeting expenses of household at the time of hardships.
To further support the recuperating banking sector, infusion of Rs. 70,000 crore in public sector banks has been announced. This will improve liquidity in the market at a time when the IL&FS debt crisis has sucked liquidity and ailed the non-banking financial companies (NBFCs). A few stats are notable in this regard. The government’s efforts have helped PSBs to bring down their NPAs by Rs. 89,189 crore in March 2019 as compared to March 2018. Credit growth has also picked up with Y-o-Y growth of 13.23 percent in FY 2018-19 and 9.85 percent in FY2017-18. Capital infusion in PSBs and 6-month credit guarantee by government on purchase of assets of NBFCs will only further the advancements in NPA decline and credit growth. From relaxation in local sourcing norms in single brand retail, Rs. 3,000 pension for workers in informal sector and setting up of new foreign missions to easing angel tax for startups and creation of new payment platform for MSMEs, the budget can be called a multi-pronged strategy to lift the economy.
Lastly, an advice. Growth has slowed of late and not many jobs are being created. Industries including information technology, automobiles and telecom are under visible signs of stress. Time is ripe to create a new industry altogether and what can be better than the electric vehicle and renewable energy industry that can employ many and also further India’s pledge to a cleaner environment. Interest subsidy to buyers of electric vehicles has been announced but alongside, the government shall also tweak FAME-II policy to bring India on par with China with respect to EV revolution. The final takeaway from the 2019 budget remains government’s commitment to fiscal consolidation even when subdued private investment had triggered speculations of fiscal target breach. The Keynesian model of heightened government spending during a slowdown, which could have widened fiscal deficit, hasn’t found a place in Mrs. Sitharaman’s 2019 budget.
By Dr. Sunil Gupta