The new government’s first Budget did well to stick to the path of fiscal prudence by targeting the fiscal deficit at 3.3 per cent of GDP for 2019-20. The adherence to fiscal consolidation while providing the necessary boost to consumption, investment and special emphasis on agriculture and rural sector are steps in the right direction to take the economy to US $ 5 trillion mark.
The Government, through the Budget, has announced significant measures for upscaling investments to Rs 100 lakh crore over the five years in the infrastructure sector. It has also tried to rejuvenate the rural and urban economy, ease stress in the financial sector by addressing liquidity concerns, support start-ups in the country, among other initiatives, which are all expected to de-bottleneck the economy and create a healthy eco-system for revival of business sentiment. The Budget did well to bring all companies with turnover up to Rs 400 crores under the 25 per cent corporate tax rate from the erstwhile limit of 250 crores. This is a good beginning and is expected to provide a fillip to the corporate sector earnings, which could be ploughed back in investments.
Indian Industry welcomes the ease in tax compliance of personal income tax and the increase in threshold for personal tax for applicability of income tax. In addition, the budget presented an additional option of saving tax emerged in the form of a deduction of Rs 1.5 lakh on the purchase of electric vehicles. The applicability of income tax for incomes above 5 lakh and the increased exemptions for home loan servicing will aid consumption and create demand for affordable housing.
Attracting foreign investment is key to the Government’s flagship Make-in-India programme, which is aimed at creating jobs and reducing unemployment. India has set a target of increasing the share of manufacturing in the economy to 25% by 2020 from about 15% at present. It also plans to invest $1.4 trillion in infrastructure by 2024.
Indian industry is heartened by the fact that the budget has also announced host of measures to improve the availability of capital for investment purpose. Allowing 100 per cent FDI in insurance intermediaries is a good move as it will encourage global best practices in the Indian market. This along with the proposal to increase FDI limits in aviation, insurance and media will help improve the availability of foreign capital for these sectors. The easing of local sourcing norms for single brand retail is a big positive as well.
The Budget announced measures such as strengthening of logistics infrastructure, stepping up efforts in rural housing are likely to provide a significant impetus to investment spending and consumption which apart from boosting growth in the near to medium term, will also help generate jobs in the economy.
In order to incentivise the manufacture of electric vehicles, the budget sharply reduced the GST from 12 per cent to 5 per cent, reduced customs duty on certain components for electric vehicles besides providing tax breaks for consumers financing purchase of electric vehicles through car loans, which in our view is likely to provide a fillip to the movement towards a green mobility. Among the other indirect tax measures, the budget measure to adopt a new Return format for GST, fully automated GST refund, usage of single cash & credit ledger are moves which will help further streamline GST.
Another striking feature of the Budget is the setting up of Credit Guarantee Enhancement Corporation in 2019-20 with a focus on long-term bonds with specific focus on infrastructure sector. This carries the potential of further deepening the markets and enabling the infrastructure companies to access long-term funds. The allocation of Rs 70,000 crores for public sector banks recapitalisation is also welcome move and will help banks increase their lending to industry.
Indian Industry welcomes the announcement of host of measures which carry the potential of giving a boost to rural consumption demand by improving rural connectivity through investment in rural roads, rural housing, zero-budget farming and announcing 100 new clusters for developing skills in rural areas, besides enhancing rural livelihoods and jobs.
The real estate sector which has been witnessing slow growth over the past few years now has been emboldened by measures such as announcing additional deduction of Rs 1.5 lakhs for loan taken for purchase of affordable housing. The budget has strengthened economic empowerment of women by ensuring access to finance which enables rural women to take centerstage as contributors to the Indian economy.
Overall, the Budget reflects a pragmatic approach and displays a vision to drive the economy back on to the track of growth.
Column by Chandrajit Banerjee, Director General, CII