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BUDGET 2019

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By VERENDRA KALRA

Nirmala Sitharaman’s maiden budget and the first budget of Modi Sarkar. 2, struck all the right chords by addressing the current pain points of the economy, yet at the same time maintaining fiscal rectitude. Hon’ble FM’s disclosure of a lower fiscal deficit of 3.3%, sends just the right signal to global investors that India retains its pole status as a stable and attractive economy, amongst the midst of the global slowdown. Union Budget 2019 has outlined several new reform initiatives like big privatization push, relaxation of norms for foreign portfolio investors, further liberalization of FDI/FPI policy, incentives for making GIFT as a global financial hub, and a paradigm shift in moving government borrowings to foreign markets. All these announcements bear the unmistakable stamp of a clear cut recognition within GOI that India’s humungous infrastructure dependent growth needs, as also outlined in the FM’s budget speech, cannot be met without resorting to substantial foreign funding. Laudable initiatives for fixing liquidity issues in the financial sector involve more than expected hikes in capital infusion for banks, which will get INR 70,000 crore (INR 700 billion), and NBFCs, which can offload some of its higher-rated assets to banks to obtain liquidity while the banks themselves have been given a partial credit guarantee for 10% of any losses for six months after these NBFC assets are taken over. To boost ‘Make in India’, GOI seeks to woo foreign majors with a package of direct/indirect tax benefits and beyond to build hi-tech facilities for semiconductor fabrication, solar photo-voltaic cells, computers and laptops, and electric battery charging infrastructure. If the red carpet works, this will be the first effort by India to directly seek benefit from the global shift in investment away from high-cost China due to the current US-China imbroglio. In absence of any big bang measures in this budget to create more jobs, an area on which the opposition has constantly targeted the Modi government, the Hon’ble FM has betted on her investment acceleration initiatives in job-creating sectors, to take care of this concern. Recognizing the need to unshackle the entrepreneur spirit of the Aam Admi, one area where the budget seeks to make a big difference is in the MSME sector, where loan up to INR 1 crore (INR 10 million) are targeted to be sanctioned in less than an hour, and a platform is to be created for speeding up payments due to MSME for supplies made by them. The startup ecosystem is being spruced up and the onus is now being shifted to the taxman who seek to challenge the share valuations, and are now to accept them as long as the investments are from e- verified sources. The angel tax issue controversy should hopefully now find a permanent burial. There are many announcements in the budget on utilizing through PPP mode, the huge and idle lying land parcels held by railways and government institutions. This should help enhance the level of activity in the real estate sector. Affordable housing gets even better, with interest deductions on properties costing up to INR 45 lac (INR 4.5 million) now going up to INR 3.5 lac (INR 0.35 million) a year. For the environment conscious, the budget has incentives for faster adoption of next generation technologies such as electric vehicles. On the direct tax front, relief measures include the extension of lower tax rate of 25% to Companies with a turnover of up to INR 400 crore (INR 4 billion), which though may cover 99.3% companies numerically, but the major export oriented companies would still have to pay higher tax and continue to remain uncompetitive, due to lowering of tax rates globally. Other tax measures announced include benefits on purchase of affordable housing, on purchase of electric vehicles etc. Individuals and firms who deposited cash during demonetization will get another chance to come clean. Faceless scrutiny may soon become a reality with E-assessments being fine-tuned for implementation. High net worth individuals may heave a sigh of relief that the budget makes no mention of inheritance tax. On the downside, there was no reduction in personal tax rates, though this was only expected, due to little leg room with the GOI. Instead, surcharge rates have been spiked for high income earners, a measure which has sharply divided public opinion on the merits thereof. The flip side to ease of filing returns through pre-filled tax return forms, with information sourced through multiple points such as banks, stock exchanges, mutual funds, etc., is the increasing compliance burden to report even lower transactions as well as the apprehension of the common citizen on the ever increasing GOI oversight on their personal information. On the indirect tax front, hike in import duties, besides increasing costs for many items, may be seen as akin to going back to the old era of promoting import substitution, rather than following the progressive means of seeking to bolster exports through enhancing industry competiveness. The amnesty scheme to resolve pre GST era disputes, by way of providing relief varying from 40% to 70% of tax due is a very welcome step. This will allow businesses to withdraw from litigating on legacy issues and focus on their core activities. India has been the bright spot in global economy, growing faster than all major economies in the last few years. In the new term, especially in the back drop of the slowing growth, and the ambitious target of taking the economy very soon to the 5 trillion USD level, the expectation from the Government was that it will propel the economy by unshackling it from the barriers holding it back. In this regard, the FM has delivered a steady budget. The Budget is growth oriented in the sense that it bets more on investments than consumption to anchor it, spurs private investment, keeps government’s fiscal consolidation track record intact and uses a variety of methods to bolster the investment cycle led by government spending. Critics may doubt that the budget is long on announcements but short on details. That the proof of the pudding lies in eating it, need not be emphasized. Yet, as was aptly put across by the Hon’ble FM during her speech “यक़ीन हो तो कोई रास्ता निकलता है, हवा की ओट भी लेकर चराग जलता है”, nothing more needs to be said.

(CA Verendra Kalra Chairman- Uttarakhand Chapter PHD Chamber of Commerce and Industry)