Finance Minister Nirmala Sitharaman (File Photo)
The maiden growth-oriented budget of Finance Minister Nirmala Sitharaman was low on rhetoric and populism and high on fiscal prudence.
Sitharaman very effectively married financial discipline with measures like giving consumption and investment a boost via the Rs 70,000-crore recapitalisation package for banks, additional tax deduction of Rs 1.5 lakh per annum under Section 24 (b) of the Income-Tax Act for affordable homes of up to Rs 45 lakh, taking the total tax deduction of interest on home loans to a solid Rs 3.5 lakh in this category. Other important measures included tax deductions of Rs 1.5 lakh on loans taken for Electric Vehicles (EVs).
India's onward march towards becoming a $5-trillion superpower was cemented, thanks to exemplary reforms by Prime Minister Narendra Modi in his first term.
Budget 2019 carries that philosophy forward, in no uncertain terms.
Between 2014 and 2019, nominal GDP growth largely averaged at well over 11 per cent per annum, barring a few stray quarters when it hit a soft patch, with that number coming in at just about 10 per cent or thereabouts, on the back of persistently low inflation.
With inflation likely to be in the region of 3.5-4 per cent in the medium term and assuming real GDP growth averages at about 8 per cent or more, reaching or even outperforming the aspirational $5-trillion mark is very much in the realm of a realistic goal that can easily be achieved, thanks to a strong foundation laid by ‘Modinomics’ in the last five years.
The moot question indeed is if achieving a real GDP growth of 8 per cent is a tall order?
That is a question that has triggered a massive row of late, but suffice to say that fixed asset investment has grown by almost 200 basis points (bps) in the last two years to about 10 per cent, from 8.3 per cent, which is a great sign.
Investment-to-GDP ratio, which is currently at around 32 per cent, could easily move to the 38-40 per cent range to drive the real GDP growth to well beyond 8 per cent in the rupee terms, given the massive infrastructure push entailing an investment of Rs 100 lakh crore over the next five years, alone! Of that, railways will get Rs 50 lakh crore, through Special Purpose Vehicles (SPVs), with an emphasis on Public Private Partnership (PPP) and Rapid Regional Transport (RRT) systems.
A few budgetary highlights from a fiscal and foreign investment standpoint that are summed up below also show how among other things, ‘Modinomics’ is not xenophobic, and is inclusivity backed by financial sector reforms.
• Net market borrowing for 2019-20 fiscal set at Rs 7.03 lakh crore, with targetted fiscal deficit revised to 3.3 per cent from 3.4 per cent and another Rs 1.05 lakh crore to be raised via asset sales, primarily PSU disinvestment, including the sale of Air India, which is back on the radar.
• Customs duty on gold increased to 12.5 per cent from 10 per cent, with excise duty of Re 1 per litre each on diesel and gasoline, additionally.
• Government proposes Rs 70,000 crore of capital support to state-run banks versus via recapitalisation bonds, among other measures.
• Seeks to bring Non-Banking Finance Companies (NBFCs) under RBI rules and also allow the Central bank to regulate Housing Finance Companies (HFCs).
• Credit Guarantee Enhancement Corporation to be set up in 2019-20 and an action plan to be commissioned for deepening the long term bond market, to raise resources for the ambitious infra spending by the government in the next few years.
• Tax proposals: 25 per cent tax rate for companies with revenues of up to Rs 400 crore per year and lowering GST rate on electric vehicles from 12 per cent to 5 per cent.
• Direct tax revenue growth targetted at 7.5 per cent and indirect tax collections at 15 per cent.
• Blueprint for power grids, gas grids, I-ways and airports to ensure power and gas connectivity to all by 2022.
• Tax on lower slabs left unchanged, but those on super rich hiked by an additional 3-7 per cent and, rightfully so, in line with global best practices. Effective tax rate including surcharge for annual incomes of between Rs 2-5 crore to go up from 35.88 per cent to 39 per cent and for incomes above Rs 5 crore, from 35.88 per cent, to 42.74 per cent.
• Government will allow 100 per cent FDI in insurance intermediaries; Rules for investment in media, animation and aviation to be eased. FPI and NRI investment routes to be merged.
• Local sourcing norms for FDI in Single Brand Retail to be eased.
• Limits on foreign portfolio investment to be raised from 24 per cent, to be on par with sectoral caps as prevalent under foreign direct investment norms.
• Reduce Net Owned Funds' requirement from Rs 5,000 crore to Rs 1,000 crore in Indian Financial System Code (IFSC), to promote on-sharing of international insurance transactions by foreign reinsurers.
• Separate Nation Pension System (NPS) trust from Pension Fund Regulatory and Development Authority (PFRDA), to prevent conflict of interest.
• SEBI to ensure and work towards minimum 35 per cent public shareholding of all listed companies.
Speaking of the welfare-oriented ethos of the Budget, with ‘Har Ghar Jal’ by 2024, having already been put into mission mode, by identifying 1592 blocks in 256 districts under the ‘Jal Shakti Abhiyan’, the Modi government has once again walked the talk when it comes to improving not only the Ease of Doing Business (EODB) but also enhancing the EOL (Ease of Living) for those who have long been excluded by erstwhile, inept Congress-led establishments, from the fruits of development and basic amenities.
Again, ‘Gaon Gareeb Kisan’ reinforces the holistic, farm-centric approach of the Narendra Modi dispensation, with doubling of farm incomes by 2022 being the focus.
‘Pradhan Mantri Matsya Sampada Yojana’ for establishing a fisheries management framework, setting up dairy co-operatives to improve milk processing and production, setting up 10,000 Farmer Producer Organisations (FPOs) for improving overall economies of scale in the rural sector, setting 100 clusters to bring 50,000 artisans engaged in traditional crafts, especially in rural areas, into the economic value chain, setting up 80 Livelihood Business Incubators (LBIs), 20 Technology Business Incubators (TBIs), over Rs 60,000 crore allocation towards MNREGA, over Rs 27,000 crore for Integrated Child Development Services (ICDS), over Rs 12,000 crore for the "Swachh Bharat" mission, Rs 75,000 crore for ‘PM Kisan Yojana’, allocation of over Rs 80,000 crore to upgrade 1.25 lakh kilometres of rural roads under the ‘Pradhan Mantri Gram Sadak Yojana’, building 1.95 crore affordable homes by 2022, with 81 lakh houses to be built in the next year itself, extending Bharat-Net to every gram panchayat, and last but not the least, Zero Budget Farming are the pivots around which ‘Modinomics’ seeks to give wings to the concept of ‘Antyodaya’,that is all about bringing development to the door step of the last person standing.
E-verification, no questions to be raised on valuation of shares, no income tax scrutiny on funds raised by startups and a body that will now quickly resolve earlier disputes pertaining to angel tax are some of the measures that will not only boost ‘Make in India’, but also make tax compliance much easier, without an increase in tax rates, which is not a mean achievement.
That “Sabka Saath, Sabka Vikas, Sabka Vishwas”, is not merely a platitude but something that the Narendra Modi-led government religiously believes in. This is amply evident from the tremendous strides that Union Budget 2019 has undertaken to empower women in every sense of the word.
The decisions to extend the interest subvention scheme covering women Self Help Groups (SHGs) to all districts, allowing voluntary groups to raise capital via a ‘Social Exchange’, providing loan up to Rs 1 lakh per annum to atleast one woman in a SHG via the MUDRA scheme, extending overdraft facilities to the tune of Rs 5,000 to verified women customers in SHGs, having ‘Jan Dhan’ bank accounts have made the entire concept of "Naari Tu Narayani" truly meaningful as it would help unleash the entrepreneurial spirit of our women folk.
What makes Budget 2019 different is the fact that it has laid down a 10-year roadmap both in terms of forward looking intent and the modus-operandi in terms of execution.
While naysayers have made misguided accusations of the Budget being thin on details about resource mobilisation, they need to be reminded that strictly speaking, a Budget document has to spell out the government's larger vision. True, the devil is always in the details, but even on that count, the Budget scores handsomely, as the broad map in terms of say giving a mega infrastructure push by working towards ‘One Nation, One Grid’, much in the nature of ‘One Nation, One Tax’, has been clearly crystallised.
Also, no one can doubt the execution finesse of the Modi government. If the past track record of last five years is anything to go by, be it implementing GST in a country of 130 crore people, by subsuming seventeen odd taxes and over a dozen cesses and surcharges, or constructing over nine crore toilets under the ‘Swachh Bharat’ mission, or for that matter resolving over Rs 4 lakh crore of stressed assets via the Insolvency and Bankruptcy Code (IBC), time and again, the Modi government has more than risen to the challenge and come out trumps.
Deepening the bond market and relaxation of norms for FIIs/FPIs for debt market investments are just some of the many options available from the array of options at the government's disposal, to give shape to its ambitious infrastructure and social sector spending initiatives. Hence paucity of funds is certainly not an issue as is being wrongly suggested by vested interests.
Again, the decision to initially replace 20 and eventually 44 archaic labour laws will unlock huge amount of capital that is today lying locked up in unproductive assets, that are hindering both the ability to fire inefficiency and make fresh hirings to reward efficiency.
Undoubtedly, the ball has been set rolling on labour market reforms and the resultant improvement in Incremental Capital Output Ratio (ICOR) to say 2, from the historical levels of 4, alone can add a few percentage points to GDP, other things remaining constant.
Hence, those who falsely accuse the Budget of only taking baby steps, without being "Big Bang" in terms of unleashing radical reforms, have clearly missed the plot. Inclusive, well rounded, ambitious, middle class friendly, pro women, rural centric and above all, a growth-oriented Budget that is not shy to set the bar high, with a clear roadmap to give wings to Modi's vision, is the defining undertone of Budget 2019.
It would suffice to conclude by saying that giving 2 per cent interest subvention on incremental loans for all GST registered MSMEs, providing access to the much-in-demand Trade Receivables electronic Discount Scheme (TReDS) platform to all NBFCs, decision to provide a one-time six months' partial credit guarantee for the first 10 per cent loss to all PSBs up to an overall limit of Rs 1 lakh crore for purchasing financially sound, high rated, pooled assets of NBFCs, pension benefits to 3 crore retail traders and shopkeepers with an annual turnover not exceeding Rs 1.5 crore under the ‘Pradhan Matri Karam Yogi Maandhan Yojana’, are some of the steps announced by Sitharaman that caught the attention of all and sundry, as they showcased the new FM's bona fide intent in revving up the Indian economy from the $3-trillion mark that it is set to breach this year, into becoming a $5-trillion behemoth by 2024-25, or maybe earlier!
(Sanju Verma is the chief spokesperson and co-convener of the intellectual cell of BJP Mumbai. The views expressed are personal)