Finance minister Nirmala Sitharaman has presented a focused, bold, pragmatic and growth-oriented Budget which has attempted a credible balancing act between scripting a blueprint for sustaining the growth momentum in the Indian economy on the one hand, while taking up issues of social inclusion on the other.
Being embedded in the three major themes — aspirational India, economic development and a caring society — the Budget reflects the government’s commitment towards satisfying the aspirations of the common man even while striving to revive growth in the economy. Moreover, it contains far-reaching and comprehensive provisions which are anchored in the social and macroeconomic reality of the country. No doubt, it will find resonance among the hopes and aspirations of key stakeholders in the economy.
In fact, the finance minister has been proactively making bold Budget-like announcements in the last few months to stimulate investment and promote inclusive growth. Examples include reduction of the corporate tax rate, removal of enhanced surcharge on FPIs, provision of additional depreciation to the automotive industry, bank recapitalisation, a package for housing and exports, among others. The Budget marks an ongoing process than a one-off approach towards taking our development journey forward.
The Budget has adopted just the right approach for catalysing growth with social inclusion. It has provisions which cover almost all sections of society. The finance minister has taken path-breaking measures towards improving agricultural productivity and doubling farmers’ income. Besides, developing human capital by providing a fillip to health, education and skills, introducing mega tax cuts for the lower and middle class, making bold announcements on infrastructure and affordable housing, providing an impetus to domestic industry, addressing the concerns of SMEs and startups, simplifying taxation, encouraging foreign investors and supporting futuristic technologies, among others, are versatile moves. In this way, the Budget has ticked all the right boxes, which would propel the economy to the path of inclusive growth.
The finance minister made rural India the centrepiece of her second Budget’s narrative. The 16 action points enunciated in the Budget are breakthrough ideas, and if implemented they would go a long way to transform the rural economy. The move to encourage states to adopt model acts will pave the way for adoption of much needed agri reforms, leading to better returns for farmers as well as enhanced private sector engagement with agriculture. Similarly, the introduction of Kisan Rail, that will build a seamless national cold supply chain for perishables, is another landmark scheme. Besides, measures like Krishi Uddan, integrating the financing on Negotiable Warehousing Receipts (e-NWR) with e-nam, promoting horticulture, fish farmer producer organisations, among others, are to make farming more remunerative and enhance economic prosperity in the rural heartland.
The finance minister’s move to restructure income-tax slabs for individual taxpayers who forego deductions and exemptions is noteworthy. Besides, enhancing the basic limit of exemption on personal tax rates for the salaried middle class, with no income tax up to `5 lakhs, is in line with industry’s suggestion and would support consumption through an increase in disposable income.
The Budget has given a bold thrust to boost manufacturing. The fillip given to individual sectors like electronics and technical textiles, in which India has a cost advantage, is noteworthy. For MSMEs, the Budget has tried to address finance and marketing problems. The national logistics policy will help in enhancing the competitiveness of MSMEs.
The proposal to give the option of a concessional corporate tax rate of 15 per cent to power generating companies would encourage investment in electricity generation. On the external front, reviewing the Rules of Origin under various FTAs will address the issue of Indian industry getting impacted due to imports getting routed through FTA countries.
The Budget has taken major strides towards building a climate of business confidence among entrepreneurs. Decriminalisation of business laws, by enshrining the “taxpayers’ charter” in the statute, on the lines of what is being done for the Companies Act, will be well received. Similarly, the “Vivad se Vishwas” scheme to resolve pending income-tax cases and introduction of faceless appeals are concrete steps to build trust between the government and industry. The Investment Clearance Cell to facilitate clearances at the Central and state levels, will also improve the ease of doing business.
The government’s decision to abolish dividend distribution tax (DDT) and return to the classical tax system, where income-tax is levied separately on company income and on dividends received by shareholders, is in line with CII’s position and would reduce the cost of equity capital in the country. The move to allow deduction for the dividend received by a holding company from its subsidiary would also remove the cascading effect of DDT.
The government has done well to retain its focus on infrastructure to fulfil its development aspirations. The follow-up on the National Investment Pipeline, with the 6,500 projects across sectors like housing, safe drinking water, access to clean and affordable energy, healthcare for all, etc, as well as the focus on the transport sector and railways and involvement of youth in construction, operation and maintenance of infrastructure would be an important lever to generate growth with equity. The `22,000-crore equity support to IIFCL and NIIF to create a funding pipeline of `103,000 lakh crores, and granting 100 per cent exemption to interest, dividend and capital gains income of Sovereign Wealth Funds in respect of investment made in infrastructure are very important initiatives for funding infrastructure creation. The proposal to extend a tax holiday by a year for the developers of affordable housing project is also commendable.
The Budget also sends a strong message towards the continuity of fiscal prudence despite the economy being buffeted by domestic and global challenges. The fiscal deviation in this year’s Budget is on expected lines and it is heartening to note the deficit will be used to finance capital expenditure.
Overall, the Budget reflects a pragmatic approach and displays a vision to drive the economy back to the path of inclusive growth.
Note: This article was first published on The Asian Age, 2 February 2020.