Budget With A Long-term Mission
The budget should be mainly seen as giving a direction to attaining the long-term goal of a high growth large economy.
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The budget was presented against the backdrop of demand slowdown, agrarian distress and liquidity constraints. Measures to revive demand that would push up growth were thus the key. The tax benefits outlined in the interim budget in Feb 2019 to alleviate the tax burden of low-income tax payers were continued along with enhanced interest deduction for affordable housing loan, taking total deduction of up to Rs 3.5 lakh. However for the high-income earners, the effective tax rate will now be almost 43% from the earlier 35.88%, an unprecedented jump, which could lead to compliance problems of high tax regimes.
The other themes of the budget were infrastructure focus – improving the last mile connectivity whether with more thrust on highways or an increased focus on waterways, aviation and railways. A blueprint for developing gas grids, water grids, i-ways, and regional airports is also proposed later this year. To further improve the competitiveness of Indian business, the budget also sets to streamline labour laws and introduce innovative instruments for land acquisition for building public infrastructure and affordable housing.
To revive investment, 1.95 crore new affordable houses will be built in rural areas, along with rural roads of 1.25 lakh kms under PMGSY. To strengthen Make In India, the budget has proposed changes in the customs duty and provide a greater level playing field to domestic industry, besides a big push to E-vehicles through higher incentives under FAME-II. The 2% interest subvention has been allowed for all GST registered MSMEs, on fresh or incremental loans, which is welcome.
To boost agro-rural industries, cluster based development will continue with focus on bamboo, honey and khadi clusters. The Budget has also called for more impetus to dairying through cooperatives and focus on oilseeds and fisheries. A New National Education Policy and emphasis on skills would spur long term job creation.
Also the government’s plan to develop 75000 skilled entrepreneurs in agro-rural industries is certainly going to improve rural earnings. The move entails setting up of 80 livelihood business incubators and 20 technology business incubators during 2019-20 under ASPIRE – A scheme for promotion of Innovation, Rural Industries and Entrepreneurship – to achieve higher rural employments.
To revitalize banks, the budget has proposed bank recapitalization of Rs 70,000 crore, as well bringing down the govt. stake in PSBs to 51%. To address the NBFC problem it has provided one-time partial guarantee to PSBs for their loss. There is also a willingness to examine infrastructure funding through development finance institutions (DFIs), which could enable long term financing. The budget has also proposed to borrow in external markets in external currencies, which will enable cheaper loans due to continued easy monetary policy and also help reduce crowding out in domestic markets.
In a bid to reduce carbon footprint, incentives have been given for electric vehicles and renewables. Establishment of mega scale business in advanced technology areas such as Semi-conductor Fabrication, Solar Photo Voltaic cells, Lithium storage batteries, etc have been envisaged.
Start-ups are also promised freedom from any angel tax and scrutiny in respect of valuations which definitely is encouraging.
Though corporate tax rate of 25% has been extended to companies with turnover up to of Rs 400 crore, beyond that firms would continue to pay almost 50% tax if we include cess, surcharge and dividend distribution tax. Although they form only 0.7% by number, they would continue to contribute the bulk of corporate tax kitty.
Overall the budget should be mainly seen as giving a direction to attaining the long-term goal of a high growth large economy.
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