Charting A Roadmap For Vision 2030
The challenge for the government will be time-bound implementation of schemes without upsetting the fiscal maths
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The interim Union Budget 2019, as most of us had expected, is a feel good one – with something positive for all core constituencies. It is a forward looking Budget, aiming to set a platform for sustainable and inclusive growth, as we stride towards becoming a $5-trillion economy. It seeks to provide relief to every section under stress while avoiding any major negative signals for India Inc. I would term this a pragmatic budget — injecting the necessary dose of populism in an election year without straying far from fiscal discipline. It is comforting to see that the government has not gone overboard while declaring fresh expenditures as it pegged fiscal deficit at 3.4 per cent of GDP implying only a minor slippage.
This government deserves credit for pursuing structured reforms that have helped India emerge as the fastest-growing major economy. Its efforts to rein in inflation, attract foreign capital, cleanse the banking system and uphold transparency have had visible impact. Swachh Bharat is now very close to being a reality. Ayushman Bharat is poised to make critical medical care affordable for 50 crore people. We are also seeing the benefits of a consolidated GST — as India settles down after teething troubles, with higher compliance and hassle-free movement of goods. The infrastructure sector has seen admirable focus — with a record number of houses, rural roads and highways being built, thus giving a massive push to connectivity.
Equally commendable has been the government’s efforts to set up a startup ecosystem — to help fructify the innovative ideas of India’s youth, as we transition from being job seekers to job creators. Empowering women by facilitating their participation in the economic mainstream is another area where the government has done well, with 75 per cent of Mudra Yojana beneficiaries being female entrepreneurs.
Budget 2019 scores heavily in the following five areas:
Fiscal support for the most vulnerable: The Budget aims to stimulate growth by rewarding the sweat and toil of the unsung heroes of the Indian economy — the farmer, the informal sector worker and the tax paying middle class. The decision to offer direct income support to small and marginal farmers can prop up the rural economy — boosting demand for consumer goods as well as the seeds, fertiliser and farm equipment industry. The interest rate subvention for farmers pursuing fishery and animal husbandry should also help revitalise the agrarian economy and is a better alternative than loan waivers that distort the market. A mega pension scheme will provide much needed old-age support for informal sector workers, adding muscle to the government’s social security infrastructure. The middle class also finally has something to cheer about with full tax rebate for income up to Rs 5 lakh per annum, increase in standard deductions, tax breaks on rental income and bank interest, besides a hike in gratuity limits. With three crore beneficiaries set to enjoy a higher disposable income, this will raise discretionary spending and potentially revive India’s comparatively low consumption to GDP ratio. This increased purchasing power could be a massive boon for FMCG/D, automobile and affordable housing / home finance companies, as they reap the benefits of increased liquidity in the hands of consumers. An additional benefit could be a rise in bank deposits vis-a-vis other channels.
Incentives for real estate: This should have a multiplier effect on GDP given its linkages with rest of the economy and its employment potential. Extension of benefits under Sec 80–IBA and tax exemption on unsold inventory will bring relief to developers affected by a slowdown. From a consumer perspective, tax exemptions will encourage more people to go in for a second home. Builders in the affordable house segment are expected to benefit after grappling with a prolonged slowdown in recent times.
Focus on North-east: It is heartening to note that this part of India – for long neglected -- is finally getting due attention. The government’s efforts to ramp up infrastructure and boost connectivity will help tap its enormous potential as well as address the feeling of alienation nursed by the region
Direct tax reforms: E-verification and assessment of IT returns via an anonymised back office will reduce scope for personal interaction between payer and officer – thus minimising corruption. Processing returns within 24 hours and simultaneous issue of refunds should make filing easier and transparent – resulting in greater compliance.
Technology adoption: After Smart Cities, the government has now shifted focus to where the majority of India lives – 1 lakh digital villages and Jan Dhan Aadhaar Mobile can be a game changer for the rural economy, catalysing financial inclusion and ushering in an era of modern, technology aided farming. The proposed National Centre on Artificial Intelligence should also spur innovation and open fresh opportunities.
However, there remain areas where the Budget could have offered more clarity and concrete policy support. While acknowledging the importance of curbing pollution and promoting electric vehicles, it remained silent on tax breaks or allowances for strengthening the clean energy sector, which is also a big ticket employer. Given our commitment to act against climate change while addressing energy security, we can’t afford a slackening of the renewable sector’s growth rate. The Budget also avoided any announcement boosting job creation, which continues to be a major challenge given our demographics. Similarly, there was no specific incentive to bolster domestic manufacturing under Make In India – a program with great potential that may need revisiting. Resumption of 200 per cent weighted deduction on R&D and complete abolition of angel tax for startups are also demands that went unanswered. We hope that the first full-fledged Budget post-election that will be tabled by the new government will allay these concerns.
On the whole, the interim Budget 2019 charts a roadmap for achieving a high growth, technology-driven, clean economy or what’s being called Vision 2030. The challenge for the government will be time-bound implementation of schemes without upsetting the fiscal maths. Increased GST collections and healthy proceeds from disinvestment will be two critical avenues to finance the fresh expenses without any major fiscal slippage.
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