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FM Announces A Slew Of Measures To Boost Economy, Regulatory Issues

India will become $3 Trillion Economy this year, big push to aviation, media, retail, real estate says FM

Photo Credit : Himanshu Kumar

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Indian economy becoming a 3 trillion dollar economy this year with World’s 3rd largest economy in terms of Purchasing Power Parity, governments intention to invest Rs. 100 lakh crore in infrastructure in next 5 years, enhanced target of over one lakh 5,000 crore of disinvestment in 2019-20, proposal to provide Rs.70,000 crore to Public Sector Banks (PSBs) to boost credit, doubling of food security budget in last 5 years, faster adoption of Electric vehicles with an outlay of Rs.10,000 crore, opening of 18 new Indian diplomatic missions in Africa, development of 17 iconic Tourism Sites into world class tourist destinations among several others steps. These were announced on Friday, July 5, as part of the first Budget speech for 2019-20 by Nirmala Sitharaman, the Union Minister of Finance and Corporate Affairs.

In her maiden Budget speech, the Finance Minister said that Har Ghar Jal to all rural households by 2024 under Jal Jeevan Mission, ‘Housing for All’ by 2022 under Pradhan Mantri Awas Yojana-(Gramin), upgradation of 1,25,000 kms of rural road under PMGSY-III in 5 years with an outlay of more than 80,000 crore with all-weather connectivity provided to over 97% of such habitations, common facility centres under SFURTI for Bamboo, Honey and Khadi clusters, setting up of 80 Livelihood Business Incubators and 20 Technology Business incubators in 2019-20 to develop 75,000 skilled entrepreneurs in agro-rural industry sectors are some of the important New Deals for the Rural and Agricultural sectors of the Economy.

Sitharaman said that the first term of PM Modi-led-NDA-Government stood out as a performing Government, a Government whose signature was in the last mile delivery. ‘Between 2014 and 2019, government provided a rejuvenated Centre-State dynamic, cooperative federalism, GST Council, and a strident commitment to fiscal discipline,’ she said. It set the ball rolling for a New India, planned and assisted by the NITI Aayog, a broad based think tank and has shown its deeds that the principle of ‘Reform, Perform, Transform’ can succeed, the minister said.

The Finance Minister elaborated that the Indian economy will grow to become a 3 trillion dollar economy in the current year and will reach the vision of Prime Minister to become 5 trillion dollar economy in the next five years. It is now the sixth largest in the world, while it was at 11th position in 2014. In Purchasing Power Parity terms, India is in fact, the 3rd largest economy already, only next to China and the USA. She said that to attain this and more the country needs to continue undertaking many structural reforms like the many big reforms in particular in the last 5 years in indirect taxation, bankruptcy and real estate. Even the common man’s life was being changed through MUDRA loans to help him do his business, and through several programmes it was being ensured that his/her kitchen had become smokeless, his/her house got electricity connection and women’s dignity was respected with the provision of toilets in homes. Smt. Sitharaman said that gone are the days of policy paralysis and license-quota-control regimes. India Inc. are India’s job-creators and they are the nation’s wealth-creators. She said, ‘Together, with mutual trust, we can gain, catalyze fast and attain sustained national growth. I wish to propose a number of initiatives as part of a framework for kick-starting the virtuous cycle of domestic and foreign investments’.

Referring to connectivity as the lifeblood of an economy, the Finance Minister said that the Government has given a massive push to all forms of physical connectivity through Pradhan Mantri Gram SadakYojana, industrial corridors, dedicated freight corridors, Bhartamala and Sagarmala projects, Jal Marg Vikas and UDAN Schemes. While the industrial corridors would improve infrastructure availability for greater industrial investment in the catchment regions, the dedicated freight corridors would mitigate the congestion of our railway network benefitting the common man. The ambitious programme of Bharatmala would help develop national road corridors and highways, while Sagarmala would enhance port connectivity, modernization and port-linked industrialization. If Sagarmala is aimed at improving the infrastructure for external trade, equally it is the poor man’s transport too. Waterways are proven as a cheap mode of transport. The Jal Marg Vikas project for capacity augmentation of navigation on National Waterways is aimed at smoothening internal trade carried through inland water transport. These initiatives will improve logistics tremendously, reducing the cost of transportation and increasing the competitiveness of domestically produced goods.

Push for Aviation, Railways

The FM said that as the world’s third largest domestic aviation market, the time is ripe for India to enter into aircraft financing and leasing activities from Indian shores. She said, for providing an enabling ecosystem for growth in India of Maintenance, Repair and Overhaul (MRO) industry, it is proposed to leverage India’s engineering advantage and potential to achieve self-reliance in this vital aviation segment. She added that the government will adopt suitable policy interventions to create a congenial atmosphere for the development of MRO in the country. 

Commenting on the announcement, Palash Roy Chowdhury, Chairman, AMCHAM Civil Aviation Committee and Managing Director – India, Pratt & Whitney said: ‘We welcome the government’s intent to adopt suitable policy interventions to stimulate the MRO industry in India. We look forward to much needed government support that will enable the local MROs to compete with foreign ones which enjoy a more favourable import tax regime. This will not only boost the local MRO industry but also contribute to the governments tax revenues.’

Directing her attention to the on the state of affairs at the Indian Railways, Sithraman said that it is estimated that Railway Infrastructure would need an investment of Rs 50 lakh crore between 2018-2030. Given that the capital expenditure outlays of Railways are around 1.5 to 1.6 lakh crore per annum, completing even all sanctioned projects would take decades. ‘It is therefore proposed to use Public-Private Partnership to unleash faster development and completion of tracks, rolling stock manufacturer and delivery of passenger freight services,’ she said. The FM added that to take connectivity infrastructure to the next level, government will build on the successful model in ensuring power connectivity – One Nation, One Grid – that has ensured power availability to states at affordable rates and she proposed to make available a blueprint this year for developing gas grids, water grids, i-ways, and regional airports.

FDI Review

On the subject of Foreign Direct Investment, the FM said that the foreign direct investment inflows into India have remained robust despite global headwinds. Indias FDI inflows in 2018-19 remained strong at US$ 64.375 billion marking a 6% growth over the previous year,’ the minister said. Going forward the Modi-Government is keen to examine suggestions of further opening up of FDI in aviation, media (animation, AVGC) and insurance sectors in consultation with all stakeholders, the Finance Minister said in her Budget speech. She further suggested measures like permitting 100% FDI for insurance intermediaries, easing of local sourcing norms for FDI in Single Brand Retail sector and permitting the foreign portfolio investors (FPIs) to subscribe to listed debt securities issued by ReITs and InvITs. 

Sameer Gupta, Tax Partner, Financial Services, EY India – “To improvise availability of investible stock to the FPIs, the recommendation to enhance the default aggregate FPI investment limit  is a welcome step. Especially as global passive funds are gaining prominence, these funds track global indices composition which, inter-alia, depends on available floating stock. Setting the default aggregate FPI limit to the sectoral limit which in certain sectors is 100 percent (as against 24 percent), this will help improvise the head room for FPIs.”


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