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Reviving Demand Through Growth

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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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 February 2019 to alleviate the burden of low-income taxpayers were continued along with enhanced interest deduction for an affordable housing loan taking the total deduction to up to Rs 3.5 lakh. However, for the high-income earners, the effective tax rate will now be almost 43 per cent from the earlier 35.88 per cent, 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 with greater thrust on highways or 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 seeks 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 km under Pradhan Mantri Gram Sadak Yojana (PMGSY). To strengthen Make In India, the budget has proposed changes in the customs duty and provide a greater level playing field to the domestic industry, besides a big push to E-vehicles through higher incentives under FAME-II. A welcome step of 2 per cent interest subvention has been allowed for all GST registered MSMEs, on fresh or incremental loans.

To boost agro-rural industries, cluster-based development will continue with a 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 75,000 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 revitalise banks, the budget has proposed bank recapitalisation of Rs 70,000 crore, as well as bringing down the government stake in PSBs to 51 per cent. To address the NBFC problem it has provided a one-time partial guarantee to PSBs for their loss.

Along with a willingness to examine infrastructure funding through development finance institutions (DFIs), enabling long-term financing, the budget has also proposed to borrow in external markets in external currencies. This will enable cheaper loans due to continued easy monetary policy and reduce crowding out in domestic markets.

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-conductors fabrication, etc. have been envisaged.

Encouragement to startups are also promised by way of freedom from any angel tax and scrutiny in respect of valuations. Though the corporate tax rate of 25 per cent has been extended to companies with revenues up to Rs 400 crore, beyond that firms would continue to pay almost 50 per cent tax if we include cess, surcharge and dividend distribution tax.

Overall, the budget should be mainly seen as giving a direction to attaining the long-term goal of a high growth large economy.

(As told to Sheetal Kharka)

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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harsh pati singhania

Harsh Pati Singhania

The author is Vice-Chairman & Managing Director of JK Paper, and Director, JK Organisation

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