Finance minister Nirmala Sitharaman has kickstarted the Modi 2.0 first budget with an ambition to make India a $5 trillion economy in the next five years. The FM has shed the role of accountant by adopting the role of a nation builder. This budget is remarkable in setting the direction as well as destination and is aimed at creating building blocks for a 'New India' with futuristic plans and development strategy. Considering the worrisome global economic environment and slowdown in the domestic economy, it's reassuring to see the budget expansionary and pro-growth while ensuring that fiscal deficit remains within limits, much needed to prevent any downgrade of sovereign bond by rating agencies. The FM has managed to achieve this trade off with expertise in her budget.
Sitharaman has announced measures to rev up the growth engine with greater focus on infrastructure spending to the tune of Rs 100 lakh crore and expansion of railways to the tune of
Rs 50 lakh crore in the coming years. As India needs large amount of long-term capital to support various infrastructure projects, the FM has announced to tap global markets for government borrowings. It may be an appropriate strategy considering the fiscal deficit, interest rate differential and liquidity conditions, when used in a prudent manner. This could help in creating and modernizing large infrastructure projects that would stoke economic growth and jobs creation in the long term.
Re-capitalization of PSBs with Rs 70,000 crore would address the credit growth concerns in the short to medium term. The announcement that government would provide a six-month partial guarantee on the first loss of 10% on purchase of highly rated pooled assets of Rs 1,00,000 crore from NBFCs is expected to ease liquidity concerns and aid credit growth. Increased additional deduction on home loan interest for affordable housing could boost housing sector and concerns surrounding the housing finance companies would be addressed due to changing regulatory regime from NHB to RBI, thus providing relief to the NBFC sector. At the same time, these measures coupled with government borrowing plans from overseas markets could leave room for lower interest rates in the domestic markets. Expectations over lower interest rates, enhanced credit availability and lower corporate tax slab of 25% for corporates with turnover of less than Rs 400 crore augurs well for economic growth and job creation in the medium to long term.
This budget has outlined the roadmap for inclusive growth with schemes like PM Kisan direct income support scheme, housing for all, piped drinking water for all, power for all and road for all habitations which would significantly improve the ease of living in rural areas. Schemes like zero budget farming and efforts to double farmers’ income would help in achieving inclusive growth in rural areas. On the other hand, the government has increased the surcharge on income tax of those taxpayers earning over Rs 2 crore annually, which could be seen as a measure to tax the rich and incentivise the poor. Efforts are on to make a clean India with more focus on Swatch Bharat and measures to provide toilets for all. Another major initiative towards clean India is the emphasis given to EVs. The FM has announced an additional income-tax deduction of Rs 1,50,000, on interest for EV loans. On the other hand, special additional excise duty and road & infrastructure cess were increased by total Rs 2 per litre on petrol and diesel prices, these two efforts along with increasing the charging infrastructure could give boost to EV and contribute towards a clean India in the long term.
The government is moving towards more digital and less cash economy by encouraging digital transactions by removing merchant discount rates and other charges, while imposing a TDS of 2% on cash withdrawals of over Rs 1 cr per year. This coupled with Aaadhar based tax filing system and prefilled income-tax return forms and faceless assessment could take India towards a digital economy. At the same time Jandhan-Aadhaar-Mobile is a huge digital initiative which helped direct benefit transfer of various government subsidies to the beneficiaries’ bank account while avoiding lot of pilferage, thus digital is a tool towards inclusive, clean India.
This budget has given impetus for start-ups and 'Make in India. Basic customs duties were increased on imports to encourage the same goods to be manufactured in India. At the same time, the need to attract more capital into India was addressed by various measures like enhancing FDI limits in various sectors, easing of KYC norms for FPIs, increasing free-float to make Indian equities attractive for foreign investors, speeding up disinvestment process. (The author is CEO, Karvy Stock Broking)