By Harsh Pati Singhania
Union Budget 2019 India: The Budget has re-emphasised the journey outlined in the Economic Survey to a $5-trillion economy, driven by investments and technology. It has laid out a framework for improving infrastructure with more focus on waterways, aviation and railways, besides an even greater thrust on highways, which will improve Indian business competitiveness. With a huge investment of Rs 50 lakh crore till 2030 for the railways and Rs 100 lakh crore in the next five years for infrastructure, it would need to look at more private sector/PPP involvement to achieve this.
In a policy reform measure, the Budget has sought to streamline multiple labour laws into four labour codes. It has also proposed innovative instruments such as joint development of land for building public infrastructure and affordable housing. Almost two crore new affordable houses will be built in rural areas in addition to 1.5 crore already built.
To revitalise banks faced with NPAs and other legacy issues, recapitalisation of Rs 70,000 crore is proposed, besides bringing down government stake in PSBs to 51%. To address the NBFC problem, a one-time partial guarantee to PSBs for their loss is proposed. The RBI would now regulate the housing finance sector. It was also heartening to see that the FM showed a willingness to examine infrastructure funding through development finance institutions (DFIs), which could provide long-term finance and avoid crowding out of private investment.
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To lower the carbon footprint, incentives has been given for electric vehicles and renewables. To give further impetus to Make In India and to provide a level-playing field to the domestic industry, changes are proposed in the customs duty.
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. The 2% interest subvention allowed for all GST-registered MSMEs on fresh or incremental loans is welcome.
Against the backdrop of demand slowdown, agrarian distress and liquidity constraints, it was expected there would be measures to incentivise private investments and revive demand that would push growth. For this, we should look at this Budget as incremental to the one presented in February 2019 (Interim Budget) where individuals with taxable income of up to Rs 5 lakh were exempted from paying any tax, along with other tax benefits.
To incentivise affordable housing, this Budget has provided an additional deduction of up to Rs 1.5 lakh for interest paid on loans up to March 2020 (taking total deduction of up to Rs 3.5 lakh). In the case of corporate tax, although the rate of 25% has been extended to firms with turnover of up to Rs 400 crore, companies beyond this 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 contribute the bulk of corporate taxes paid. Moreover for high individual earners, the effective tax rate will now be almost 43% from the earlier 35.88%. Such a significant jump in one go is unprecedented in recent years and will lead to a high tax regime with its inherent compliance problems.
With dairy accounting for around 30% of agri GDP, the Budget has called for more impetus to dairying through cooperatives. With the success of pulses, the Budget has called for focus on oilseeds, besides forming new 10,000 farmer producer organisations (FPOs) to increase farmer incomes. There will also be increased use of technology to reduce the rural-urban digital divide. More encouragement will be given to women enterprises by expanding interest subvention programme for women SHGs to all districts, with overdraft facilities and loans under Mudra. The New National Education Policy and emphasis on skills would spur long-term job creation.
Overall, the Budget should mainly be seen as giving a direction to attaining the long-term goal of high growth in large economy.
(The author is Director, JK Organisation)