Budget 2019: A Modi Masterstroke

A development oriented, progressive Budget that was low on rhetoric and high on fiscal consolidation, with Prime Minister Narendra Modi’s undeniable stamp written all over it, marked the maiden innings of Finance Minister Nirmala Sitharaman. While “professional pessimists” have been fretting and fuming on some of the measures like say, the tax on buybacks, surcharge on FPIs and the like, the fact remains that the Modi government’s direct and indirect tax collection targets for fiscal year 2019-20,have been deliberately kept very modest. To call the government tax greedy, is therefore unwarranted.

True, the government will net in Rs 13,000 crore additionally, due to the higher effective tax rates now on those with taxable incomes of Rs 2 crore and more, as also those with incomes of Rs 5 crore and beyond. However, what critics have conveniently ignored is the fact that, the revenue loss to the government on account of hike in income tax rebate to Rs 5 lakhs per annum, will be a good Rs 100,000 crore. Infact, the hike in exemption limit coupled with the fact that most household consumption goods of daily usage post GST, are taxed now at rates of 0 or 5 per cent, has benefitted the salaried middle class, the most.

The Rs 70,000 crore recapitalisation package for banks, additional tax deduction of Rs 1.5 lakh per annum under Section 24 (b) of the Income Tax Act, for affordable homes of up to Rs 45 lakhs, taking the total tax deduction of interest on home loans to a solid Rs 3.5 lakhs in this category, Rs 1.5 lakh tax deduction on loans taken for Electric Vehicles (EVs) and the like. India’s onward march towards becoming a $5 trillion superpower was cemented thanks to exemplary reforms by Prime Minister Narendra Modi, in his first term. Budget 2019 carries that philosophy forward, in no uncertain terms.

Between 2014-2019, nominal GDP growth largely averaged at well over 11 per cent per annum, barring a few stray quarters when it hit a soft patch, with that number coming in at just about 10 per cent or thereabouts, on the back of persistently low inflation. With inflation likely to be in the region of 3.5-4 per cent in the medium term and assuming real GDP growth averages at about 8 per cent or more, reaching or even outperforming the aspirational $5 trillion mark is very much in the realm of a realistic goal that can easily be achieved, thanks to a strong foundation laid by ‘Modinomics’ in the last five years. The moot question indeed is, if achieving a real GDP growth of 8 per cent is a tall order. That is a question that has triggered a massive row of late but suffice to say that, fixed asset investment has grown by almost 200 bps in the last two years to about 10 per cent from 8.3 per cent which is a great sign. Investment to GDP ratio which is currently at 32 per cent odd, could easily move to the 38-40 per cent range, to drive real GDP growth in rupee terms, to well beyond 8 per cent, given the massive infrastructure push entailing an investment of Rs 100 lakh crore over the next five year alone! Of that, the railways will get Rs 50 lakh crore, through Special Purpose Vehicles (SPVs), with an emphasis on Public Private Partnership (PPP) and Rapid Regional Transport (RRT) systems.

A few budgetary highlights from a fiscal and foreign investment standpoint, that are summed up below, also highlight how among other things, “Modinomics” is not xenophobic and inclusivity backed by financial sector reforms, remains the over-riding theme.

• Net market borrowing for 2019-20 fiscal set at Rs 7.03 lakh crore, with targetted fiscal deficit revised to 3.3 per cent from 3.4 per cent and another Rs 1.05 lakh crore to be raised via asset sales, primarily PSU disinvestment, including the sale of Air India, which is back on the radar.
• Customs duty on gold increased to 12.5 per cent from 10 per cent, with excise duty of Re 1 per litre each on diesel and gasoline, additionally.
• In the budget, the Modi Government proposes Rs 70,000 crore of capital support to state-run banks versus via recapitalisation bonds, among other measures.
• Seeks to bring Non-Banking Finance Companies (NBFCs),under RBI rules and also allow the Central bank to regulate Housing Finance Companies,(HFCs).
• Credit Guarantee Enhancement Corporation to be set up in 2019-20 and an action plan to be commissioned for deepening the long term bond market, to raise resources for the ambitious infra spending by the government in the next few years.
• Tax proposals: 25 per cent tax rate for   companies with revenues of up to 400 crore per year and lowering GST rate on electric vehicles from 12 per cent to 5 per cent.
• Direct tax revenue growth targeted at 7.5 per cent and indirect tax collections at 15 per cent.
• Blueprint for Power grids, Gasgrids, i-ways and Airports, to ensure power and gas connectivity to all, by 2022.

• Tax on lower slabs left unchanged, but those on super rich hiked by an additional 3-7 per cent and, rightfully so, in line with global best practices. Effective tax rate including surcharge for annual incomes of between Rs 2-5 crore to go up from 35.88 per cent to 39 per cent and for incomes above Rs 5 crore, from 35.88 per cent, to 42.74 per cent.
• Government will allow 100 per cent FDI in insurance intermediaries; Rules for investment in media, animation and aviation to be eased. FPI and NRI investment routes to be merged.
• Local sourcing norms for FDI in Single Brand Retail to be eased.
• Limits on foreign portfolio investment to be raised from 24 per cent, to be on par with sectoral caps as prevalent under foreign direct investment norms.
• Reduce Net Owned Funds’ requirement from Rs 5000 crore to Rs 1000 crore in International Financial Services Center ( IFSC),to promote on-sharing of international insurance transactions by foreign reinsurers.
• Separate Nation Pension System (NPS) trust from Pension Fund Regulatory and  Development Authority (PFRDA),to prevent conflict of interest.
• SEBI to ensure and work towards minimum 35 per cent public shareholding of all listed companies.

Speaking of the welfare oriented ethos of the Budget, with “Har Ghar Jal” by 2024, having already been put into mission mode ,by identifying 1592 blocks in 256 districts under the “Jal Shakti Abhiyan”, the Modi government has once again walked the talk when it comes to  improving not only the Ease of Doing Business (EODB) but also enhancing the EOL ( Ease of Living) for those who have long been excluded by erstwhile, inept Congress led establishments, from the fruits of development and basic amenities.

Again,”Gaon Gareeb Kisan”, reinforces the holistic, farm-centric approach of the Narendra Modi dispensation, with doubling of farm incomes by 2022,being the focus. “Pradhan Mantri Matsya Sampada Yojana” for establishing a fisheries management framework, setting up dairy co-operatives to improve milk processing and production, setting up 10,000 Farmer Producer Organisations (FPOs) for improving overall economies of scale in the rural sector, setting 100 clusters to bring 50,000 artisans engaged in traditional crafts, especially in rural areas, into the economic value chain, setting up 80 Livelihood Business Incubators (LBIs), 20 Technology Business Incubators (TBIs),over Rs 60,000 crore allocation towards MNREGA, over Rs 27,000 crore for Integrated Child Development Services (ICDS),over Rs 12,000 crore for the “Swachh Bharat” mission, Rs 75,000 crore for “PM Kisan Yojana”, allocation of over Rs 80,000 crore to upgrade 1.25 lakh kilometres of rural roads under the “Pradhan Mantri Gram Sadak Yojana”, building 1.95 crore affordable homes by 2022,with 81 lakh houses to be built in the next year itself, extending Bharat-Net to every gram panchayat and last but not the least, Zero Budget Farming, are the pivots, around which “Modinomics” seeks to give wings to the concept of “Antyodaya”, that is all about bringing development to the door step of the last person standing.

E-verification, no questions to be raised on valuation of shares, no income tax scrutiny on funds raised by Start-Ups and a body that will now quickly resolve, earlier disputes pertaining to “Angel Tax”, are some of the measures that will not only boost “Make in India”, but also make tax compliance much easier, without an increase in tax rates which is not a mean achievement.

That “Sabka Saath, Sabka Vikas, Sabka Vishwas”, is not merely a platitude but something that the Narendra Modi led government religiously believes in, is amply evident from the tremendous strides that Union Budget 2019 has undertaken to empower women in every sense of the word. The decisions to extend the interest subvention scheme covering women Self Help Groups (SHGs) to all districts, allowing voluntary groups to raise capital via a “Social Exchange”, providing loan up to Rs 1 lakh per annum to atleast one woman in a SHG, via the MUDRA scheme, extending overdraft facilities to the tune of Rs 5000 to verified women customers in SHGs, having “Jan Dhan” bank accounts, have made the entire concept of “Naari Tu Narayani”, truly meaningful, as it would help unleash the entrepreneurial spirit of our women folk.

What makes Budget 2019 different, is the fact that it has laid down a ten year roadmap both in terms of forward looking intent and the modus-operandi in terms of execution. While naysayers have made misguided accusations of the Budget being thin on details about resource mobilisation, they need to be reminded that strictly speaking, a Budget document has to spell out the government’s larger vision. True, the devil is always in the details but even on that count, the Budget scores handsomely, as the broad map in terms of say, giving a mega infrastructure push by working towards “One Nation, One Grid”, much in the nature of “One Nation, OneTax”, has been clearly crystallised. Also, none can doubt the execution finesse of the Modi government. If the past track record of last five years is anything to go by, be it implementing GST in a country of 130 crore people, by subsuming seventeen odd taxes and over a dozen cesses and surcharges, or constructing over nine crore toilets under the “Swachh Bharat” mission, or  for that matter resolving over Rs 4 lakh crore of stressed assets, via the Insolvency and Bankruptcy Code (IBC), time and again, the Modi government has more than risen to the challenge and come out trumps.

Deepening the bond market and relaxation of norms for FIIs/FPIs for debt market investments, are just some of the many options available from the array of options at the government’s disposal, to give shape to its ambitious infrastructure and social sector spending initiatives. Hence, paucity of funds is certainly not an issue, as is being wrongly suggested by those with vested interests.

Again, the decision to initially replace 20 and eventually 44 archaic labour laws will unlock huge amount of capital that is today lying locked up in unproductive assets, that are hindering both, the ability to fire inefficiency and make fresh hirings to reward efficiency. Undoubtedly, the ball has been set rolling on labour market reforms and the resultant improvement in Incremental Capital Output Ratio (ICOR),to say 2,from the historical levels of 4,alone can add a few percentage points to GDP, other things remaining constant.

Hence, those who falsely accuse the Budget of only taking baby steps, without being “Big Bang” in terms of unleashing radical reforms, have clearly missed the plot. Inclusive, well rounded, ambitious, middle class friendly, pro-women, rural centric and above all, a growth oriented budget that is not shy to set the bar high, with a clear roadmap to give wings to Modi government’s vision, is the defining undertone of Budget 2019.

It would suffice to conclude by saying that, giving 2 per cent interest subvention on incremental loans for all GST registered MSMEs, providing access to the much in demand, Trade Receivables electronic Discount Scheme (TReDS) platform, to all NBFCs, decision to provide a one time, six months’ partial credit guarantee for the first 10 per cent loss, to all PSBs up to an overall limit of Rs 1 lakh crore for purchasing financially sound, high rated, pooled assets of NBFCs, pension benefits to 3 crore retail traders and shopkeepers with an annual turnover not exceeding Rs 1.5 crore under the “Pradhan MatriKaram Yogi Maandhan Yojana”, are some of the steps, that caught the attention of all and sundry, as they showcased the Modi dispensation’s bona fide intent in revving up the Indian economy from the $ 3 trillion mark that it is set to breach this year, into becoming a $ 5 trillion behemoth, by 2024-25, or maybe earlier!

In an era of geopolitical upheavals, with protectionism on the rise and sub zero bond yields playing havoc with risk appetites, India’s Budget 2019, that focusses on deepening and broadening India’s bond markets by allowing FPIs to now invest in listed REITs, has once again showcased how the Narendra Modi led government is not xenophobic and if anything, is truly liberal in terms of aspiring to democratise the fruits of development.

Ms Sanju Verma is an Economist & Chief Spokesperson for BJP Mumbai.