The Budget team on way to Parliament. The first hour of Finance Minister Nirmala Sitharaman's budget speech presenting had one significant omission: any actual budgeting. There were barely any numbers in it. Instead, it was a lengthy medley of policy priorities, praise of the government's record, and quotes from Mahatma Gandhi and various spiritual leaders. But she didn't bother to tell parliament or the watching nation - not to mention investors - how much she intended to spend, and on what. Even more oddly, the single most watched number of any budget presentation - the Finance Ministry's target for the fiscal deficit as a proportion of gross domestic product - was tacked on almost as an afterthought, after the budget speech had formally concluded. Coming a day after the Economic Survey highlighted the urgent need for the animal spirits in the economy to be rekindled so that the growth slowdown can be reversed, the second Modi government’s first budget failed to deliver a single bold move. There was nothing much in it for kick-starting investments, consumption or savings. In short, another opportunity missed for rolling out corrective measures for reviving stagnant exports, tepid manufacturing and stressed agriculture.
The first Budget of Modi 2.0 government has laid huge emphasis on investment and consumption to realise the dream of ‘New India’ making it a $ 5 trillion economy in the next few years, but mobilising funds remains a challenge for it in the wake of global headwinds and domestic slowdown.
“Our economy was at approximately $ 1.85 trillion when we formed the government in 2014. Within 5 years it has reached $ 2.7 trillion. It is well within our capacity to reach the $ 5 trillion target in the next few years”, Finance Minister Nirmala Sitharaman said in her maiden Budget speech.
The Budget relies heavily on private investment to build infrastructure that would cost Rs 100 lakh crore over the next five years, rev up manufacturing, boost exports and create more jobs. It has proposed to further open various sectors for FDI and relax rules for other foreign and NRI investments into the country.
“There are several commendable measures on the capital market front to attract the FPIs and also further easing of the FDI norms in insurance intermediation and relaxing the local sourcing requirements in single brand retail to cheer the private sector. The outcome will, however, depend on how the private sector reacts to the proposals and realisation of the investments,” said Ranen Banerjee, Leader (Public Finance and Economics), PwC India.
The Budget has proposed to mobilise funds by offering to divest stake in more public sector companies and issuing sovereign bonds overseas. For finding ways to provide long-term financing to infrastructure sector, the Finance Minister has proposed an expert panel that will give suggestions.
Given the commitment to stick to fiscal deficit (as a percentage of GDP) target, 10 basis point lower than 3.4 per cent announced in the Interim Budget, the task to arrange funds seems even more challenging.
The government hopes a massive fund influx from the Reserve Bank of India as dividend in 2019-20. Senior government officials have said that around Rs 90,000 crore is expected to come from the central bank in this fiscal. But given the massive fund needs, this may not be enough. Lower than expected GST collection has already been a big disappointment in FY19.
The Budget has, however, sought to fire all engines to revive private investment and boost consumption offering a slew of tax concessions to companies, raise public spending for infrastructure and ensure credit flow for business expansion.
In line with prescriptions given in the Economic Survey, the Minister stressed private sector-led investment, jobs, exports and consumption.
Besides proposing to relax various rules for foreign and NRI investment into the country, Sitharaman came out with out-of-box idea to create a ‘Social Stock Exchange’ for listing social enterprises and voluntary organisations. The move is expected to help social firms raise funds and promote governance.
The Budget has proposed opening FDI floodgates in aviation, insurance intermediary, animation and media. India’s FDI inflows in 2018-19 remained strong at $ 64.375 billion marking a 6% growth over the previous year.
Sitharaman said that FDI inflows into India have remained robust despite global headwinds.
Further, the Union Budget has attempted to keep consumption level robust by taking much-needed step to tackle crisis in the shadow banking sector. The Budget 2019-20 proposed that government will give one-time six-month credit guarantee for the purchase of assets of high rated NBFCs up to 1 lakh crore. The move is set to ensure flow of capital for well-performing NBFCs.
In order to boost credit, the Finance Minister proposed to provide Rs 70,000 crore to public sector banks.
In a major tax relief for companies with annual turnover of up to Rs 400 crore, Sitharaman proposed to lower corporate tax for them to 25 per cent from 30 per cent now. Currently, the lower corporate tax is paid by companies with annual revenue of Rs 250 crore.
Further, the start-ups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums.
The housing sector, one of the key job creators, also stands to gain from the Budget. Joint development and concession mechanisms would be used for public infrastructure and affordable housing on land parcels held by the Central Government and CPSEs.
Additional deduction up to Rs 1.5 lakhs for interest paid on loans borrowed up to March 31, 2020 for purchase of house valued up to Rs 45 lakh. This will result in overall benefit of around Rs 7 lakh over loan period of 15 years,” the Minister said.
The Budget has proposed to upgrade 125,000 km of rural roads and ‘Housing for All’ under PMGSY-III in 5 years with an outlay of more than 80,000 crore providing impetus to the rural economy.
“The focus in the Budget on the rural economy is important because more than 65% of Indians reside in the countryside,” said Ajay S. Shriram, Chairman & Senior Managing Director, DCM Shriram and formerly CII President.
Reversing the gains made during the early trade on Friday prior to the Budget speech, the Sensex and Nifty declined around 1 per cent as the Union Budget failed to cheer the investors.
FMCG scrips and Bank socks were the only sectors which closed with gains while heavy selling was seen in steel companies like SAIL, Tata Steel, Jindal Steel, JWS steel. Realty stocks also were among the worst hit as the Nifty Realty Index fell by 3.57 per cent.
“The big surcharge tax on the high income group and possible liquidity squeezing of secondary market liquidity due to disinvestment and increased public shareholding is causing the stock market to fall today,” said Amar Ambani, President & Research Head, YES Securities.
The S&P Sensex lost 394.67 points to end at 39,513.39 before surging as much as 40,032.41. The Nifty fell by 135.60 points or 1.14 per cent to 11,811.15.
“There were high expectation from the budget given the larger mandate of the new government. This excitement met with the weak financial position, limiting the government from announcing eventful new measures,” said Vinod Nair, Head of Research, Geojit Financial Services.
Realising the need to create skilled professionals in the New-Age technologies that are changing the business landscape for both big and small enterprises, Finance Minister Nirmala Sitharaman on Friday said the government would double down on its efforts to help develop the required skill sets needed by the industries across the spectrum.
“We would ensure creating skill sets for technologies like Artificial Intelligence (AI) Internet of Things (IOT), data analytics, 3D printing, Virtual Reality and robotics,” said Sitharaman while presenting her first Union Budget.
Supria Dhanda, Vice President and Country Manager, Western Digital India, said that they are happy to see the efforts to improve the skills of India’s youth in emerging technologies like AI and Big Data.
“Our country has a diverse talent pool and initiatives like having 75,000 entrepreneurs for skill development and transforming the National Education Policy for higher education will create a new league of upcoming professionals,” said Dhanda.
According to Sudeshna Datta, Co-founder and Executive Vice President, Absolutdata, the vision for a technology-driven economy that prioritizes emerging technologies as the prerequisite for future growth is welcomed.
“Training millions of youngsters in emerging technologies such as AI, Data Analytics and Machine Learning and soft skill such as foreign language training focused on research and innovation is a huge step. The initiatives are focused on empowering the future workforce with a ‘global-first’ perspective,” Datta said in a statement.
Siddharth Viswanath, Partner and Leader, Cybersecurity, PwC India said: “Creating a pool of skilled professionals in areas such as AI, robotics, VR, 3D, etc, is commendable. For India to be truly digital and fit for future economy, we also need to nurture and build cyber skills and technologies”.
“To deliver on the country’s Digital India vision, we believe that an increased focus on initiatives for new-age skills in Artificial Intelligence, Big Data, Robotics, etc. will further bridge the gap between technology and talent,” noted Rajan Navani, Vice Chairman and Managing Director, JetSynthesys.
Anjali Amar, Country Manager at Verizon Enterprise Solutions said: “The economic and societal benefits that these technologies are poised to deliver means that it is imperative to reskill India’s IT workforce. This will ensure that tomorrow’s IT executives will be armed with the necessary knowledge to future-proof India’s digital future”.
The Congress dubbed the first Union Budget of the Modi 2.0 government as “insipid and opaque”, saying it had not revealed any financial data or allocations, had no relief for various sections of people, or mentioned measures to help farmers.
Addressing a press conference at the party headquarters, former Finance Minister P. Chidamabaram said: “Budget 2019-20 is an insipid budget. The Finance Minister’s speech was an unusually opaque exercise.”
“Short sentences that do not explain what they are trying to do. This budget of 2019-20 is a monotonous budget. Has there ever been a Budget speech that does not disclose the total revenue, the total expenditure, the fiscal deficit, the revenue deficit, the additional revenue mobilisation or the financial concessions?
“Has there ever been a budget speech that does not disclose the allocations to important programmes like MGNREGA, the mid-day meal scheme, healthcare, etc. and to vulnerable sections like SC, ST, minorities, women etc? We are shocked by this departure from the usual practice,” he said.
Chidambaram said Finance Minister Nirmala Sitharaman should have been transparent about how much revenue the government expects to raise with the raise in taxes.
“Belying widespread expectations, the Finance Minister has given no meaningful relief to any section of the people. On the contrary, the Finance Minister has increased customs duties on a large number of goods, raised taxes on petrol and diesel and proposed extensive amendments to the Income Tax Act that will increase the tax and compliance burdens on the taxpayer,” the Congress leader said.
On additional taxation on the super-rich, Chidambaram said it is “unclear whether the effective tax rate has been increased from three per cent to seven per cent, or by seven per cent”.
Questioning the government for not having anything for the farmers, he said: “There is nothing in the Budget that explains how you are going to reverse the slide in agriculture.”
Chidambaram also said even the government’s plans for the agriculture sector had not been explored in Sitharaman’s speech, noting that there had been hopes that the government would come up with a detailed blueprint for the revival of the farm sector.
“But in the speech given by the Finance Minister, there was no mention of the agriculture system. How can I say something if she has not mentioned anything?” he said.
Slamming the government, Chidambaram said: “The (Narendra) Modi government treats India as one big state government and has taken upon itself to do things that are the right and duty of state governments.
“This is not cooperative federalism, it is an unequal partnership imposed by the Centre upon state governments.”
Chidambaram said that the Prime Minister is willing to do incremental reforms, but he is unwilling to undertake “radical reforms”.
“It is clear that while the economists are advocating structural reforms, those in government do not believe in it. I think Modi is willing to do incremental reforms, and not bite the bullet to do radical reforms,” he said.
He also said that Chief Economic Adviser Krishnamurthy Subramanian must be very “disappointed” at the Budget.
“The most disappointed person must be the Chief Economic Adviser. The CEA had set goal for India to become a $5 trillion economy and premised his entire argument on boosting private investment. There was no indication in the budget speech of any measures to attract greater private investment,” he said.
To a question about the government’s decision to keep the Budget documents in four-fold red cloth, like the traditional India ‘bahi khata’ instead of a briefcase, he said: “A Finance Minister belonging to the Congress party will in future bring an iPad.”
Earlier in the day, Leader of Congress in Lok Sabha Adhir Ranjan Chowdhury and Congress media head Randeep Singh Surjewala had described the Budget as “old wine in new bottle”. (IANS)