India Unveils An Investor-Friendly Budget To Spur Growth

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The first budget of the second Modi government, presented by the Finance Minister Mrs. Nirmala Sitharaman has lived up to the expectations of making ‘ease of business’ for trade and industry hassle-free through simplification of processes. It has also envisaged to enable the ease of living for the people across India by focusing on increased digitization of the economy. As India is all set to become a three trillion dollar economy in the current year itself, the budget flags off a roadmap to reach the vision of a $5 trillion economy within a few years, mainly driven by “virtuous cycle” of investment. The budget has made a quiet departure from the past in a bid to fine-tune the government-business-citizen link for the greater developmental cause by being inclusive to facilitate every citizen towards a better standard of living.

In keeping with the government’s credo of being pro-growth and pro-poor, the budget is for wealth generation through meaningful partnership with all stakeholders including private entities. Real progress and welfare of the citizens would not be sustainable if wealth is not generated. Hence, the budget aptly plumped for lowering the corporate income tax to 25 per cent for all firms with a turnover of 400 crore rupees a year. This covers 99.3 per cent of the firms in the country in one stroke and augurs well for the domestic industry as it would be able to redeploy funds for further investment. Such enhanced infusion of the private investment alone could stoke up demand, increase productivity and provide gainful occupation to a labour-surplus nation.

The Budget has laid due emphasis on infrastructure and connectivity—in terms of augmenting and taking forward ongoing programmes across key segments such as seaways, railways, roadways and airports to develop economic and efficient infrastructure involving private sector in a bigger way. This is bound to spawn far-reaching changes of structural nature. This is also bound to have enduring efficiency gains across a broad spectrum of activities. In this context, to attract and augment investment, the budget proposes to spur foreign portfolio investors (FPIs) to invest in infrastructure debt funds, introduce credit default swaps for the infrastructure sector, deepen the corporate bond market and encourage equity investment by non-resident Indians (NRIs).

For the domestic banking sector saddled with non-performing loans and the consequent efforts to clean-up through the Insolvency and Bankruptcy Code (IBC) which effectively tackled the legacy issues, the budget has extended additional capital infusion of seventy thousand crore rupees. This will help bolster the capital base of the banking industry to keep the credit flows to rev up activities. The budget aims at obtaining an ambitious 1 lakh 5 thousand crore rupees through disinvestment of public sector undertakings (PSUs) by strategic sales.

To help boost foreign direct investment further, the budget said government would examine suggestions for further opening up of FDI in aviation as India is the world’s third largest domestic aviation market and also the media industry. Budget also proposed to permit 100 per cent FDI for insurance intermediaries and easing of local sourcing norms for FDI in single brand retail sector so that quality consumer products at competitive price could benefit aspirational Indians. The budget has focused its’ attention to the non-banking finance companies (NBFCs) that are the major players in the realty and transport sectors by addressing important issues of their liquidity and solvency issues.

India announced its intent to increase its external borrowing programme as its external debt to the GDP ratio was below five per cent and among the lowest globally. On the fiscal front, the budget has hiked income tax on the super-rich, besides increasing import duty on a range of goods such as crude oil and gold to industrial products to ramp up the ‘Make in India’ programme. The budget is a salutary move to stick to fiscal prudence by setting off incremental measures to spur growth.

Script: G. Srinivasan, Senior Economic Journalist

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