A Growth Driver

07 Feb 2019

The Budget provides relief to many sectors

The presentation of the Interim Budget is to be seen in the context of various headwinds that are facing the Indian economy, including slower global growth and trade rates, subdued consumption, and farmer stress. At this time, it was necessary to impart a strong stimulus to the economy while adhering to the fiscal deficit as much as possible. In these circumstances, the Budget is balanced and prudent while providing an impetus to growth.

For industry, the emphasis on retaining fiscal deficit at 3.4 per cent for 2018-19 and continuing on this course for 2019-20 is critical. Fiscal deficit is central to financial sector stability, interest rate trend, and availability of credit for industry. Industry commends the government for this move.

Support for farmers

The Budget targets key consumer sections of the economy as well. The basic income support for small farmers owning less than two hectares of land at ₹6,000 per year is a strong push for ensuring stability to rural incomes.

There is also a set of measures aimed at diversifying rural incomes from farming to livestock activities.

Similarly, efforts to expand social security are most welcome, given that the unorganised sector workers have been suffering from lack of an umbrella protection system. Once this protection is available to workers, it is possible to envisage a more flexible labour regulatory environment for industry. We hope that the government would consider fast-tracking labour reforms.

The Budget has made a significant contribution towards lowering the tax burden on the middle class. Apart from doubling the exemption limit to ₹5 lakh, there are relaxations in the ceilings for interest income, standard deduction, and TDS on rent. Overall, this adds to confidence of consumers and would incentivise higher demand.

With housing as a focus for the Budget, the common household gains new assets which again adds to its overall security. It also helps the real estate sector which has been troubled by high inventories. This in turn translates into better demand for products of related industries such as cement, steel, furniture and fittings, and so on.

The Budget increases capital spending to ₹3.36 lakh crore, which is marginally higher than the Budget estimates for 2018-19. The Railways has been a beneficiary of this with increased expenditure of 22 per cent, while allocations for infrastructure in the North East region addresses critical deficiencies. This would also add to overall demand.

The government has not touched GST rates which are in the purview of the GST Council. Similarly, customs rates have not been taken up, whereas industry had expected certain steps to redress anomalous duty structures arising both due to free trade agreements and imposition of IGST.

Another key expectation of industry was that the angel tax issue would be examined in the light of the fact that start-ups have suffered a decline in number of deals going through over the last two years.

Infrastructure financing is a challenge for the private sector and some measures to improve long-term credit availability would be welcome. An active secondary corporate bond market, more power to National Infrastructure Investment Fund (NIIF), and setting up of a Development Finance Institute can help in this regard.

In sum, the Budget is a balanced one that would help create new growth drivers for the economy while bringing significant relief to many sections of society.

Note: This article was published in Business Line.

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