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View: Budget speech was long on vision, but short on detail

Sitharaman’s speech was long on vision, political direction, and intent, but short on detail.

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Last Updated: Jul 06, 2019, 06.21 AM IST|Original: Jul 05, 2019, 11.32 PM IST
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Sitharaman talked about the huge investments required to boost infrastructure — estimated at around Rs 20 lakh crore annually.
By R Jagannathan

Nirmala Sitharaman’s maiden budget struck all the right chords by addressing all the pain points of the economy. Big numbers were bandied about to provide for higher investments in infrastructure. There were nods towards addressing the unemployment problem by providing sops to sectors with the highest jobs potential that were badly singed by demonetisation and GST; and dollops of capital for banks and indirect liquidity support to NBFCs.

The surprise element, given the sharp slippage in tax revenues last year of more than Rs 1.6 lakh crore, was Sitharaman’s disclosure of a lower fiscal deficit of 3.3% in this fiscal. The only major revenue measures are surcharges of 3% and 7% on income tax for those in the Rs 2-5 crore and Rs 5 crore-plus income brackets, a Rs 2 hike in excise and cess on petrol and diesel, higher duties on gold imports, and some customs duty increases. On the non-tax revenue front, there is an increase from an already ambitious disinvestment target of Rs 90,000 crore to Rs 1.05 lakh crore. If we take account of the huge shift in GoI expenditures to the books of PSUs, mainly Food Corporation of India (FCI), all of which will have to be paid up now, the fiscal slippage of 2018-19 isn’t being reflected in the budget.

The deficit figure is, thus, either unduly optimistic on future tax revenues, or a fudge, where the current year’s expenses will be rolled over to next year. If GoI intends to stick in letter and spirit to the announced fiscal number, we are going to have a severe spending compression later this year that will be wholly pro-cyclical and deflationary when the need is the exact opposite — a fiscal stimulus.

That said, the laudable initiatives involve large hikes in capital for banks, which will get Rs 70,000 crore, and NBFCs, which can offload some of its higher-rated assets to banks to obtain liquidity while the banks themselves have been given a partial credit guarantee for 10% of any losses for six months after these NBFC assets are taken over.

Sitharaman talked about the huge investments required to boost infrastructure — estimated at around Rs 20 lakh crore annually, with the Railways needing Rs 50 lakh crore over the next decade or more. But she didn’t indicate where the money would come from. Given the current low savings & investment rate, the only option is probably to pass the hat around to foreign investors. There were several hints that India will raise more money abroad through sovereign borrowings, and many sectors — aviation, insurance and media, etc — may see an increased foreign investment limit. Single-brand retailers may also be enticed with a reduction on local sourcing norms.

To boost ‘Make in India’, GoI would be offering a comprehensive package of income and indirect tax benefits to foreign majors to build hi-tech facilities for semiconductor fabrication, solar photo-voltaic cells, computers and laptops, and electric battery charging infrastructure. If the red carpet works, this will be the first effort by India to seek to directly benefit from the global shift in investment away from high-cost China.

On jobs, the FM allowed her investment vision for job-creating sectors to speak for this concern. But one area where the budget seeks to make a big difference is in the MSME sector, where loans up to Rs 1 crore are to be sanctioned in less than an hour, and a platform is to be created for speeding up payments due to them for supplies to larger companies. The startup ecosystem is being spruced up and the taxman is being asked not to scrutinise share valuations — the ‘angel tax’ issue — as long as the investments are from kosher sources.

Affordable housing gets even better, with interest deductions on properties costing up to Rs 45 lakh now going up to RS 3.5 lakh a year. A scary note related to pre-filled tax returns, which will (even as it takes the pain out of filing your returns) not only take in data from AS 26 statements but also from banks, stock exchanges, mutual funds, etc. Big Brother now knows where you are earning your money and where it is going. Companies with a turnover of up to Rs 400 crore now have to pay only 25% tax. Promoters may heave a sigh of relief that no mention has been made of an inheritance tax. But this apart, India Inc. has little to feel cheerful about.

Sitharaman’s speech was long on vision, political direction, and intent, but short on detail. That may require a closer look at the fine print of budget documents. But one wonders why she needed two hours to paint a vision already been painted repeatedly by the PM and her predecessor for five years now.

The writer is Editorial Director, Swarajya
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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