Modi 2.0 Budget is high on hope, less on specifics
If budgets need to stir up a debate, they need to have some big ideas, and specific measures aimed at addressing economic ills — at least that is what India’s budgets have seen in the past. In that sense, the Union Budget presented by finance minister Nirmala Sitharaman talked about a multitude of things — right from charging up the economy, to lending a helping hand to state-owned banks and the shadow banking sector, to empowering women to boost startups and electric vehicles.
But the problem was (and that’s why it failed to enthuse the stock markets too), in trying to address a whole lot of things, it had little to offer in specifics. Except in three areas — startups, non-banking finance sector, and electric vehicles. It was more a document on the aspirations of the government, but missed the crucial hints towards driving the economy to $5 trillion with a growth of 8 per cent by pump-priming investment, which was the major thrust of the Economic Survey presented on July 4.
Equally disappointed were many who thought there would be a specific roadmap to rescue agriculture and the micro, small and medium enterprises. Perhaps much of the succour for the rural areas were announced as sops ahead of the general elections, or perhaps it was too early for the finance minister to put together a big plan for micro, small and medium enterprises’ (MSME) revival in the mere weeks she had before announcing the Union Budget.
Rather than firm proposals, the Budget seemed to be a self-congratulatory statement from the FM on the performance of the government in the five years. To add to the intrigue, Sitharaman did not mention any specific allocations in the Budget, so the wait to know the actual numbers was longer.
Not surprisingly, addressing issues in the financial sector came upfront in the budget, though one measure was predictable — the Rs 70,000 crore bank recapitalisation. This should pave the way for additional lending. Another big area of focus in the budget has been the non-banking financial companies (NBFCs) which are going through a lot of pain. To purchase high-rated pooled assets of financially sound NBFCs, worth Rs 1 lakh crore during the current financial year, the government will provide one-time six months’ partial credit guarantee to PSU banks for first loss of up to 10 per cent.
To allow NBFCs to raise funds in public issues, the requirement of creating a debenture redemption reserve — currently applicable for only public issues as private placements are exempt — will be done away with. To bring more participants, especially NBFCs, not registered as NBFCs-Factor, on the TReDS platform, amendment in the Factoring Regulation Act, 2011 is necessary and steps will be taken to allow all NBFCs to directly participate on the TReDS platform.
The government has also announced its intention to invest Rs 100 lakh crore in infrastructure over the next five years, but again the specifics here are missing. Instead, an expert committee will be set up to study the situation. The government is also setting an enhanced target of Rs 1.05 lakh crore of disinvestment receipts for the financial year 2019-20. It will undertake a strategic sale of Public sector undertakings (PSUs). Such promises were made earlier but seldom led to any meaningful disinvestment, other than one PSU buying shares of another. Meanwhile, the corporate tax will see a phased reduction in rates. The lower rate of 25 per cent, applicable only to companies having an annual turnover up to Rs 250 crore, will be widened to include all companies having an annual turnover up to Rs 400 crore, covering 99.3 per cent of the companies. But the question remains, could this not have been made cent per cent?
By the way, the super-rich will now need to pay more. Those earning between Rs 2 crore and Rs 5 crore will have to shell out 3 per cent more, with surcharge rate being increased from 15 per cent to 25 per cent. Those earning above Rs 5 crore will have to shell out a surcharge of 37 per cent, from the current 15 per cent. The FM did not give details of a scheme to invite global companies through transparent competitive bidding to set up mega-manufacturing plants in sunrise and advanced technology areas to assist its Make in India campaign.
However, there are plenty to boost electric vehicles. Only a few weeks ago, the Niti Aayog had proposed that all two-wheelers of 150cc and below need to go electric by 2025, which has kicked off a debate on the feasibility of doing so. The Budget has given a further push to make India a global hub of manufacturing of electric vehicles (EVs). To make them affordable, the government will provide additional income tax deduction of Rs 1.5 lakh on the interest paid on loans taken to purchase EVs. This amounts to a benefit of around Rs 2.5 lakh over the loan period to the taxpayers who take loans to purchase an electric vehicle.
The sector that got the most boost were startups. To resolve the so-called ‘angel tax’ issue, the startups 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 issue of establishing the identity of the investor and source of his funds will be resolved by putting in place a mechanism of E-verification. With this, funds raised by startups will not require any kind of scrutiny from the Income Tax Department. Moreover, special administrative arrangements shall be made by the Central Board of Direct Taxes for pending assessments of startups and redressal of their grievances.
At present, startups are not required to justify the fair market value of their shares issued to certain investors including Category- I Alternative Investment Funds. “I propose to extend this benefit to Category-II Alternative Investment Funds also. Therefore, the valuation of shares issued to these funds shall be beyond the scope of income tax scrutiny,” the FM said.
Sitharaman also relaxed some of the conditions for carrying forward and set off of losses in the case of startups and proposed to extend the period of exemption of capital gains from the sale of residential houses for investment in startups up to March 31, 2021, and relax certain conditions of this exemption. Some sops for real estate too — a tax holiday has already been provided on the profits earned by developers of affordable housing. Now, an additional deduction of up to Rs 1.5 lakh has been allowed for interest paid on loans borrowed up to March 31, 2020, for purchase of an affordable house valued up to Rs 45 lakh.
(Courtesy of Mail Today)