The Union Budget 2019-20 keeps sight on achieving growth,
generating resources and easing living
The Modi 2.0 government’s first budget continued the relentless
focus on repairing and refurbishing the economic model by chipping away the deadwood
(pushing for the replacement of Pan with Aadhar and clubbing the multiple
labour laws into four broad codes) and applying varnishing where the lustre had
faded (improving Uday and infusing Rs 70000 crore to recapitalize public sector
banks weakened by provisioning for bad loans). India is to be propelled into a
US$ 5-trillion economy without disturbing the fiscal balance and crimping on
capital expenditure unlike last year, when inter-PSU sales had to be organized
to meet the 3.5% fiscal deficit target. With the middle class (up to Rs 5 lakh of
taxable income out of the net on utilizing appropriate savings instruments) and
the farmers (Rs 2000 cash transfer every quarter) taken care of by the interim
budget, mobilization of resources, the crisis in the financial services sector
and ease of living took centre stage. A national gas, water and highway grid,
coming after the last-mile delivery of sanitation, houses and power, signals
that the animal spirits of the people can be unleashed if they have access to
basic amenities. A committee will
suggest how to mop up Rs 100 lakh crore of low-cost capital over the next five years to build infrastructure.
Besides the message of managing currency volatility, the unexpected decision to
offer sovereign debt implies confidence of earning investment-grade rating
going ahead so as to lower borrowing costs. Inviting private partners to bring
in some of the Rs 50-lakh-crore investment required between FY 2018 and FY 2030 is
a public acknowledgement that running railways is a business. Fully
foreign-owned airlines, animation studios and insurers are likely. Making
electronic parts in India will get tax incentives. Aligning the foreign portfolio
investment ceiling with the sector cap rather than restricting it to 24% across
the board, too, will accelerate dollar inflows .Stocks will get better discounting.
More companies will have dispersed shareholding.
The credit crunch in the financial services sector has
resulted in a slump in consumption. The government’s move to guarantee up to
10% loss for the first six months on buying up to Rs one lakh crore of
securitized assets of sound NBFCs will embolden banks to open up the liquidity
tap. Besides strategic sale to meet the Rs 1.05-lakh-crore divestment target, CPSEs
will hike public presence to at least 25% of the share capital. Minimum government
control of 51% will now be relaxed to include holdings of other government
entities and foreign shareholding of PSUs in the emerging market index will be synchronized
with the sector limit to make them attractive. Exchange traded funds investing
in CPSEs are to be put on par with ELSS to make them popular with retail
investors. The peak tax rate has been reduced to 25% on companies with turnover
up to Rs 400 crore from Rs 250 crore. Interest outgo up to Rs 3.50 lakh on
mortgages to finance residences up to Rs 45 lakh will be eligible for deduction.
Capital gain on sale of residential house will be exempted if invested in
start-ups by March 2021.
Three proposals in the harmlessly optimistic vision document
provoked the market. Petrol products did not absorb the volatility in
international crude prices for the near two-month duration of the Lok Sabha
polls. Half of the two-tier higher levy of Re 1 each per liter on petrol and
diesel will hopefully go to compensate the PSU oil market companies’ losses.
The other half will contribute to the national highway network. The move
signals a soft outlook for petro products and another nudge along with the Rs
1.5-lakh relief on servicing of loans to buy e-vehicles. The concern of supply
overhang knocking down valuations of non-government companies to maintain the
new 35% threshold for free float is misplaced as the outcome will be better
price discovery. Reverse book-building by MNCs to delist will be an opportunity
for decent capital appreciation. The 20% tax on buybacks by listed companies
plugs the loophole to avoid the dividend distribution tax and levels the field
in choosing one of the two options to reward the shareholders. No-charge digital
payment for establishments with over Rs 50-crore turnover, pre-filled IT forms
and simplified quarterly GST returns for businesses with less than Rs 5 crore
of sales, scrapping scrutiny of sources of funds and share premium charged by new
ventures making regular disclosures and between 3% and 7% effective increase in
tax rate on the super rich. The budget has paved the way for more rate cuts.
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