Union finance minister Nirmala Sitharaman. (PTI)
Union finance minister Nirmala Sitharaman. (PTI)

Opinion | Govt’s bottoms-up approach is well taken, but the top can’t be overlooked

The high point of the budget is that the govt has not gone overboard on spending

Coming at a time when most sectors are in the grip of a slowdown, one would have expected Nirmala Sitharaman to introduce big bang proposals to give fire power to the sagging economy. While the bottoms-up approach of the government is well taken, the top cannot be left out in the process of economic development. The budget has over-looked the much needed policy interventions in distressed sectors such as power (sectoral reforms) and automobiles (scrappage policy), which is quite disheartening. The NRIs/OCIs have not only been the wealth creators, but also the flag bearer of the nation, globally. Their contribution in nation building, especially at the time of economic distress cannot be underplayed. The budget is, therefore, disappointing to the community, as the NRIs have not been given the opportunity to be a part of India’s growth story. Furthermore, the changes in the definition of non-residency will make it difficult for many to maintain the NRI status.

Per se, the finance minister has introduced an aspirational budget that seeks to touch the very fabric of the society—aspirational India, economic development and caring society, but still it is passive. Touching the chord of Bharat, the allocation to farm sector at 2.83 trillion, incentives to state governments for implementing the schemes for farmers, differentiated approach towards horticulture, one district one product, proposals, etc., are praise worthy. The budget provided an opportunity for revolutionary reforms such as contract farming, but they were not deployed. The budget also dwells upon wellness, water and sanitation in continuation with the government’s policy to blend social reform with economic development. Budget 2020 aims to boost the income of people and enhance their purchasing power.

The high point of the budget is that the government has not gone overboard on spending. Setting the fiscal deficit at 3.8% of gross domestic product (GDP) in the current financial year, and 3.5% in FY21 is indeed a desirable and bold step in favour of growth. One thing comes out very clearly that the cost of doing business in India will go down by the virtue of various initiatives proposed—such as the setting up of a single investment clearance cell, no harassment policy for taxpayers, decriminalization of civil violations in the Companies Act, and ensuring the contracts are honoured, etc.

The abolition of the dividend distribution tax (a long pending demand) and removal of deduction of tax at the hands of the holding company is a welcome move. This move will certainly encourage investors to bring in the much needed capital. The faceless assessment scheme introduced last year is likely to boost taxpayer’s confidence and can go a long way in reducing uncertainty.

The budget is building on these themes to reduce tax litigation, make compliances easy and make India more competitive. Under the direct tax regime, solace is provided to individual taxpayers by reducing tax slabs for income of up to 15 lakh. The more important aspect is simplification of tax assessments/appeals and lower burden on the tax department due to a simpler process. The higher slabs could also have been rationalized as they are the wealth spenders. Focus on aviation, infrastructure, logistics, health, data centre park, renewable energy sectors and domestic manufacturing of network products should support the government to achieve the expected GDP of 6.5% in FY21. More specifically, allocation of 107 trillion for the infra sector would give the much desired fillip to job creation and boost the economy, especially to the renewable power sector, where 22,000 crore has been allocated. Solar energy is where the future lies to ensure 24x7 power to all our citizens. The key, however, lies in implementation.

The sweetener for the infra sector will be the tax exemption to foreign sovereign funds in priority, infra and other identified sectors. The additional momentum will be the concessional corporate tax rate of 15% to new domestic companies in the manufacturing and power sectors, and tax benefits to startups by way of deduction of 100% of their profits. NBFC liquidity is one of the key reasons for the economic slowdown in the country. The budget proposal of NABARD refinancing scheme for rural finance will ease liquidity concerns for NBFCs to some extent. To bring stressed NBFCs under the ambit of the SARFAESI act, the threshold limit for debt recovery has been brought down to 100 crore and the default amount of the borrower to 50 lakh. This is a good move and will help their recovery.

The budget fortifies its support to the stressed MSME sector, proposing to extend the moratorium for repayments by one more year. To encourage growth of the sector, the banks will also be participating in funding their subordinated debt. All these efforts will give an impetus to entrepreneurship and job creation.

The government is also quite resolute to move on its journey of divesting part of its holding in Life Insurance Corporation of India to the public. This will certainly bring in more efficiency and governance standards in one of the largest corporations in the country.

Gopichand P. Hinduja is co-chairman at Hinduja Group.

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