Budget insights: Union Budget 2019

The Finance Minister’s Budget speech re-iterates the Government’s thrust on minimum Government and maximum governance. Ramping up infrastructure investments to Rs 20 lakh crores a year would help India move to the 8% growth trajectory. The proposed Expert Committee will have a critical role to play in channeling long term private capital to meet this need. Resource mobilisation through further disinvestment and increase in tax rates, and encouraging banks to take risks in lending to NBFCs through partial guarantees to ease credit flow is likely to have a positive impact. The focus given to the MSMEs and the rural sector is welcome. 

The theme of 'enablement' has played out in the Budget, through multiple measures like interchangeability of PAN/Aadhar, pre filled tax returns, part removal of the 'startup tax' pain and e-assessments. Tax sops granted to IFSC should further help in the 'Make in India' initiative.
Revenue shoring is proposed with an increase in effective income tax rates for HNIs, with projected GST revenues being revised downwards. Announcements made to undertake reforms in rental laws, education and labour augur well, as with the proposed infusion of additional capital in PSU banks.

The thrust on ease of doing business, incentives to unleash the entrepreneurial spirit and simplification of the tax administration are welcome moves to make India fit for future. While it is an industry friendly and citizen-centric budget, important sectors like healthcare could have got more budget allocation.

The initiatives to stimulate entrepreneurship and make the education system future ready will go a long way towards building a USD 5 trillion economy.

Indirect tax proposals are based on promoting the key themes around Make in India, environmental concerns, technology-led tax administration and ease of doing business. Implementation of E-invoicing from Jan 2020, will give time to the Government as well as industry to prepare. Customs duty rates have been reduced on many inputs to incentivise manufacturing and have been increased on finished products to garner additional revenues as well as to reduce non-essential imports. The proposal to introduce a legacy dispute resolution scheme for pending litigation is also a great idea and should help the industry to move on with GST in place. Interest subvention for GST registered MSMEs should help in expansion of the tax base while reducing the cost of doing business.

The Budget endeavours to address some major concerns faced by start-ups in India. The announcements are likely to further fuel the entrepreneurial spirit within the country. Easing of angel tax regulations was much needed. However, it’s enforcement would entail the need for stringent directions and complete transparency. The execution roadmap for the other interventions announced today would also need to be thought through in a speedy and cohesive manner. It would be interesting to see the impact of the exclusive TV channel and how it changes the discourse around the start-up community in India and makes them fit for future. India should look at emulating best practices from other mature start-up and scale -up ecosystems in the world to address challenges around ease of market access and further incentivising the entrepreneurial mindset among India youth

In the Union Budget, the government has focused on incentivising MSMEs, infrastructure development and boosting rural and agrarian economy which will fuel growth in manufacturing sector going forward. Tax proposal to lower 25% corporate tax rate applicable to companies with turnover upto INR 400 crores and increasing import duty on select products augurs well for Government’s Make in India initiative.   

Overall, a forward-looking Budget for the real estate sector. Laying down a roadmap for Rental Housing is a step in right direction to align with global trends of co-living spaces, given the changing demographics in the country. The increased thrust on education is likely to boost the Student Housing asset class. Aligning the affordable housing definition with GST and may lead to certain 'under planning' project developers to go back to the drawing board.

The aspirations and support of manufacturing new-age technologies – solar PV, electric vehicles, storage batteries and charging infrastructure will go a long way in making the energy sector fit for future. It can be transformational for attracting private investments to the sector as well. The focus on group captives can trigger massive interest among large international utilities to invest in the power sector in India. Captive rules amendment which has been in discussion for a long time now, should conclude soon.

The announcement to set up a National Research Foundation to look at national priorities and converging the funds allocated to all ministries is a welcome step in making India fit for future. This would help in making the research more practical and relevant to solve important problems locally than do more academic research.

The announcement that PAN and Aadhaar is to be made interchangeable for Income Tax, does away with the need to have another identity proof, perhaps the first step to abolish PAN altogether for individuals. This also paves the way for better tax compliance with a single identifier and data-driven governance.

The ASPIRE scheme, aiming to create 100 technology and livelihood incubation centers, will boost the entrepreneurial spirit among the youth and encourage them to come up with innovative business ideas in the agriculture sector. This will go a long way to make the Indian agricultural industry fit for future.

The focus of the government is clearly shifting towards the adoption of cleaner energy, providing incentives and benefits to batteries manufacturing in India and tax benefits to consumer directly for major electric vehicle penetration in the economy.

The one-grid agenda is not new, but intensive investment in the resource rich states is now urgent. This will allow transfer of cheaper renewable energy to other states, and equally, help exporting states manage the challenges of surplus. This is also critical to avoid states forcing renegotiation of PPAs and protect the private investments, thereby contributing to an energy sector which is fit for future.

The tax proposals are very pragmatic in dealing with the Angel Tax issue and applying the 25 pc rate to companies having turnover upto 400 cr on one hand and even deviating from the policy of phasing out tax exemptions to provide tax incentive on mega parks under section 35 D. Imposing higher taxes on the rich is the measure to increase revenue in addition to using technology. Additionally, the higher investment targets shall also support in increasing revenue. It was expected that corporate tax would have been made more competitive for all businesses. Overall, a pragmatic budget that is responsive to ground realities and one that seeks to reduce litigation and make the tax administration technology enabled.

The key theme of this Budget has been a focus on ease of doing business as far as GST is concerned. The proposals include single monthly returns, free accounting software for small businesses, fully automated refund mechanisms and more. The focus on GST has also been on technology where E-invoicing will be rolled out from January 2020. In customs, the main theme has been Make in India and less imports. This means that customs duty on many raw materials have been reduced so that goods are manufactured in India. On the other hand, customs duties on final products have been hiked to reduce imports. Electric vehicles are getting a big boost which means that environmental concerns have been considered. Also dispute resolution for the legacy matters of excise and service tax is a welcome step.

The Government of India has stated its clear intent to push forward the adoption of Electric Vehicles (EVs). Allocation of Rs.10,000 crore to the FAME 2 scheme, import duty exemption on EV components, additional Income tax deduction of Rs.1.5 Lakhs on interest paid on loans for buying EVs will activate demand for electric vehicles. However, sustained growth of electric vehicles will require several other measures. Import duty increase for selected automotive components will support manufacturing in India. The Indian automotive industry, reeling under the pressure of demand slowdown, was expecting some short-term measures for demand activation. However the Government has chosen to instead focus on structural changes that will benefit the automotive industry in the long-term.

The Budget recognises the need to ramp up Infrastructure investments to Rs 20 lakh crores a year, to put India on the 8% growth trajectory. The budget touches on various infrastructure sectors, providing continuity in some and proposing new direction to others. Delivering on these will require addressing concerns of current investors, as well as attracting new investors, domestic and international, into India infrastructure. Policy support for airport leasing and MRO industry have been demands of the industry. The budget proposes to address these, and further strengthen India's position as a major aviation market.

The 2019 Budget Incentives to set up large scale and high-tech manufacturing plants, comes at an opportune time, given the emerging restructuring of global supply chains sparked off by the US-China Trade war. It could serve a much-needed booster-shot to the Make-in-India program – as well as to emerging industries such as Electric vehicles and the renewables sector. However, in addition to fiscal incentives, accelerating the “Ease of doing business” initiatives, will be required to deliver on the promise and potential.