News behind the News – 08 July 2019

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indianeconomicpanorama


30 News the Newsbehind JULY 08, 2019

growth of the Indian economy, and
will potentially help in attracting large
players in the single-brand retail sector,
including the likes of Apple,” said
Prabhu Ram, head of intelligence group
at Cybermedia Research.


Over the long-term, this move will
contribute to an attitudinal shift in
domestic home-grown manufacturers,
resulting in enhanced effi ciencies and
increased competitiveness.


DISINVESTMENT THROUGH
TAX BREAK


Th e Centre has increased its target
of raising funds by disinvestment to Rs
1,05,000 crore in the Budget, up from
Rs 90,000 crore in the interim budget
in February. Th e Finance Minister has
proposed a further consolidation of the
Centre’s holdings in PSUs, both in the
fi nancial and non-fi nancial sectors. She
has also proposed bringing down the
government’s stake in CPSEs below 51
per cent on a case-by-case basis.


From 2009-2010, the total
disinvestment proceeds have touched
over Rs 3,80,000 crore, with nearly Rs
2,80,000 crore coming from Narendra
Modi’s fi rst term from FY15 to FY19.


Th e Centre had struggled to meet its
disinvestment targets in earlier years.


In the past fi ve years, the Centre has
used tools like exchange traded funds to
sell its stake in PSUs. Now, the Centre
hopes that by off ering tax deductions to
retail investors in instruments akin to
the tax benefi ts for equity-linked savings
schemes of mutual funds, it could boost
retail participation.


DEFENSE


The Indian defense spending for
fi nancial year 2019-20 was pegged at
3.05 trillion rupees ($45 billion), with
no change in the allocation made in
February’s interim budget. Although
this is higher than the revised estimates
from the previous fi scal of 2.85 trillion
rupees, it’s only going to keep pace
with infl ation and does not represent


a real increase. The exemption in
Customs Duty for imported military
equipment was the only benefi t. Th is
is likely to improve cash fl ow for the
armed forces.
India’s defence budget, although
among the world’s highest, is barely
enough to cover the ambitious
modernisation goals that the country
has set for itself. In the Interim Budget
announced on February 1, 2019, the
government allocated a little over Rs
3 lakh crore for the defence budget
(excluding pensions), but the bulk of
this money, as the norm has been, would
go towards ‘Pay and Allowances.’

INCENTIVES FOR ELECTRIC
VEHICLES
Th e budget has allocated Rs 10,000
crore to the Faster Adoption and
Manufacturing of Electric Vehicles
(FAME II) scheme. Th e government
will also provide additional income tax
deduction of 1.5 lakh on the interest
paid on loans taken to purchase electric
vehicles (EV), in a move to make EVs
aff ordable to consumers.
Th is amounts to a benefi t of around
2.5 lakh over the loan period to the
taxpayers who take loans to purchase
electric vehicle. Th e government has
also moved GST council to lower the
GST rate on electric vehicles from 12
per cent to 5 per cent, she said. With
an intention to incentivise e-mobility,
customs duty is being exempted on
certain parts of electric

CORPORATES
Th e Budget reduces the base rate for
companies (with turnover of less than
Rs 400 crore in FY 2017-18) to 25%
from 30%. Th us, the eff ective tax rate
after surcharge and cess will be 29.12%
instead of 34.94%.
India Inc now has the onus to
promote digital transactions. All business
enterprises having an annual turnover of
Rs 50 crore or more have to provide an
electronic mode of payment to their

customers. Non-compliance will entail
penalty of Rs 5,000 per day

ANGELS TAX DECODED
Investments in startups from a
more diverse set of funds will now be
exempted from the dreaded angel tax,
an issue that has plagued the country’s
new economy for nearly a decade.
The so-called angel tax refers to
Section 56 (2) (viib) of the Income
Tax Act, under which the diff erence
between the price at which an investor
buys shares of a startup and the fair
market value of such shares, was deemed
as taxable income.
Terming the decision as long overdue,
Rahul Bhasin, managing director, Baring
Private Equity, India, said: “Whether it
will increase the fund fl ow and improve
the decision-making process is still a
question but the measure has cleared
the air at least.”
$10 BILLION FOR STATE-
RUN BANKS
A plan to infuse capital worth 700
billion rupees ($10 billion) and provide
a partial one-time guarantee on loan
defaults on borrowings by shadow
banks may help state-run banks. And
shielding lenders by strengthening the
Reserve Bank of India’s regulatory hold
on default-prone non-banking fi nance
companies could help the beleaguered
public sector banks.

HIGH AND MIDDLE-
INCOME EARNERS
Wealthy and middle-class tax payers
are unhappy. Sitharaman proposed
to raise tax on income earners above
20 million rupees. India sought to
discourage cash payments by levying
2% tax on withdrawal of over 10
million rupees in a year. In addition,
tax payers will have to spend an extra
two rupees on every litre of gasoline and
diesel they buy. Th at’s going to have a
cascading eff ect on infl ation as travel
and food costs rise.
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