indianeconomicpanorama
32 News the Newsbehind JULY 08, 2019bracket was a bad idea. “Th e government
is increasingly making the economy
uncompetitive with neighbours with
high levels of corporate tax and income
tax. Expect more Indians to disappear
to low-tax land,” he said.
Aiyar also expressed reservation over
rising protectionism for a large number
of items. “It is a bad trend. We should
be internally competitive,” he said.
A paradigm shift however, “is the
decision to move part of government
borrowings to foreign markets.......
Excess liquidity in foreign markets
has created negative bond rates in
countries such as Germany, so there
will never be a better time to borrow
abroad cheaply, despite currency risks,
to fi nance domestic investments. But
capital spending in the budget goes
up only 6%, half the nominal GDP
growth rate, so this cannot be called an
investment-led strategy.”
Noting that FDI had risen to
$64.4 billion in 2018-19, the FM
proposed further opening up of FDI
in civil aviation and insurance. FDI
of 100% will be allowed in insurance
intermediaries. Also, local sourcing
norms will be eased for single-brand
retail. These are incremental rather
than big-bang steps, but nevertheless
welcome.
Th ere are other positive steps. Th e
pledge to recapitalisation banks by Rs
70,000 crore should revive lending in a
big way. Th is can boost growth through
booming credit rather than loose fi scal
policy.
The government would consider
bringing down its shareholding to
below 51% in public sector enterprises.
“Th is is highly desirable, as it will free
companies from the travails of the CVC,
CBI and CAG. It could materially
improve the share prices too. Startups
have been given a boost. Th e angel tax
on supposedly excess share valuation is
going to be virtually abolished, ending
an extraordinary irritant.”
Non banking fi nancial companies
(NBFCs) have also been given a lifeline.
The government will provide credit
guarantee to banks to purchase Rs 1
lakh crore worth of pooled assets of
highly rated NBFCs. Th is will greatly
ease the liquidity problems of the sector,
and revive their lending to MSMEs.
Regulation of NBFCs by the RBI will
be strengthened simultaneously to
check loose lending practices.
Faceless income tax assessments is
another welcome step which should
reduce corruption in tax offi ces, and
promote compliance. Tax scrutiny will
be on a completely random basis to
check tax harassment.
3.3% DEFICIT TARGET IS
CHALLENGING
The Budget has reiterated the
government’s commitment towards
fi scal consolidation and its priorities
towards improving infrastructure, ease
of living and doing business. The
overall fi scal defi cit has been marginally
reduced to 3.3% from 3.4% in the
Interim Budget.
An expected cut in tax revenues has
been off set by higher non-tax revenues
and disinvestment proceeds, while the
total expenditure allocation is largely
unchanged from the level projected in
the Interim Budget.
Additionally, an increase in the
level of GDP estimated for FY2020,
has resulted in the fi scal defi cit now
being projected at 3.3% of GDP for
this fi nancial year, compared with 3.4%
of GDP as targetted in the Interim
Budget.
Although the estimated tax revenue
for FY2020 has been revised downward
by around Rs 50,000 crore from the
level projected in the Interim Budget,
the growth in tax revenue relative to the
provisional fi gures for FY2019 released
by the CGA remains significant at
around 25%.
This, according to Aditi Nayar,Principal Economist, ICRA, “may
prove challenging to achieve despite
the tax proposals made in the
Budget, such as higher surcharges for
certain categories of income taxpayers,
enhanced duties and/or cesses on items
such as petrol, diesel, gold and precious
metals etc.”
REVIVAL OF ECONOMY
COULD TAKE LONGER TIME
THAN EXPECTED
N R Bhanumurthy writing in the
Economic Times has reservations on
increasing investments in infrastructure
through PPP mode for a huge target of
Rs 100 lakh crore. “As the Economic
Survey pointed out, in order to increase
investments there is a need to augment
savings too. In fact, the Survey argues
that the savings rate should be higher
than the investment rate in order to
achieve 8% growth for the next fi ve
years. But the Budget ignores this issue
with no specifi c proposal for savings.
And it seems to take the Survey’s view
that it is only the lower cost of capital
that would lead to investments. Th is in
my view is not backed by the empirical
data. What has been found of late is that
interest rates are a major determinant
of savings. Now, in the absence of any
policies for domestic savings, it appears
that we might have to depend more on
foreign savings, which could be risky.
And the government has already hinted
about borrowing from abroad to fi nance
the fi scal defi cit!”
And “if the proposals to revive
investments (especially private
investments) do not materialise and
if the government does not undertake
expansionary fi scal measures with its
concern about fi scal targets, then the
revival in the economy could take longer
time than expected.”
A $5 TRILLION ECONOMY
BY 2024 IS A CHALLENGE
Rajeev Gowda (Rajya Sabha
member and a senior leader of the
Congress who also heads the party’s