indianeconomicpanorama
34 News the Newsbehind JULY 08, 2019Going more granular, Gill writes, the
reliance on increased 1) custom duties
on several items 2) excise duties on
petroleum products 3) spectrum auction
proceeds of Rs 50,500 crore along with
4) disinvestments and 5) dividends
from RBI/financial institutions on
the revenue side make room for the
envisaged double-digit growth of 21%
in spending.
Th e demonstration of fi scal prudence,
Gill underlines, was accompanied
by according importance to reviving
private investments, amidst the current
slowdown in growth. As envisaged in the
Economic Survey, the budget deploys a
multi-pronged support structure to
kick-start a virtuous cycle of investments
via 1) reduction in corporate tax to 25%
for 99.7% of companies 2) infusion of
Rs 70,000 crore into public sector banks
3) one-time partial guarantee to high
rated pooled assets of NBFCs 4) further
relaxation of FDI in select sectors along
with easing local sourcing norms in
singlebrand retail and 4) eliminating
the angel tax issue for startups. Th is
should, in turn, help job creation and
augment incomes. From a medium term
perspective, the FM used the budget to
lay down the government’s vision for the
next 5 years; taking forward the reforms
and achievements of the last term.
LITTLE TO BOOST PRIVATE
INVESTMENT
According to C Rangarajan, editor,
Economic Time what stands out
prominently is the commitment to a
fiscal deficit at 3.3% of GDP. “But
much will depend upon how revenues
will move. In fact, the Economic Survey
expected the real GDP to grow at 7%
in 2019-20. But there are doubts about
whether this will happen or not.
Th e nominal GDP in 2019-20 is
assumed to grow by 12%. According
to the Budget Estimates, the gross tax
revenue is assumed to grow at 9.5%
which certainly is not high. In fact gross
tax revenue as a percentage of GDP is
expected to come down from 11.9%
in 2018-19 to 11.7% in 2019-20.
However, non-tax revenue is expected
to grow at 27.7%. Within it, dividends
and profi ts are budgeted to grow at
37%. Rangarajan is of the opinion that
“reliance on the non-tax revenues is
certainly high.”
Th e tax changes are minimal. But
some of them are signifi cant. Th e lower
corporate tax rate covers most of the
companies. It has not been extended to
all, presumably because the companies
left out are the ones which contribute
signifi cantly to the tax revenue. “It is not
clear whether the change will contribute
to a change in investment sentiment”
writes Rangarajan.
Th e surcharge on income earners
above Rs 2 crore, Rangarajan feels “will
be really biting.......Th e tax concession
given to affordable house owners is
welcome and this can have a direct
impact on investment. Tax concession
on purchase of electrical vehicles is also
welcome. Government must rethink the
imposition of customs duties on certain
products as this is a reversal of the
trend since liberalisation. It will create
unnecessary controversies globally.”
The proposal for government to
borrow in foreign currency, writes
Rangarajan “does not appear to be
correct. This essentially means the
exchange risk is borne by government,
unlike the situation in which foreign
investors are allowed to invest in
government bonds in rupees. Second,
there is certainly no need for government
to borrow as the foreign infl ows are
adequate.”
To conclude, Rangarajan says “both
the Economic Survey and the FM
talked of private investment driven
growth. Will the totality of the
measures introduced in the Budget
help in accelerating investment? As
mentioned earlier capital expenditures
of government as a proportion of GDP
remain the same. Th e other programmessuch as those relating to highways are
fi nanced by non-budgetary resources.
Th ere is however no measure in the
Budget which will result in an increase
in private investment. If however the
Budget as a whole helps to create a
favourable investment sentiment, it
will help.”
EASING FLOW OF CREDIT
TO FINANCIAL SECTOR
The Mint endorses the steps
unveiled in the budget to unclog the
financial pipelines, which ranged
from recapitalizing state-run banks to
ensuring a government-backed liquidity
window for fi nance companies. Part
of the plan includes empowering the
Reserve Bank of India (RBI) with
sweeping powers over non-banking
financial companies (NBFCs). In
addition, to grow retail participation in
treasury bills and government securities,
the government is preparing plans to
allow seamless transfer between the RBI
and depositories.
Th e FM said the government will
provide a one-time six month partial
credit guarantee to banks to purchase
assets from NBFCs under the pooled
assets purchase programme. Under
this, the viable assets of NBFCs will
be consolidated in a pool which can
be bought by state-run banks, with the
government standing guarantee for the
fi rst loss of up to 10%. Th e pool will
hold assets up to Rs1 trillion during the
current year.
CORPORATE TAX RATE
The tax relief for companies
is confined to small and mid-tier
businesses, with the minister choosing
to lower the corporate tax rate to
25% from 30% for enterprises with a
turnover of up to Rs 400 crore.
“Th is is a forward and backward
budget. Personal taxes going as high
as up to 50% takes us back to bad old
socialist days, but an increase in the
turnover threshold for lower corporate
tax rate is welcome,” said Nishith Desai