Opinion | A blueprint to fire up country’s slowing economy
2 min read . Updated: 05 Jul 2019, 11:27 PM ISTRecapitalization of PSBs will strengthen the financial sector and increase credit flow
The maiden budget presented by the first full-time woman finance minister and economist Nirmala Sitharaman provides a blueprint to fire up the slowing economy and realise Prime Minister Narendra Modi’s vision of India becoming a $5 trillion economy by 2025. She has exercised caution and prudence to keep fiscal deficit at 3.3% of gross domestic product (GDP) against 3.4% assumed in the interim budget. This will improve the image of India with foreign rating agencies.
The external debt is less than 5 %, which is globally the lowest. The ability to raise foreign currency borrowing and the divestment target of ₹1.05 trillion, together with public-private partnership, will provide funds for investment in social and physical infrastructure. The budget seems to have placed heavy emphasis on sustainable job creation through targeted investment in specific infrastructure, such as housing, road and ports.
The budget’s Jal Marg Vikas project and Sagarmala projects have substantial spin-off effects, such as reducing transport costs, improving logistics and increasing competitiveness. It will not be out of place to mention that each direct job created has the beneficial impact of three subsidiary and tertiary jobs. At another level, the budget has approached the skill sets issue by promising a revamp the higher education and research systems.
To that extent, the budget has approached the sagging economy problem in an innovative manner. Sustainable jobs will boost consumption demand for both manufactured goods and consumption items.
Our manufacturing sector can become part of a global supply chain. Measures to strengthen the micro, small and medium enterprises (MSME) sector will make it globally competitive and thus enhance export capability.
The proposed higher investment in agriculture and the emphasis on producer organisations and allied agricultural activities will support private entrepreneurship and enhance the income of farmers.
Plans to expand foreign direct investment in aviation, insurance and media, allowing social enterprises to list on stock exchanges are some of the interesting announcements one looks forward to. The incentives provided for affordable housing and the government’s plan to restructure the national highways, along with the massive modernisation plan of the railways, will create more demand for industrial goods.
Recapitalisation of public sector banks by ₹70,000 crore and measures to strengthen non-banking financial companies (NBFCs) will strengthen the financial sector and increase credit flow. It will enhance manufacturing capacity and productivity, job creation and private investment. The proposal to widen the income tax rate of 25% to cover all firms with annual turnover of up to ₹400 crore will help companies invest and expand. This will be applicable to 99.3% of all firms in India. The additional income tax deduction of ₹1.5 lakh on interest paid on loans taken to purchase electric vehicles is a welcome step. Relief to startups in the angel tax issue will spur innovation and result in more inflow of foreign direct investment. Simplification of the filing of tax returns will reduce evasion and lead to improved compliance and a more buoyant economy with revenue gains rather than losses.
On the whole, the budget is a well-crafted document, which on implementation, will place India in the growth trajectory of 8% and above.
Gopichand P. Hinduja is co-chairman, Hinduja Group.
