Finance Minister has presented 2019-20 Budget which is growth oriented, touching concern areas, attempting to ease bottlenecks and yet trading on fiscal conservation path. Economy is facing severe head winds, such as slowdown in growth, falling consumption demand, dearth of private investment, rising unemployment, rural distress, etc. At this background, the market was expecting big bang fiscal stimulus to kick start falling economy. While avoiding fiscal stimulus route, adhering to fiscal consolidation path, Finance Minister has come out with slew of measures which would ensure growth and employment in next 5 years. The Finance Minister has estimated fiscal deficit at 3.3% instead of 3.4% for 2019-20. We will summarize some of the proposed steps which would attempt to help economy to bring it on growth track.
The Government has proposed to spend Rs. 100 lakh crores on infrastructure development during the next 5 years – in roads, ports, power, waterways, telecom, etc. Though the budgetary support for these investments could be miniscual, a major contribution would be coming from Debt, FDI, PPP Contributions, etc. Such a huge spend would help boost economic growth and support employment generation in big way. Railways alone would be spending about Rs. 50 Lakh Crores for next 10 years, these would be also ensured through PPP, Debt, FDI, etc. besides budgetary support. While the Government attempted to boost economy, through infrastructural spend during last 5 years, the other vital leg of economy, private capital investment has been negligible. There were many legacy issues in the sector, such as over leveraged balance sheets, NPAs, excess capacity, etc. Since attempts have been made to alleviate these issues during the last 5 years, now the things are looking up. For private capital investment, few essential things need be there as facilitators- availability of liquidity in the system and low interest rates. Budget has provided Rs 70,000 Crores for banks’ capitalizations, which would take care of regulatory capital required and at the same time will provide growth capital which would facilitate banks to deploy about Rs. 4 lakh crores through lending, to corporates, MSMEs and agriculture in next 2-3 years.
One of the reasons for high interest rates is of very high Government borrowings in the market, crowding out the funds for deployment in private capital investment. Government has first time come out with a plan to raise part of funds required through sovereign debt bonds. This would ensure borrowings internationally at low interest rates in prevailing interest rates market. This would also create benchmark interest rate for Corporates, based on sovereign borrowing rate, which would help them to raise funds in international market at competitive rates. Raising deficit gap funding from outside, would ensure equivalent funds availability in domestic market for Corporates, MSMEs, etc. This would ensure reduction in interest rate and availability of funds for domestic borrowings.
Finance Minister has proposed to streamline multiple labour laws into set up of four labour codes. So the reform in labour areas will give boost to employment significantly.
NBFCs are important for lending to small borrowers, however, they are in problems due to liquidity crunch. Government has come forward with a proposal to provide partial guarantee to the banks to the extent of Rs 1 lakh Crores, for the next 6 months, for the portfolio purchases of the NBFCs by the banks. This would help reduce the problems of NBFCs, which would ensure lending by them to small businesses.
Housing sector is a very important sector of the economy which provides significant employment. The sector is in financial trouble due to liquidity issues and low demand. So to boost the demand, Government has provided additional interest rebate of Rs 1.5 lakhs in income tax, making it Rs. 3.50 lakhs, for purchase of affordable house with cost limit of Rs 45 lakhs. So for purchase of affordable house, interest rebate would be available of Rs 3.5 lakhs on loans availed by the house buyers till 31st March 2019-20. This is expected to boost the demand for house buying and would ensure liquidity to real estate sectors. Similarly new interest rebate of Rs 1.50 lakhs is proposed for interest on loans availed for buying electrical cars and two and three wheelers. Electrical vehicles sector is sunrise industry which is expected to grow fast ensuring employment and reduction in imports of petroleum products, reduction in pollution, etc.
Government has come out with hike in custom duties in respect of some items so as to give boost to domestic units to grow under Make in India.
Government has also proposed to reduce custom duties on products of sunrise industry, providing incentives to global industries to come and establish their units in areas such as production of semi-conductors, laptops and computers, photovoltaic cells, solar electric charging infra, lithium storage facilities, etc. Government has proposed investment linked IT exemption to these units under 35 AD of IT Act. The large units with huge investments are expected to be established by international giants, at the background of trade tensions between China and USA.
The provision of Rs 350 crores is made in budget for interest subvention of 2% to MSMEs, those who would be availing loan or enhancement up to 31st March 2020 and those who have been registered under GST, are eligible for the same. Further, provision of Rs. 2327 crores is made for PMRGP, with the rise of 117% over last 2 years. Government would also make a provision of a portal where MSMEs shall be uploading their invoices for sales. This provision would ensure timely payments to MSMEs by corporate buyers.
The issues pertaining to start-ups in respects of Angel Investment Tax have been iron out withdrawing the same, which would ensure continuation of Angel Funding to these start-ups.
The provision of Rs 4.3 lakh crores is made for rural sector, with 22% rise over last year. Agriculture, agricultural produce, would be given boost through 0 budget forming and formation of 10,000 Farmers’ Produce Organisations.
Women’s contribution in production in rural areas has been lauded by the Finance Minister. To boost their production and ensure their economic empowerment, FM has announced Rs 5000 OD to each member of SHG which is recognised and whose members have Jan Dhan accounts. Besides one member of SHG women group would be eligible to avail a business loan of Rs 1 lakh under MUDRA. Government has made provision of Rs 9024 crore under NRLM, which is 56% higher than last year. This will ensure boost rural employment for women effectively.
In nutshell, every attempt is made to boost investment which will in turn ensure growth in productivity and help boost in employment. The success of this budget would largely depend on the successful implementation of the same in respective areas.
Mr. Ashok Magdum
Mr. Magdum has 37 years of experience in banking, law, finance and psychology. He was a member of the board of administration at Maharashtra State Co-operative bank, Mumbai during 2015-17.