Nirmala Sitharaman's maiden Budget hits the right notes to propel growth

Budget 2019 provides the implementation roadmap for the government’s vision of transitioning India to a $5-trillion economy. It focuses on tapping different sources of capital to kickstart investment, strengthening infrastructure, encouraging entrepreneurs and deepening digitisation.
 
The finance minister has sent a strong signal to the world that India is open for business. Further opening of FDI in aviation, media and insurance sectors, allowing 100 per cent FDI for insurance intermediaries and easing of local sourcing norms for FDI in single-brand retail as also the move to increase the statutory limit for FPI investment in a company from 24 per cent to the sectoral foreign investment limit should help attract foreign investments. The announcement of a lower fiscal deficit of 3.3 per cent for 2019-20, a reduction by 0.1 per cent against the earlier target, is a positive signal. Together with the commitment to open external borrowing channels, it will reduce the pressure on domestic savings and interest rates, thereby stimulating growth.

 
Recognising the woes of non-banking finance companies (NBFCs), specific measures have been announced to facilitate funding to this sector, while strengthening the regulatory authority of the RBI over NBFCs. For purchase of high-rated pooled assets of up to Rs one lakh crore of financially sound NBFCs, the government will provide a one-time six months' partial credit guarantee to Public Sector Banks for their first loss of up to 10 per cent. The banking sector too will be provided Rs 70,000 crore capital.  These supportive measures will boost credit and ease liquidity.   
 

The decision to not subject start-ups to any kind of scrutiny in respect of valuations of share premiums is also welcome. The special administrative arrangements for pending assessments of start-ups and redressal of their grievances, the relaxation of the conditions for carrying forward and setting off losses and extension of the exemption period for capital gains arising from sale of residential house for investment in start-ups up to March 31, 2021 are all aimed at fostering entrepreneurship and employment.  One of the most path-breaking announcements is the launch of e-assessments. This technology-intensive project involving multiple agencies will transform assessments to remove any personal interface between taxpayers and tax officers, thereby improving compliance and enhancing revenues.

The move to introduce the Legacy Dispute Resolution Scheme for matters relating to service tax and excise will help reduce litigation, which has been a serious concern. The industry would also welcome the measures to ease processes under GST. The launch of a simplified single monthly return, free accounting software for return preparation for small businesses, an electronic invoice system that does away with the need for a separate e-way bill and a fully automated GST refund module will tremendously help improve compliance.
 
The increase in surcharge on high income individuals is particularly steep. The salaried class is the most tax compliant class of taxpayers. Penalising them further with an increase in surcharge from 15 per cent to 25 per cent for income above Rs 2 crore and 37 per cent for income exceeding Rs 5 crore will be discouraging.

 
The scope of companies that will enjoy the reduced 25 per cent tax rate has been widened. However, India has one of the highest tax rates among emerging economies. In this environment, in order to attract investments, the government will need to stimulate both demand and growth.
 
Overall, the Budget provides a determined focus on addressing the issues that are holding the economy back. It provides a long-term direction for higher growth and a better quality of life for all. Many of the initiatives will require resources that are contingent upon targets of disinvestment, tax buoyancy and nominal growth assumption of 12 per cent. Going forward, the focus should be on realising these targets to achieve the potential growth.

  The writer is Chairman and Regional Managing Partner — India, EY