In her maiden Budget, Union Finance Minister Nirmala Sitharaman attempted to tick all the right boxes but failed to alleviate India Inc’s key concern —lack of aggregate demand and private investment. There is no fiscal stimulus in the Budget, either by way of greater spending or a major cut in corporate or personal income taxes, as expected.
“Economic stimuli is clearly missing in this Budget. I am also not in favour of higher tax rates. They never work well. Taxing the super-rich, therefore, is not the way to go about it. Further, the move to reduce corporate tax on companies with turnover of Rs 400 crore will benefit the MSME sector, not larger firms,” says Adi Godrej, chairman of Godrej group.
The new tax slab of 25 per cent (revenue of below Rs 400 crore) covers nearly 99.7 per cent of all firms, but together accounts for less than 10 per cent of the corporate sector’s combined revenues, profits and assets.
“Large companies account for bulk of corporate sector revenues and assets, yet they continue to be taxed at the higher level, putting them at a disadvantageous position compared to their global peers and smaller firms in India,” says Sudhir Kapadia, National Tax Leader at EY.
“I do not find the Budget reformist. While initiatives like bank refinancing will help address liquidity concerns, I expected more reforms following the landslide victory of the BJP. The sense of disappointment among corporates stems from there,” says Harsh Mariwala, chairman of Marico.
The Budgetary allocation for most of the flagship programmes such as the rural employment guarantee scheme and rural roads projects that boost rural demand, was largely flat.
“Incremental growth in the overall government expenditure in FY20 is loaded in favour of revenue expenditure rather than capital expenditure. This will disappoint many who expect public investment to compensate for lower capex by the private sector,” said Dhananjay Sinha, head (strategy) and chief economist at IDFC Securities.
There is a fear that new tax proposals — such as rise in tax on high income earners and taxes on share buyback by listed companies — will worsen rather than boost the vicious cycle of lower savings and investments in India.
“High earners have greater propensity to save and invest. The rise in taxes is now likely to reduce their savings, affecting overall savings and investment in the economy,” says Kapadia.
Share buyback by listed firms, to be now taxed at 20 per cent against 10 per cent earlier, will hit cash-rich companies such as Tata Consultancy Services, Infosys and Wipro. Companies completed share buyback worth Rs 45,000 crore in FY19, up 65 per cent over last year.
Others are disappointed at the lack of any big-bang reform in the Budget that could spur India’s long-term growth potential.
“This looks like a continuum Budget, rather than a step-change of any kind. At a macro level, yes, there is nothing to spur capital investment. The challenge for the finance minister, I believe, was to address the financial sector before the corporate sector, and the minister has taken some reasonable steps in that direction,” says Harish H V, managing partner at ECube Investment Advisors.