The finance minister has made a laudable attempt to stimulate both consumption and investment, for creating a virtuous cycle in the economy and revitalising sentiment. The measures should help lift the optimism of India Inc, and put India back on a sustainable higher growth trajectory. Higher allocation to the farm sector and rural areas, in a bid to double farmers’ income by 2022, and lowering of the income tax burden on the middle class are clear steps to boost income and purchasing power of Indians. In fact, rural India has been lagging for some time. By leaving more in the hands of the middle class through tax cuts, the finance minister wants to encourage people to move from savings to consumption, which will first lead to recovery and then growth.
Several other measures have been a continuation of the earlier investment-oriented thesis. Along with the corporation tax rate cut announced earlier, the current move to abolish DDT, lowering of withholding tax for FPIs, and the 100 per cent exemptions announced for sovereign wealth funds to invest in infrastructure will send positive signals to foreign investors, boost the infrastructure sector, and kick-start the economic cycle. Given this background, the slippage in fiscal deficit for FY20 to 3.8 per cent is expected. The fact that this is being supplemented through the disinvestment route — with the proposed LIC IPO, and the plan to sell the balance holding in IDBI Bank to private investors — shows there is a clear plan being implemented, which should hopefully help the economy touch its original growth vectors.
Rashesh Shah, Chairman & CEO of Edelweiss Group