NEW DELHI, 1st February 2020: Commenting on the Union Budget 2020-21 presented today, Dr. Sangita Reddy, President, FICCI said, “Given the constraints that the Finance Minister was facing, the budget has been a significant balancing act between the need for growth and fiscal prudence. The government has done a commendable job and the various measures announced will strengthen India, individuals, and industry. By invoking the deviation clause in FRBM Act and relaxing the fiscal deficit to 3.8 per cent in the current year and targeting 3.5 per cent in the next year, the government has underscored its resolve to support the economy at a time when it needs a fiscal boost. This was FICCI’s key suggestion to the government and through this we expect more money will be left in the hands of the people that will spur consumption and industrial growth. Much of this money will go towards capital expenditure in infrastructure and agriculture sector – two areas that can have the maximum growth enhancing impact.”
The government could also consider front-loading the payments under PM-KISAN in the coming year as this could help boost consumption in the rural economy.
Reiteration of the importance of wealth creators in the society in the budget speech is also encouraging and should help build a positive environment for businesses in the country.
The presentation of the budget and the structure that was followed by the Finance Minister was both interesting and all encompassing. In line with the Prime Minister’s vision of ‘Sabka Saath, Sabka Vikas, Sabka Vishwas’, the budget outlined a series of measures to enhance the ease of living for the people of our country and promote welfare of all sections of our society. The building blocks for growth of any economy are the social sectors such as healthcare, education and skill development. Each of these areas has got due attention with appropriate outlays in the budget and it is commendable that the government has kept its focus on the long-term goals and has not curtailed the resources allocated for the social sectors. While Rs 99,300 crore has been allotted for the education sector Rs 69,000 crore; Rs 12,300 crore and Rs 3,000 crore has been allocated for the Healthcare sector, Swacch Bharat program and Skills Development respectively.
The several small steps taken to boost entrepreneurship and employment will meet the aspirations of the youth of our country. With an emphasis on the fisheries sector, the government will involve youth in fishery extension through Sagar Mitras and Fish Farmer Producer Organisations. Special skills and language training will be imparted for teachers, paramedics, nurses and caregivers who could potentially work in other parts of the world. A further boost to apprenticeship program; involving young engineers, management graduates and economists from universities in infrastructure project preparation; and internship with Urban Local Bodies will help in engaging our youth gainfully and prepare them to contribute towards nation building.
The budget also laid a lot of emphasis on development of the industrial and infrastructure sectors. There is a proposal to set up an Investment Clearance Cell to provide end to end facilitation and support to investors. There is a renewed focus to promote manufacturing of mobile phones, electronics, semi-conductor packaging, technical textiles and medical devices. By developing the domestic industry in these areas, we will be able to economise on imports of such items. For setting up of hospitals, especially in the aspirational districts of the country, a new viability gap funding model has been proposed that will support such projects on the PPP mode. Similarly, ECBs and FDI will be leveraged for the education sector in the country. Hon’ble Finance Minister has also announced that the government would examine the statutes that entail criminal liability for acts that are civil in nature. This point was strongly recommended by FICCI and will hugely improve investor confidence.
Further, the focus on MSME financing with greater support for exports is also noteworthy. Likewise, raising the annual turnover limit from Rs 1 crore to Rs 5 crore for mandatory audit will help ease the compliance burden on MSMEs. We have also noted that with a view to boosting labor-intensive sectors in MSME such as footwear and furniture, customs duties in these areas have been raised.
The Finance Minister also laid a lot of emphasis on many futuristic areas. Recognizing the new economy trends, the budget outlined plans for harnessing the potential and opportunities offered by artificial intelligence, Internet-of-Things (IoT), 3D printing, drones, DNA data storage, quantum computing, etc. A new policy that would enable private sector to set up Data Centre parks across the country is also on the anvil. Knowledge Translation Clusters would be set up across different technology sectors including new and emerging areas. Further, as mapping of India’s genetic landscape is critical for next generation medicine, agriculture and for bio-diversity management, government has proposed to initiate two new national level Science Schemes, to create a comprehensive database. Plan has been outlined to develop five new smart cities in collaboration with States in PPP mode. On other the futuristic infrastructure projects, while the Delhi-Mumbai Expressway would be completed by 2023, Chennai-Bengaluru Expressway would also be started.
Some of the other areas in the budget that attracted our attention include the plan for disinvestment, the public offer of LIC, restructuring and introduction of new personal income tax framework, clarification offered with regard concessional 15 per cent tax on power companies, extension of the incentive period for the affordable housing sector and exemption from tax on Sovereign Wealth Funds on investments in infrastructure sector. Many of these suggestions were part of FICCI’s pre-budget recommendations and we are happy to see these included in the budget.
Another highlight of the budget was the government’s announcement to incentivise and support states that would adopt the three Model Acts that can help transform the agriculture sector. FICCI has for long been advocating such a model for engaging states to further reforms.
Some of the areas which could have been considered by the Hon’ble Finance Minister are removal of long-term capital gains tax, measures for clearance of the real estate inventory, further improving the regulatory environment for industry and steps to reduce the cost of doing business in the country. Sectoral focus especially for information technology, new age businesses and tourism were expected and missing.
While the steps announced are progressive and set aspirational targets, the real impact would be determined by the implementation on the ground. There has to be a laser like focus on execution. Our experience in some of the areas such as disinvestment has been less than encouraging. In our view meeting the disinvestment target for 2020-21 would require measures such as the one suggested in the Economic Survey of setting up a separate professional entity – an investment holding company like Temasek.