Union Budget 2019 — What’s in it for Investors?
The Government of India with an ambitious target of doubling the GDP to $ 5 tn presented the Union Budget for 2019-20. While presenting the budget, The Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman outlined the positive impact of the schemes introduced by the Modi Government on the economy and the lives of the citizens of India. Overall, the budget was in sync with the Government’s vision of leveraging infrastructure development as a tool to drive economic growth. The budget was also heavily focused on improving citizens’ lives and well-being in both rural and urban India.
Below are the key insights from the budget and the plausible impact on the economy:
I. Easing FDI Investments and Foreign Portfolio Investments
- Possibility of allowing higher foreign ownership in aviation, media and insurance sectors . 100% FDI allowance announced for insurance intermediaries.
- Relaxation in sourcing norms for Single-brand Retail Trade to facilitate entry of retailers offering technologically advanced products.
- The statutory limit for Foreign Portfolio Investment (FPI) in companies to be raised from 24% to sectoral FDI limits.
- Rationalisation of existing Know Your Customer (KYC) norms for FPIs.
- Higher Basic Custom Duty (BCD) to encourage local manufacturing across cashew kernels, PVC, Vinyl flooring, tiles, metal fittings, mountings for furniture, auto parts, certain kinds of synthetic rubbers, marble slabs, optical fibre cables, CCTV cameras, IP cameras and digital and network video recorders.
- Rationalisation of duties on certain raw materials and capital goods such as inputs of CRGO sheets, amorphous alloy ribbons, ethylene dichloride, propylene oxide, cobalt matte and naphtha to name a few.
II. Reducing Cost of Capital for Businesses and Infrastructure
- INR 20 tn ($ 300 bn) is needed every year to ensure investment-driven growth in India.
- Deepening the market for long term bonds including corporate bond repos, credit default swaps, etc.
- Creating Credit Guarantee Enhancement Corporation in 2019-20.
- FIIs/FPIs in debt securities issued by Infrastructure Debt Fund — Non-Bank Finance Companies (IDF-NBFCs) to be transferred/sold to any domestic investor within the specified lock-in period.
III. New Scheme for Mega Factories in Advanced Technology Areas
- Special indirect and direct tax-linked incentive package for investors in advanced technology sectors through a competitive bidding system.
- The Government will invite global companies to set up mega-manufacturing plants in advanced technology areas such as Semi-conductor Fabrication (FAB), Solar Photo Voltaic cells, Lithium storage batteries, Solar electric charging infrastructure, Computer Servers, Laptops, etc.
- Special focus on faster adoption of Electric Vehicles (EVs):
- INR 10,000 cr budget for FAME II for making EVs affordable
- The Government will consider lowering GST on EVs from 12% to 5%.
- Additional income tax deduction of INR 1.5 lakh on interest paid on loans taken for EV purchase.
IV. Structural Reforms
- Streamlining multiple labour laws into four labour codes. This will ensure the standardisation and streamlining of the return filing process.
- New National Education Policy to enhance the quality of Indian Education institutions. National Research Foundation (NRF) to rejuvenate R&D activities by assimilating and channelising the R&D budgets of various central ministries.
- 25% Corporate Income Tax (CIT) for businesses with an annual turnover of INR 400 cr. This will cover 99.3% of businesses in India.
V. Augmentation and Modernisation of Infrastructure
- Capital investment of INR 100 tn in the infrastructure sector over the next 5 years.
- The priority sectors will include Roads and Highways, Aviation, Shipping and Inland Waterways, Railways, Metro and Social Infrastructure (Housing and Sanitation).
- Indication for rationalising power tariffs and removing barriers such as cross subsidy surcharges, high duties on open access sales and captive generation for industrial and other bulk power consumers.
- Infrastructure development to be leveraged as a tool for creating employment opportunities in rural India and for decongesting cities through sub-urban railways.
VI. Rural Entrepreneurship and Agri-prenuership
- 100 new clusters to be developed for 50,000 artisans to make the traditional industries more productive, profitable and capable of generating sustained employment opportunities.
- 80 Livelihood Business Incubators (LBIs) and 20 Technology Business Incubators (TBIs) to be set-up in 2019-20, to develop 75,000 skilled entrepreneurs in agro-rural industry sectors.
- 10,000 new Farmer Producer Organisations (FPOs) to ensure economies of scale for farmers over the next five years.
- E-commerce platform on the lines of Amazon and Alibaba to sell products on behalf of MSMEs and the Khadi and Village Industries Commission.