Tax relief for companies, higher income groups to pay more
Nirmala Sitharaman presents her first Fiscal Statement to Parliament
Venkat Raman
India’s Finance Minister Nirmala Sitharaman presented to Parliament in New Delhi on Friday, July 5, 2019 a populist Budget 2019-2020, with a promise to ‘Build a Better India,’ with a vision to turn it into a US$ 5 trillion over the next five years.
This was her first Fiscal Policy Statement in Parliament as India’s first full-time Finance Minister of India; she spelt her approach to financial management with a strong emphasis on the rural economy, environment protection and stimulation of investment.
Some said that the target of achieving US$ 5 trillion was far-fetched but the Finance Minister was confident that based on the current projections, the Indian economy will achieve US$ 3 trillion during the current financial year (from US$ 2.7 trillion).
“The goal is imminently achievable. It took us 50 years to become a US$ 1 trillion economy. We were at US$ 1.85 trillion five years ago,” she said.
Corporate tax reduced
“Our Budget promotes ease of living for the common citizen in India, while setting reasonable targets for tax revenues and disinvestment (up to 51% in some sectors),” she said.
Her proposals include reduction of corporate tax from 30% to 25% for companies with annual turnover of up to US$ 58 million.
“This reduction will cover about 99.3% of companies in the country, boosting the profit margin of many of them. This is also an important step to boost investments,” she said.
While there was no change in the income tax structure for most others, Ms Sitharaman announced a 3% increase in taxation for some of the highest earners. With immediate effect, those earning between US$ 292,000 to US$ 730,000 – and a 7% increase for those with an income above $730,000.
Infrastructure boost
The government is committed to have in place a better infrastructure.
Prime Minister Narendra Modi had, during his election campaign earlier this year, pledged that his government will spend about US$ 1.45 trillion on infrastructure over the next five years. In line with that promise, Ms Sitharaman announced that the government will commit investments up to US$ 72 billion to improve Indian Railways and build 125,000 kms of roads at a cost of US$ 11.6 billion by 2024.
The Finance Minister signalled better public ownership of the Public Sector Undertakings (PSUs) and bring greater commercial and market orientation of Listed PSUs.
“The government will take all necessary steps to meet public shareholding norms of 25% for all listed PSUs and raise the foreign shareholding limits to maximum permissible sector limits for all PSU companies which are part of Emerging Market Index,” she said.
FDI areas expanded
Also on the card is an extensive disinvestment of PSUs and government-owned enterprises.
Ms Sitharaman said that India will ease Foreign Direct Investment (FDI) restrictions in single-brand retail.
Currently, such companies (like Ikea and Apple) are required to source 30% of their materials or components locally. Those components are not always available in India or they are of poor quality. Multi-brand retailers like Walmart will have to continue to operate within the same constraints that they currently face. They will be able to sell their products only through e-commerce platforms or in conjunction with Indian groups.
“We propose to open further FDI in Aviation, Insurance, Media and Animation sectors. It is important to get retail investors to invest in Treasury Bills and we will allow foreign investors to buy debt of listed real estate investment trusts,” she said.
The government has set a target of US$ 14.5 billion for disinvestment proceeds during the Financial Year 2020.
“We have announced a series of benefits for start-up companies in this Budget. The rural economy has been receiving a massive boost through increased government spending. This have reached the common people. Spending on welfare for Scheduled Caste and Tribes and for the poor has increased. They will not be neglected,” the Finance Minister said.
Nationalised Banks will receive 70,000 crores (about US$ 10.2 billion) for recapitalisation, which she said would enable credit expansion.
Non-Banking Finance Companies will henceforth be regulated by the Reserve Bank of India as a part of the government’s comprehensive reforms of the sector.
Empowerment of Women
Ms Sitharaman said that empowerment of women is an ongoing exercise and that schemes to enhance their role in business and industry will receive a further impetus in Budget 2019.
Reiterating the importance of ‘Self-Help Groups’ (SHGs), she announced the expansion of interest subvention programmes throughout the country.
“Every woman SHG member who has a ‘Jan Dhan’ account will be allowed an overdraft of ₹5000 (about US$ 75). In addition, every woman in every SHG will be eligible for a loan up to ₹100,000 (about US$ 1460) under the ‘Mudra Yojana Scheme.’ There are many such initiatives,” she said.
Black and Yellow Gold dearer
Although there is no increase in income tax for a large section of the population, the Finance Minister has proposed increase of ₹2 (about US$ 0.029 cents) and ₹1 (about US$ 0.015 cents) per tonne on crude oil. Gold and other precious metals will also become more expensive after import duties increase.
Some relief may emerge on new Tenancy and Affordable Housing framework but details are yet to be released.
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Finance & Corporate Affairs Minister Nirmala Sitharaman with Minister of State for Finance Anurag Singh Thakur before the Budget Session of Parliament in New Delhi on Friday, July 5, 2019 (PIB Picture)
