Budget 2020: Get businesses to invest, get more money flowing

Declaring that ''it is an article of faith for us to respect wealth creators,” Finance Minister Nirmala Sitharaman set forth a slew of proposals in the Union budget on Saturday, which she and the Narendra Modi government hope, will rev up India's business and industry in an age of economic slowdown.

From extending last September's path-breaking corporate tax cut to power generation firms and a 100 per cent tax exemption for sovereign funds investing in infrastructure projects, the focus of the budget is elementary—get businesses to invest, get more money flowing. Getting this done hinges on a two-pronged strategy—spur consumption through the slew of measures to help the distressed rural economy plus slashing of personal income tax for the middle class, even as tax sops and easing availability of funds makes companies invest more.

Infrastructure spending forms the crux of this. Sitharaman's pet National Infrastructure Pipleine, announced on new year eve, gets a leg-up, with projects earmarked across roads, railways, aviation and ports. “Accelerated development of highways'' which she spoke about in the budget includes 2,500km of access-controlled highways, 9,000km freight corridors, 2,000km of roads linking ports and 9,000km of roads in areas near the border and linked supply routes. While Railways will increase its electrification efforts to 27,000km of tracks and start as many as 150 new private trains, 100 new airports are to be set up in the coming years. All these means massive capital expenditure which will benefit not just industries like cement and steel, they will be labour intensive, too.

Measures to speed up getting businesses to invest include an Investment Clearance Cell to provide 'end to end' facilitation, as well as five new 'smart cities. The budgetary allocation for development and promotion of industry and commerce is Rs 27,300 crore. The focus, if you go through duties and taxes raised for items from footwear to furniture to even walnuts, seems to be 'Make in India', or at least 'Assemble in India', as the Economic Survey stated.

But the money is welcome from anywhere right from the earlier corporate tax cut to the red carpet rollout for sovereign funds as well as the many reliefs in the financial markets (withholding tax lowered from 5 to 4 per cent etc) to cut in dividend distribution tax as well as deduction for the dividend received by the holding company from its subsidiary, are all aimed at this motive. In fact, there is considerable focus on attracting foreign portfolio investment, opening up government securities to NRIs etc. "There is definitely scope for the growth of the corporate bond market by way of FPI inflows and into companies that would benefit from the abolition of the dividend distribution of taxes," points out H.K. Pradhan, professor of finance and economics at XLRI Jamshedpur.

Though only a partial sale of LIC (beside balance holding of the government in IDBI Bank) through the stock markets has been announced in the budget, disinvestment of PSUs is likely to be a strategic ammunition in Sitharaman's kitty to boost the fisc. Air India divestment was announced just days ago, while Bharat Petroleum's is expected to be put on the block in the coming weeks.

While making corporates invest more is a fervent hope, the government seems to be seriously hoping for a flowering of MSMEs. The effort to get NBFCs up and running so that they can disburse easy credit to small businessmen has been a work in progress at best, with this budget making more promises on similar lines. From reduction of limit for debt recovery to continuing the partial credit guarantee scheme announced last year, NBFCs would be expected to step-up and push the MSME/start-up saga. Tax holidays like those for ESOPs make clear the government's strategy—green shoots first, greenbacks later.

The accent on 'Make in India' so much so that import duties are being raised on cheap products that have been flooding the Indian market (like footwear) augurs well for export, as the expectation is that beside catering to the vast domestic market, the local manufacturers, once they cross a threshold, could aim for foreign markets as well. Nirvik scheme, which eases insurance woes of small exporters, digital invoicing as well as the proposed Logistics Policy has been welcomed by the export lobby. “The focus on standards and quality will facilitate exporters from India fetching better unit realisation,” pointed out Sharad Kumar Saraf, president of the Federation of Indian Export Organisations (FIEO)

“The vision of the current government is to promote the domestic industry...and the budget lays down its foundation through focused policies,” remarked Sunil Gupta, MD & CEO of Avis India. Manish Khera, founder & CEO of HAPPY, a digital lending platform, termed as 'positive' many of the measures like the increase in FPI limit in corporate bonds as well as changes in the Contracts and Company Act, which he said will “ensure a conducive business environment.”

“The finance minister had an extremely tight rope to walk, and she had done that well in addressing key priorities,” said Vikram Kirloskar, president of CII, “We expect the reform process to continue beyond the budget announcements.”

Not everyone's happy, though. Automobile and real estate sector, two of the most vocal faces of the current economic slowdown, had their pleas falling on deaf ears yet again. With no relief (though their demand for tax cut may be more in the GST ambit than in budget), the auto industry is looking at a dismal few months ahead, with the price increase due to BS 6 emission norms kicking in possibly further slowing down demand.