Putting up a defendable target
EVER SINCE FINANCE
Minister (FM) Nirmala Sitharaman took over, there has been a series of measures aimed at kick-starting a sluggish economy that threatened to go into hibernation. The corporate tax rate cut topped the list while measures like privatisation, export incentives and infrastructure push gave muscle to the endeavour. The Budget takes a few bolder steps forward providing substantial base for the economy to respond with verve.
The most striking aspect of this Budget is that it addresses a vast array of subjects. A record-breaking nearly three-hour-long speech is a testimony to it. A significant part of the Budget announcements was devoted to nation-building actions in agriculture, water, infrastructure and education. Initiatives on taxation were aimed at simplification rather than to make large-scale changes that we had seen earlier in the year. The removal of dividend distribution tax is a welcome move, which will leave more funds in the hands of the companies either to distribute or to invest into growth. The investments into a pipeline network for oil and gas, in addition to 100 airports by 2024 and solar capacities in the railways, augur well for these segments. The push for electronics manufacturing and smart metering for electricity are welcome moves. It is also encouraging to see that the minister has ventured to set right several anomalies in the system, including contract law enforcement, liquidity constraints for NBFC and housing finance companies and rationalising the deductions under the income tax.
The Economic Survey has projected GDP growth of 6-6.5% for the next year. However, it has also cautioned on the over dependence on non-tax revenues. It is essential that we see an economic revival by the first half of the next fiscal year in order to get tax revenues up and steady the fiscal deficit. Stake sale in LIC and IDBI are the solutions for the time being. A normal monsoon and good agricultural productions are also the factors that we will have to bank on. A bit of luck is always needed when you have to compete not only against other economies, but also against global slowdown in consumption and other geopolitical events.
Global events are affecting the situation as well. China has been rocked by trade negotiations and just when things looked to be getting resolved, coronavirus has struck. In a connected world, these are the risks for all economies. The new decade is going to be one of the most radical in terms of social impact of business, technological advancements like electric vehicles and artificial intelligence. Therefore, it is reassuring to hear the finance minister speaks about emerging technologies several times in her speech.
A crucial trigger now is growth in consumption. A significant uptick in demand is necessary to boost private investment and job creation — two aspects that have been severely affected in the past few quarters. We have faced a slowdown that has impacted several key sectors like banking, housing, energy, capital goods and automobile. Recovery from such widespread slump is usually slow and painful. We have spent enough time trying to analyse the causes of this and now we must move forward to find solutions. This Budget makes an honest attempt at doing so.
The external and internal environment has severely constrained the minister ’s bandwidth for further stimulus packages, with privatisation getting pushed into the next fiscal year. Yet, the FM has decided to blend caution with optimism and decided to place her bets on batting first and putting up a defendable target.