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India’s Budget: Road to 5 trillion-dollar economy

, July 8, 2019, 1 Comments

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The Modi 2.0 Government has come out with its Budget 1.0. As wide expected, the objective of becoming a $ 5 trillion economy has driven this budget and it reverberates all the initiatives announced in the interim budget as well in the previous five years budget. The next important areas quite obviously have been ‘Grameen Bharat’, MSME and Infrastructure without which the idea of $5 trillion may not yield results. The Government has refrained from bringing out a populist budget and therefore, is short of any major direct tax proposals, barring changing the annual turnover limit of corporate tax.

The inflation continually at a low side, the Budget for 2019-20 has focussed more on the development aspect with specific focus on taking Indian economy towards 5 trillion dollar from the current level of 2.75 trillion dollars. This looks quite ambitious if we take into account the GDP growth from $1.85 trillion to $2.75 trillion in a span of 5 years. It is a is a strong resolve, considering the dwindling growth across the globe including India.

The budget has been quite skillfully drafted and sets the agenda for the next five years with doable things and practical thinking. The well-crafted vision statements speak about the initiatives taken in the last five years and Governments intent to deliver on those initiatives in the remaining 5 years. The Government quite correctly seems to be working on a long-term strategic plan with annual review of the same.

The finance minister fervently acknowledged the private sector industries, be it small, medium or large and has put on record that India Inc. Which represents these industries understand ‘Make in India.’ While reassuringly saying that the Government does not look down upon legitimate profit earning Finance Minister has said that India Inc. are India’s job-creators and they are the nation’s wealth creators.  The thinking has been in line with the fact that employment has been a much debatable issue in the last couple of years and the Government has been taking all efforts to prove the critics wrong. An urgent focus on the growth of MSME sector and the manufacturing sector as a whole can only drive up the employment numbers.

The Government has said that there is a need for investment boost in the area of Infrastructure, Digital economy and Job creation in small and medium firms. The Economic survey released a day before has mentioned that smaller firms have been found to dominate the economy. Though they account for only 23 per cent of the total employment in organized manufacturing in 2016-17, the large firms accounted for over 77 per cent of the total employment (with only 15 per cent of all the firms in organized manufacturing). It can, therefore, be said that the Government should also give a boost to the large firms as they not only create scale and employment but also generates efficiency.

Though there are a series of things to talk about in this budget, some announcements, which, quite seemingly speaks about the Government intent are:

  • Creating Infrastructure: Through schemes such as Pradhan Mantri Gram Sadak Yojana, Industrial Corridors, Dedicated Freight Corridors, Bharatmala and Sagarmala projects, Jal Marg Vikas and UDAN Schemes.
  • Acknowledging the need of Rs. 50 lakh crore investment in Railway Infrastructure during 2018-2030 and proposing Public-Private-Partnership for the same.
  • Focusing on imparting new-age skills in areas like artificial intelligence, Internet of Things, big data, 3-D printing, virtual reality and robotics
  • Extending the lower rate of 25% Corporate Tax to all companies with annual turnover up to Rs 400 crore, which is currently applicable to companies having annual turnover up to Rs 250 crore. This will cover 99.3% of the companies.
  • Creating a payment platform for micro, small and medium enterprises (MSMEs) to enable filing of bills and facilitate timely payments.
  • Enhancement of foreign direct investment in the civil aviation sector, which could ease the proposed divestment of Air India. This is added with proposed policy interventions for the development of Maintenance, Repair and Overhaul (MRO), to achieve self- reliance in aviation segment. The Government also intends to make India a hub for aircraft financing and leasing activities from Indian shores. This would give aviation industry a big boost.
  • The proposed reform measures to promote rental housing would go a long way in reviving the demand in the housing segment.

Overall, the budget has been a development-oriented budget with twin focus on Rural and Urban segment. They have touched upon all areas such as environment (through benefits to Electric vehicles), startups, ease of living, housing, however, critical segments such as Defence, Education and health could have received more focus. There are certain elements, which are felt amiss such as talk on the increasing saving investment gap, changes in GST for certain sectors like travel and tourism and on overall trade etc.  We hope to see implementations of the initiatives so announced and look forward to more positive steps in the left-out areas in the days to come.

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