Mrs Nirmala Sitharaman will be creating history on July 5, 2019, as she is poised to become the first female Finance Minister to present the Union Budget. Of all the cabinet ministers of India, Mrs Sitharaman is the cynosure of all eyes because of the expectations from Budget 2019.
Every Indian citizen has high hopes from the Modi 2.0 government. The Indian economy is not in perfect shape with the rising prices of oil and the mounting NPAs in the banking sector. The NBFC crisis is a significant issue that requires immediate correction. Taxation rates have not seen a reasonable change over the years, whereas GST is also a matter of prime concern. The SME sector needs a boost. There are simmering issues like fewer job opportunities, agrarian crisis, plunging exports, private and public investment, among many others. Mrs Nirmala Sitharaman has her work cut out, as she rolls up her sleeves and presents her maiden budget on the floor of the Parliament.
As a part of her preparations, she will be meeting economists, heads of industry chambers, financial institutions and banks over the forthcoming fortnight to help her perfectly shape the Union Budget 2019. A well-planned budget will help in restoring the health of the Indian economy.
Carry Forward the Interim Budget
The erstwhile Finance Minister, Mr Piyush Goyal, had announced the interim budget in February 2019. The most significant expectation for the upcoming Union Budget 2019 is that it will give a firm shape to the initiatives announced in February 2019. Mrs Sitharaman has a road map to start with. She has also asked the common citizens of India to pitch in with their suggestions on the Budget 2019 by June 20.
Let us look at the expectations of financial pundits and industry leaders from the most charismatic of cabinet ministers, Mrs Nirmala Sitharaman.
Income Tax Structure
● The interim budget proposed a rebate up to Rs 12,500 for income taxpayers with taxable income up to Rs 5 lakh. Apart from this, there was no change in the income tax slabs and rates. However, there was a proposal to bring relief to the salaried class by raising the standard deduction amount from Rs 40,000 to Rs 50,000.
● Expectations are that Mrs Nirmala Sitharaman will not tinker much with the slabs and would rather maintain them as proposed by her predecessor. Maybe we can see a change in the next budget.
● A section of people has demanded that Mrs Sitharaman do away with the rebate and order an exemption in paying income tax by increasing the taxable income slab from Rs 250,000 to Rs 500,000.
Such a change in income tax slabs can boost the economy because it increases the disposable income in the hands of an individual. It can provide an impetus to the sluggish growth and bring the economy back on track.
● A significant expectation is increase in the Section 80C limit as well as re-alignment of I-T slabs.
● Salaried employees would appreciate an extension of HRA benefits to other cities, especially non-metros.
● There are expectations of increasing the relief on the housing loan deduction.
Corporate entities expect a significant reduction in the corporate tax rates as lowering the corporate tax has a direct bearing on the prices of the products. As the prices go down, the demand is bound to increase. An increase in disposable income can also boost the market for the products. It can play a vital role in restoring the health of the Indian economy.
The industry expects that the Budget 2019 will see the lowering of corporate tax from 28% to around 15-20%. Simplification of the corporate tax structure is also one of the significant expectations from Budget 2019.
The GST structure has changed a lot since its implementation in 2017. However, it is still far from the concept of one-country-one-tax. People have high expectations from the Modi 2.0 government in this context. One can expect further rationalisation of GST rates, thereby leading to a single and uniform rate sometime in the future.
Some aspects of the GST structure need immediate attention. These include GST payable on real estate, medicines, and other essential items. These factors affect the ordinary citizen of India more than anything else.
India has a burgeoning population problem, whereby the numbers of unemployed educated youth is continually on the rise. Therefore, job creation will always remain an issue of concern for any Government. Mrs Sitharaman has a tough task on her hands to address this burning issue. Make in India campaign has to become a tremendous success for the medium-term growth rate to touch the average of 7.5%. A push in this direction can propel the growth rate to over 8% by 2021.
The Make in India initiatives have succeeded to a certain extent, but have not solved the problem of unemployment. Start-up enterprises will succeed only if they have an environment conducive for growth. It is still a challenge for start-up enterprises to get financial assistance from banks, as the banks are saddled with huge NPAs and negative net worth. Most of the nationalised banks are under PCA, thereby restricting their lending capabilities. Mrs Sitharaman’s priority should be to restore investor confidence, both on the domestic and international front.
The SME sector needs a tremendous boost for employment to pick up. Mrs Sitharaman has an enormous challenge to overcome in this sector. The sector expects a sizeable tax holiday and easy access to bank loans. Digital lending needs a boost as well. One can expect the Modi 2.0 government to prioritise digital lending. At the same time, one can also expect stringent safety measures to prevent frauds and scams in the SME sector.
Defence manufacturing is also an area of grave concern. India is in the process of improving and modernising its defence capabilities. Though India purchases its planes and other defence equipment from overseas manufacturers, the ‘Buy Back’ clause in defence deals can bring investment into India. India needs to enhance its defence manufacturing capabilities to be able to cater to the demands of the overseas defence equipment manufacturers. Mrs Sitharaman could be the ideal person to introduce reforms in the defence manufacturing sector as she has first-hand knowledge of defence procurement with her earlier stint as Defence Minister.
The BOP position is healthy, with India having abundant reserves of foreign exchange. However, the value of the Indian rupee has not yet stabilised, especially in comparison with the USD and Euro. Make in India campaigns can reduce the country’s dependency on imports. At the same time, exports need a boost to allow the country to earn foreign exchange.
The manufacturing sector, SME, and exports need a considerable push for healthy economic growth. One can expect interest subventions in the export of specific items like shrimp and other seafood exports.
The Modi government 2.0 has an enormous task on hand as the election manifesto promised the doubling of farmer’s income by 2022. It is a lofty ambition that will need regularisation of the MSP and improvement of rural infrastructure. The Modi Government 2.0 is moving in the right direction by focussing on small farmers and helping them to become self-sufficient. The direct bank transfer process has plugged several loopholes so that the funds reach the bank accounts of the ultimate beneficiaries without any inconvenience.
One can expect rationalisation in the level of subsidies, along with a guarantee to increase the MSP for the farmers. Setting up of agricultural produce markets in smaller towns can immensely help farmers. There can be some announcements in this regard as well.
The NBFC liquidity crisis is a significant headache that Mrs Sitharaman will have to handle. The Modi government 2.0 is committed to providing affordable housing to all by 2022. It needs a robust NBFC structure to achieve this goal. At present, the picture is not at all rosy, with various NBFCs staring down the barrel. They do not have adequate liquidity, especially because they cannot approach the banks for financing. It has led to a slowdown in the fund flow to the housing sector.
Budget 2019 may give some relief to NBFCs through liquidity support. NBFCs will have to tighten their belts and put risk mitigation procedures to work for the government and RBI to help them out of this crisis. The expectation is that the government could come up with an alternative mechanism to improve the liquidity position of these NBFCs.
The list of expectations could be huge, but the government has to look at aspects like financial prudence, as well. As this government is in complete majority, one can expect tough decisions from the Finance Ministry during the Budget 2019.
We conclude by summing up the gist of expectations from the Finance Ministry in the budget.
● Exemption in income tax instead of rebate for income levels up to Rs 5 lakh
● Realignment of I-T slabs
● Reduction in corporate tax rates along with rationalisation of the corporate tax structure
● Simplification of GST to be an ongoing process
● Boost to the SME sector like providing tax holidays to promote job creation
● Push to the defence sector manufacturing
● Export incentives to specific industries
● Providing relief to small and marginal farmers, thereby leading to the doubling of income by 2022
● Providing adequate liquidity to NBFCs and stipulating appropriate safety norms