Union Budget 2019

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Union Budget 2019

Finance Minister Nirmala Sitharaman Friday presented her maiden Union Budget in Parliament. Here are some of the announcements made in the first Budget of the Prime Minister Narendra Modi 2.0 government, and what it means.

25% tax for companies with turnover of over Rs 400 crore

  • The government has proposed lower corporate tax of 25% now widened to companies with an annual turnover of Rs. 400 crore. This will boost the profits of a large swathe of companies — 99.3% of corporate India.
    • Corporation tax is a tax imposed on the net income of the company.
      • Companies, both private and public which are registered in India under the Companies Act 1956, are liable to pay corporate tax.
      • For the assessment year 2014-15, domestic companies are taxed at the rate of 30%.
    • No tax scrutiny on valuation and e verification for startups: This should help remove uncertainty and ease burden and boost startups.
      • Further, the exemption on reinvestment of capital gains in startups extended to 31 March 2020.

Making farming rewarding

  • FM announced a grand plan to deal with India’s chronic agrarian distress. It includes –
    • incentives for home-delivery startups to aggregate products from farmers,
    • creating 10,000 farmer produce organisations and
    • a national warehousing network along highways.
  • The blueprint also includes –
    • creating a mobile app-based system for direct marketing by farmers,
    • a separate fund for fish and aquatic farming,
    • a village storage scheme of agri-produce and
    • a special plan for using uncultivated rural land for solar farming.
  • These are part of the Centre’s policy interventions to enable investment worth Rs 25 lakh crore, both by the government and the private sector, in India’s rural economy spread over a five year period.
  • Big data, artificial intelligence (AI) and blockchain technology are major vehicles in the plan to make agriculture a rewarding vocation by giving farmers a higher price for their produce and bring them closer to the markets.

Disinvestment of Air India

  • The challenge with strategic disinvestment of Air India and a few more PSUs is in attracting investors given the debt burden of many of these firms. It will depend on write-offs of loans or sweeteners.
  • The government has also proposed increasing the disinvestment target to Rs 1,05,000 crore in FY20 as against Rs 90,000 crore set in the interim budget.
  • Announcing that the strategic sales of some CPSEs will continue, FM said that in the current environment the government will re-initiate strategic disinvestment not only for Air India but for other CPSEs as well.
  • The increase in disinvestment target shows that the government is relying on proceeds from selling its stake in CPSEs to boost its revenue in the light of uncertainty over tax collection especially the GST.

Investment in govt bonds for foreign portfolio

  • Higher investment in government bonds for foreign portfolio investors should see more flows into the domestic market, ease pressure on interest rates and on bond yields and help the Rupee strengthen.
    • But, the downside risk is outflows in a crisis and the resultant pressure on Rupee and the current account deficit.

Rs 100 crore infra spending — Where are the funds?

  • The government has proposed Rs 100 crore infrastructure spending over five years.
  • The big challenge will be to raise funds for this.
    • The fall of IL&FS, liquidity squeeze in the NBFC sector and banks’ bad loan problem have only compounded the difficulties faced by the infra sector.
  • However, this may see the emergence of development finance institutions again to channelise long term funds after a long time.
  • Budget proposed a number of measures to enhance the sources of capital for infrastructure financing, including forming a Credit Guarantee Enhancement Corporation in 2019-20.
    • A Credit Guarantee Enhancement Corporation provides an additional source of assurance or guarantees that the borrower will service the loan. It can also help borrowers raise loans at reduced interest rates.
  • The Finance Minister also proposed an action plan to deepen the market for long term bonds including for corporate bond repos, credit default swaps etc., with a specific focus on the infrastructure sector.
  • The government also allowed investments made by Foreign Institutional Investors (FIIs) and Foreign Portfolio Investment (FPIs) in debt securities issued by Infrastructure Debt fund (IDF)-NBFCs to be transferred or sold to any domestic investor within the specified lock-in period.

Credit to PSBs for purchase of NBFCs

  • The government has proposed to provide one-time credit enhancement to PSU banks for six months for the purchase of highly pooled assets of sound NBFCs.
  • This will ease liquidity burden of NBFCs with flow of funds from banks and help them lend again.

RBI to get regulation authority of housing finance sector

  • Regulatory oversight over NBFCs and housing finance companies for the RBI should see more financial discipline in this sector and perhaps a shakeout.

Rs 70,000 crore capital infusion in PSBs

  • The government has proposed a Rs 70,000 crore capital infusion into government-owned banks this year.
  • With the bad loan cycle almost bottoming out according to the Reserve Bank of India, this should help banks to lend more this fiscal.

Measures for aircraft financing

  • Measures for aircraft financing in India should ease the forex burden for Indian aviation companies or airlines who have to pay overseas financiers in a sector which is growing rapidly

Streamlining labour laws

  • Streamlining labour laws and setting up labour courts: This depends on changes in the Industrial Disputes Act and how states implement these laws.
    • Faster resolution of labour disputes should provide comfort to industry and entrepreneurs.

Incentives for electric vehicles

  • The government has allocated Rs 10,000 crore for faster adoption of electric vehicles and has announced upfront incentives for electric vehicles.
  • This will help attract investment for manufacture and ensure clean energy over time.

PSUS for housing

  • Land parcels of PSUS to be developed for housing: This will free land, boost housing with its multiplier effect on other industries and help government raise additional resources.

Public holding of listed companies up to 35%

  • Increasing public holding of listed companies from 25 to 35%: This will help ensure more floating stock and liquidity.
  • Social exchange platform to be set up: This will help social enterprises and voluntary organisations to raise public funds
  • Simplified KYC norms for FIIs and FPIs: This will remove an impediment to easier flows to India’s capital markets

FDI in Aviation, Insurance and Media

  • The government has proposed more Foreign Direct Investment in Aviation, Insurance and Media.
    • Both the Aviation and Insurance sectors which need capital could attract inflows with greater control for overseas partners.
  • Long term corporate bond market development measures: Allowing AA Rated bonds as collateral should help first raise more funds and ease pressure on banks.
  • Credit guarentee and investment corporation of India to be set up: This should help banks in terms of additional cushion while looking at lending and support companies and trying to raise funds.

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