How FM Nirmala Sitharaman aims to achieve $5-trillion economy

Updated: February 3, 2020 7:11:58 AM

Budget 2020-21: Proposals seek to create fresh demand that would induce investment and churn the wheels of economy faster

Budget 2020 India, Budget 2020-21Budget 2020 India: The proposal to institute a framework permitting netting of financial contracts is the Budget’s bright spark that has the potential to free up funds available for financing investments.

By Sangita Reddy

Despite having limited fiscal manoeuvrability, the finance minister has done a commendable job of channeling investments into infrastructure, education, healthcare, agriculture and new businesses through the Budget 2020-21. The Budget proposals seek to create fresh demand that would induce investment and churn the wheels of economy faster.

The proposal to institute a framework permitting netting of financial contracts is the Budget’s bright spark that has the potential to free up funds available for financing investments. With focus on usage of credit default swaps, the finance minister has fuelled positive sentiments about a well-developed corporate bond market which can cater to requirement of wide range of issuers and investors. Such a market would serve as an alternative platform for raising debt finance and reduce dependence on the banking system.

It would be important to carry through the Budget proposals diligently and in a time-bound manner. For example, against the target of Rs 1.05 lakh crore for FY20, less than 20% has been achieved till date. The disinvestment target for FY21 has nearly doubled to Rs 2.10 lakh crore and would require heavy lifting. Privatisation of IDBI and institution of governance reforms in PSBs so that their additional capital requirements could be met viamarket are other proposals that need to be implemented with great rigour. The government can look at having a 26% share as a floor and bring in the concept of a golden share to exercise control over critical decisions. This will help save money which can instead be used to set up a development finance institution, which can provide long-term capital to the industry at competitive rates.

The Budget stayed true to the theme of capital creation and investment promotion. Measures abetting investment like concession tax rate for co-operatives and exemption from alternative minimum tax were included. Investments by sovereign wealth funds have been incentivised by granting 100% tax exemption to interest, dividend and capital gains income in respect of investment in infrastructure and other priority sectors will be notified. This should place India competitively among other attractive investment destinations. The proposal to monetise highway bundles of over 6,000 km would also unlock funds for capex.

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In line with the international practice, changes to the Companies Act, 2013, have been proposed in order to decriminalise civil offences. An amendment was made last year, recategorising compoundable offences into civil defaults. As a follow up, recommendations have been made for further recategorisation of ‘criminal compoundable offences’ to ‘civil wrongs’ carrying civil liabilities to facilitate and promote ease of doing business. This would lead to strengthening of investors’ confidence and building of trust.

While certain unmet demands — removal of LTCG, tax on buyback, tax benefit for retail participation in debt — remain for further strengthening the investment sentiment; on the whole, the Budget is geared to crowd in fresh investments.

The writer is president, Ficci

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