The year 2019 has been eventful. With two budgets being presented this year, India came out with decisive policies in the face of economic and trade uncertainty.
By Akhil Bansal
The year 2019 has been eventful. With two budgets being presented this year, India came out with decisive policies in the face of economic and trade uncertainty. Some key changes which were made by the ministry of finance have the potential to impact the country’s future. These included the corporate tax cut and amendments to the IBC, aimed at streamlining the insolvency process and protecting last-mile funding. The Centre also announced a relief package of Rs. 25,000 crore to revive stalled housing projects. It also declared removal of all charges on digital payments to promote Digital India. Further, the Union Budget 2019 gave a boost to make electric vehicles affordable with a GST cut from 12% to 5%, and introduced a provision of additional income tax benefit of Rs. 1.5 lakh on loans taken to purchase electric vehicles.
The government has also laid emphasis on reducing the financial stress of farmers by offering them additional income opportunities. During the Interim Budget presented in February 2019, the government announced a Rs. 6,000 annual income support for marginal farmers, called the PM KISAN. The Union Budget, presented in July 2019, proposed innovative pilot programmes on ‘zero-budget farming’, scaling up of rural infrastructure under the PMGSY and incubators to develop 75,000 entrepreneurs in the agro-rural industry. Recognising the importance of capital for MSMEs, a 2% interest subvention on fresh and incremental loans was also announced along with a partial credit guarantee to public-sector banks (PSBs) for purchasing high-rated pooled assets of strong NBFCs.
In September, the finance ministry set up a task force to build a national brownfield and greenfield infrastructure project pipeline worth Rs. 100 lakh crore over the next five years. In the same month, the Union Cabinet approved 100% FDI, under automatic route, for contract manufacturing and commercial coal mining. The local sourcing conditions for single-brand retailers were also relaxed. Such norms are expected to reinforce India’s position as a potential global manufacturing hub, and reduce dependence on imports. The ministry of finance also announced a stimulus package with an upfront disbursement of Rs. 70,000 crore for state-run banks and merger of 10 state-owned banks to form four large banks. If implemented well, these moves can revitalise the banking sector and enable PSBs to compete more effectively.
In 2019, India climbed 14 places to become 63rd among 190 nations in the World Bank’s ease of doing business ranking (up from 77th rank in 2018). The country also attracted FDI of $27.2 billion during FY2019. India’s economic engine, however, hit a snag as GDP growth slowed, corporate revenues moderated, unemployment increased, urban wages and farmer income stagnated and consumption declined.
While the government has taken several initiatives to steer the meandering economy to the fast-growth lane, more work remains to be done on the policy front to shift India onto an accelerated growth trajectory. These reforms will have to include improvements to land and labour laws, a much more open trade regime and removing bottlenecks for accessing capital. The reforms could be supported with rationalisation of taxes with a GST 2.0, a stable regulatory regime and ensuring greater physical and digital connectivity across the country. Decentralisation of decision making by empowering states and creation of a coherent long-term vision could help guide the economy out of this slump.
Creating a conducive environment that will rebuild citizens’ trust in the economy, improve investor confidence, stimulate investments and integrate India into global supply chains would need to be taken up on priority. Furthermore, providing universal healthcare, easy access to quality education and electricity, developing transport infrastructure and addressing sustainability issues will be the foundation for India’s next stage of development. The country also faces immense pressure to create job opportunities for its large working-age population.
Despite uncertainties, the momentum of structural reforms is undoubtedly strong. The government has covered a broad gamut of trade and investment through its reforms. In many ways, 2019 has created the base for India’s future growth. The key would, however, be effective implementation such that India meets its objective of a $5 trillion.
(Author is Deputy CEO, KPMG in India. Views are personal)