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Budget view from New York: Forget tax pain, FM is playing for long term

This Union Budget is a transformational and a welcome move for the foreign investors.

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Indian Finance Minister Nirmala Sitharaman’s first Union Budget seems to be a well-intentioned attempt focused on powering the economy forward with major steps on the path of liberalisation, while at the same time bring balance by taxing the very rich to provide much-needed benefits to the poor and provide an impetus to move them up the ladder.

This is a foundational budget from which one can discern the contours of a credible vision and philosophy of economic governance for Modi 2.0: one that includes removal of policy ambiguity, more efficient administration and implementation, better control on government expenditure and a strong accent on infrastructure and institutional capacity creation.

In the midst of the global trade war between the US and China, this budget is transformational and a welcome move for foreign investors, as the Indian government seems to recognise the opportunity to attract global capital and present itself as a very viable alternative to investors around the world.

Providing significant impetus by reducing taxes to 25 per cent for businesses that have a turnover of $60 million (Rs 400 crore) from the current rate of 30 per cent is a big positive step (similar to that President Trump devised to give a boost to the US economy) and encompasses 90 per cent of all businesses in the country. By not taxing the middle class and instituting additional taxes only on the very rich (ultra HNI group), the Finance Minister has demonstrated the government’s commitment to the middle class and to focus on upliftment of the poor.

Specific steps announced to provide ease of access to the Indian sovereign bond to global investors by issuing a dollar tranche is a very welcome step. In addition to that, the announcement to review current FDI limits in insurance and insurance intermediaries, aviation and media is clearly a reflection of the forward thinking of the government to integrate India with the world more effectively.

From a foreign investor standpoint, aligning statutory investment limits with sectoral caps and combining NRIs and FPIs into one category is another welcome sign of making it easier for global investors to access and invest in India.

The thrust of the Finance Minister on providing capital to focus on ensuring a healthy workforce with a high allocation for health and an increase in funding by almost 90 per cent to agriculture will definitely have a positive impact on driving rural consumption. Additionally, recapitalising PSU banks that have been a drag on the economy and reconstituting regulation of HFCs to RBI while encouraging startups and digital transactions in the economy along with boosting green technologies by giving a boost to electric vehicles by providing them with tax incentives and duty exemption on certain key parts are a clear demonstration of rising to the challenges faced recently and focus on the long term.

While there may be doubts about achieving tax revenue targets, the minister seems to have been conservative in not accounting for revenues from the sale of spectrum for 4G and 5G, thus providing added cushion to managing expectations for the fiscal deficit. However, in the short term, it would not be unreasonable to expect an effect on markets due to a higher regressive tax on the ultra-rich, who are now clearly burdened with the task of bearing the responsibility to fund the gap to avoid a higher deficit.

The big positives for the Indian economy are that the global scenario is benign with lower interest rates and oil prices are restricted within a band. Combine this with the forward-thinking steps that Finance Minister Nirmala Sitharaman is taking for India, and it seems the government is providing the right environment for entrepreneurship to thrive and make India a very viable investment destination for the long term while putting in place the building blocks to take India to its $5 trillion GDP target!
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of




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