The present glaring issue for the economy has been to infuse funds for demand pick-up, for the agriculture sector, for NBFCs and for infrastructure spend, so as to enable the nation to be back on the growth track. The Finance Minister has endeavoured to address most of the issues with a medium to long term vision.
In order to take the economy on to a higher growth trajectory, stepping up infrastructure investments is a must. Therefore, for me, the biggest takeaway is perhaps the announcement of allowing Sovereign Wealth Funds (“SWFs”) 100% tax exemption for investments in Indian infrastructure projects. The other important announcement was the increase in the FPI limit for corporate bonds from 9% to 15%. This, coupled with the laying out of red carpet for the SWFs at this juncture, is very good news for Indian infrastructure projects as it will enable long term funds, both equity and debt, to be invested in India. The global financial markets are flushed with abundant funds.
The decision on Dividend Distribution Tax, which has been on expected lines, is likely to make investments in India more profitable.
On the infrastructure front, one of the notable announcements was to bring the power sector in line with manufacturing companies and provide a concessional tax rate of 15% on the new domestic generation companies. However, I hope the existing power generation companies and the distribution companies should also be included in due course. I welcome the announcement that the Centre would now prod all state governments to adopt smart metering. This can do wonders in improving the financial health of the discoms.
I also welcome the decision to set up a body for improving the modalities of setting commercial disputes. This is something which needs to be fast-tracked.
FM has done well in paying adequate attention to the needs of the tech-driven New Economy and stepped up allocations for fostering the start-up ecosystem and incentivising skilling initiatives. Allowing tax benefits to start-ups by way of deduction of 100% of their profits and increasing the turnover limit and period of eligibility are in the right direction and will encourage both innovation and talent grooming. The decision to liberalise External Commercial Borrowing (ECB) and Foreign Direct Investment (FDI) norms for development of institutes of higher skills was also very reassuring. If India has to emerge as a global power, we need to quickly scale up the capacity of our higher education ecosystem.
On the personal income tax front, once we go through the fine-print, we can comprehend better as to the modalities and advantages of the new optional income tax rate system and how useful it would be in increasing consumption demand. On the real estate front, FM has extended by one year the date of approval of affordable housing projects for availing tax holiday on profit earned by developers and also the additional Rs 1.5 lakh tax benefit on interest paid on affordable housing loans. Given the huge inventory build-up in the real estate sector and the fact that this sector is a huge employment generator, I was expecting more incentives.
On the resource mobilisation front, the decisions to offload a part of government’s stake in LIC and to sell off the entire government stake in IDBI Bank were noteworthy. It was reassuring to hear from the FM that the proceeds from such disinvestment will be mostly used for capital expenditure.
The extension of the Partial Credit Guarantee scheme for NBFCs will surely facilitate them and I am sure very soon we will hear good news for the sector which can address the liquidity availability in the medium to short term basis.
The decision to increase the Deposit Insurance Coverage from Rs 1 lakh to Rs 5 lakh per depositor will be a huge relief and will encourage further savings which can be channelized for funding infrastructure and industrial projects.