Union Budget 2019-20: Right measures to ensure sustainable growth

budget 19-20

The Economic Survey 2018-19 presented to Parliament on 4 July 2019 pointed out that during the last five years, India’s economy has performed well and hence India is on a threshold to grow at faster rates in coming years. The Survey further suggests that to achieve the objective of becoming a US$ five trillion economy by 2025, India needs to sustain a real GDP growth rate of eight percent and such growth can only be sustained by a “virtuous cycle” of savings, investment and exports. Qualitative private investment and increased exports are the key drivers for creation of demand and jobs.

On the backdrop of this, Nirmala Sitharaman, the Finance Minister, presented her first budget in Parliament on 5 July 2019. The Union Budget focused on sustainable growth with agro and infrastructure development.

At the macro level the Finance Minister has managed to contain the fiscal deficit at 3.3 percent. This should please the international rating agencies and make borrowings overseas easier.

The key budget proposals for development of infrastructure, revival of rural economy and ensuring adequate supply of money to implement the ambitious investment plans from domestic and overseas sources are listed below.

Infrastructure & Investment

The Central government plans to invest a whopping Rs 100 lakh crore in infrastructure over the next five years. To this end, it is proposed to set up an expert committee to study the current situation relating to long-term finance and recommend the structure and required flow of funds through development of finance institutions.

Mega Manufacturing Plants

To boost economic growth and attract sizeable foreign capital inflows, the government proposes to set up mega manufacturing plants in sunrise and advanced technology sectors such as semi-conductor fabrication (FAB), solar photovoltaic cells, Lithium storage batteries, Solar electric charging infrastructure, Computer Servers, Laptops, etc. These mega manufacturing units will have investment-linked income tax exemptions under Section 35 AD of the Income Tax Act, and other indirect tax benefits.


India being the world’s third largest domestic aviation market, the government plans to make India a hub for financing aircraft purchases and leasing of planes leveraging business opportunities available in India’s financial Special Economic Zones (SEZs), namely, the International Financial Services Centre (IFSC).

The budget also proposes to give impetus for growth in Maintenance, Repair and Overhaul (MRO) industry to leverage India’s engineering advantage and achieve self-reliance in this aviation segment.


It is estimated that Railway Infrastructure would need an investment of Rs 50 lakh crore between 2018-2030. The government proposes to use the Public Private Partnership (PPP) mode to ensure faster execution and completion of tracks, rolling stock manufacturing and delivery of passenger freight services. An allowance of Rs 68,019 crore (+23.4 percent) has been made in the current budget.

The Railways will enhance investment in suburban railways through Special Purpose Vehicle (SPV) structures like Rapid Regional Transport System (RRTS). Metro railways and railway stations will be developed under PPP initiatives.

Metro Rail

New Metro Rail Projects for a total route length of 300 km have been approved during 2018-19. Also, during 2019, about 210 km metro lines have been operationalised. With this, 657 km of metro rail network has become operational across the country. Budgetary outlay for metro projects has been increased from Rs 14,865 crore in 2018-19 to Rs 17,714 crore in 2019-20.

Electric Vehicles

For successful implementation of Phase-II of FAME Scheme, commenced from 01 April 2019, an outlay of Rs 10,000 crore has been set aside for a period of three years. The Scheme would encourage faster adoption of electric vehicles by way of offering upfront incentive on purchase of electric vehicles and also by establishing the necessary charging infrastructure.

The Government has already approached the GST Council to lower the GST rate on electric vehicles from 12 percent to five percent. To increase the demand for such vehicles the budget proposes to provide an additional deduction of 1.5 lakh on the interest paid on loans taken to purchase electric vehicles. Only advanced battery and registered e-vehicles will be incentivised under the Scheme.

Affordable Housing

Real Estate companies are carrying huge inventories in the form of ready flats and facing acute financial crunch in executing their ongoing projects. The NBFC distress has made their case worse. To help the sector, one of the major job creators, the budget has increased the interest deduction up to Rs 3.5 lakh per annum on housing loans availed by flat buyers until March 2020. This measure is expected to drive demand for affordable homes in Tier-1 and Tier-2 towns.


Under Pradhan Mantri Awas Yojana – Urban (PMAY-Urban) is being implemented since 2015, over 81 lakh houses with an investment of about Rs 4.83 lakh crore have been sanctioned of which construction has started in about 47 lakh houses. Over 26 lakh houses have been completed of which nearly 24 lakh houses have been delivered to the beneficiaries.

Bharat Mala & Roadways

The Government will carry out a comprehensive restructuring of the National Highway Programme to ensure that the National Highway Grid is of desirable length. In the second phase of Bharatmala, the Central government will help the states in developing state road networks. In the Budget an annual allocation of Rs 45,880 crore (Rs 40,960 crore) has been made to road works. Additionally, Rs 36,691 crore (Rs 37,321 crore) has been allocated to NHAI for its national highway building programmes. A sum of Rs 974 crore has been allocated to the National Capital Region Transport Corporation.

Jal Marg Vikas

As part of the Jal Marg Vikas Project for enhancing navigational capacity of Ganga, a multi modal terminal at Varanasi has become functional in November 2018 and two more such terminals at Sahibganj and Haldia and a navigational lock at Farakka would be completed in 2019-20. A sum of Rs 750 crore has been set aside for National Ganga Plan and Ghat works.


The Finance Minister has promised to relook into the performance of UDAY scheme launched in 2015 and remove barriers like cross subsidy surcharges, undesirable duties on open access sales or captive generation for industrial and other bulk power consumers. Besides, Sitharaman has assured that a package of power sector tariff and structural reforms would soon be announced.


To increase fresh investments from MSMEs, the Government has set up an online system which provides loans up to one crore within 59 minutes. Besides, under the Interest Subvention Scheme, 350 crore has been allocated for FY2019-20 for two percent interest subvention for all GST registered MSMEs, on fresh or incremental loans.

Further, one of the biggest roadblocks MSMEs faces in carrying out business is delays in payment from the Government. To eliminate this, the Government will create a payment platform for filing of bills and payment thereof on the platform itself.


The Government has proposed to streamline multiple labour laws into a set of four labour codes.

Agriculture and Rural India

By 2022, the 75th year of India’s independence, the Government promises that every single rural family, except those who are unwilling to take the connection, will have electricity and clean cooking facility.


The Finance Minister proposes Zero Budget farming that encourages zero credit for agriculture and prevents the use of chemical fertilisers. Further, to ensure high food grain production, the subsidies on Urea and Nutrients have been raised from Rs 44,995 crore and Rs 25,090 crore in 2018-19 to Rs 53,629 crore and Rs 26,367 crore respectively in 2019-20.

Traditional Industries

To make traditional industries more productive, profitable and capable for generating sustained employment opportunities, Common Facility Centres (CFCs) to facilitate cluster-based development will be set up under the ‘Scheme of Fund for Upgradation and Regeneration of Traditional Industries’ (SFURTI). To begin with, Bamboo, Honey and Khadi will be the focused sectors. During 2019-20, the Government aims to set up 100 new clusters.

Further, to improve technology of such industries, the Scheme for Promotion of Innovation, Rural Industry and Entrepreneurship’ (ASPIRE) has been consolidated for setting up of Livelihood Business Incubators (LBIs) and Technology Business Incubators (TBIs). The Scheme contemplates to set up 80 Livelihood Business Incubators (LBIs) and 20 Technology Business Incubators (TBIs) in 2019-20 to develop 75,000 skilled entrepreneurs in agro-rural industry sectors.


In the second phase of the Pradhan Mantri Awas Yojana – Gramin (PMAY-G) between 2019-20 and 2021-22, 1.95 crore houses are proposed to be provided. The scheme aims to provide Housing for All by 2022. Since the launch, a total number of 1.54 crore rural homes have been completed in the last five years.


Under the Pradhan Mantri Gram Sadak Yojana (PMGSY) all weather connectivity has been provided to over 97 percent of such habitations. In the last three years, the pace of road building has increased to around 135 km per day. To keep up the development pace under PMGSY-III, a total of 1,25,000 km of roads will be upgraded over the next five years at an estimated cost of Rs 80,250 crore. The Budgetary allocation to the Pradhan Mantri Gram Sadak Yojana has been increased from Rs 15,500 crore in 2018-19 to Rs 19,000 crore.

Jala Shakti Yojana

Jal Shakti Mantralaya will look at the management of water resources and water supply in an integrated and holistic manner and work with state governments to ensure piped water supply to all rural households by 2024 under the Jal Jeevan Mission.

Further, the Government has identified 1,592 blocks, which are critical and over-exploited, spread across 256 districts for the Jal Shakti Abhiyan.

The Budgetary allocation to the National Rural Drinking Water Mission has been increased from Rs 5,500 crore in 2018-19 to Rs 10,001 crore in 2019-20.

Financing the Budget Proposals

The NPA problems faced by banks, financial irregularities reported in the NBFCs and general erosion reported in profitability of Indian companies have raised doubts about the ability of project promoters in raising the required funds to execute their projects.

The Government estimates indicate that to clock eight percent GDP growth, the country has to see an average investment of Rs 20 lakh crore every year. Under the current financial situation to ensure adequate and timely supply of funds to project promoters, the Budget has proposed the following measures.

Along with setting up a Credit Guarantee Enhancement Corporation in 2019-20, an action plan will be put in place to deepen the market for long-term bonds, including for deepening markets for corporate bond repos, credit default swaps etc, with specific focus on the Infrastructure sector.

FIIs/FPIs will be permitted to invest in debt securities issued by Infrastructure Debt Fund – Non-Bank Finance Companies (IDF-NBFCs).

Debt Market

To deepen the corporate tri-party repo market in Corporate Debt securities, the Government proposes to work with regulators RBI/SEBI to enable stock exchanges to allow AA-rated bonds as collaterals.

FDI Infows

As against a 13 percent fall seen in global FDI flows, India’s FDI inflows in 2018-19 remained strong at US$ 64.375 billion marking a 6 percent growth over the previous year.

To increase the flow further, the budget proposes…

  1. Opening up of FDI in aviation, media (animation, AVGC) and insurance sectors.
  2. 100 percent Foreign Direct Investment (FDI) for insurance intermediaries.
  3. Easing of local sourcing norms in Single Brand Retail sector.

Foreign Portfolio Investors (FPIs)

It has been proposed to increase the statutory limit for FPI investment in a company from 24 percent to sectoral foreign investment limit with option given to the concerned corporates to limit it to a lower threshold. Additionally, the FPIs will be permitted to subscribe to listed debt securities issued by ReITs and InvITs.

To provide NRIs with seamless access to Indian equities, the NRI-Portfolio Investment Scheme Route will be merged with the Foreign Portfolio Investment Route.


Indian Banks’ financial health has improved in the last one year. The NPAs have reduced by over Rs one lakh and recovered around Rs four lakh crore due to IBC. The Budget proposes to infuse Rs 70,000 crore into PSU Banks to improve their lending position.


To protect the sound Non-Banking Financial Companies (NBFCs) steps are taken to ensure continued funding from banks and mutual funds without being unduly risk averse. For purchase of high-rated pooled assets of such NBFCs, amounting to Rupees one lakh crore during the current financial year, the Government will provide one-time six months’ partial credit guarantee to Public Sector Banks for first loss of up to 10 percent.

Further, the Reserve Bank of India (RBI) is the regulator for NBFCs. However, RBI has limited regulatory authority over NBFCs. Appropriate proposals for strengthening the regulatory authority of RBI over NBFCs are being placed in the Finance Bill.

Electronic Fund–Raising Platform

An electronic fund-raising platform will be set up under the regulatory ambit of the Securities and Exchange Board of India (SEBI) for listing social enterprises and voluntary organisations working for realisation of a social welfare objective so that they can raise capital as equity, debt or as units like a mutual fund.

Corporate Tax

To widen the lower rate of 25 percent of corporate tax to more companies, the cut-off limit has been raised from Rs 250 crore to Rs 400 crore. This measure is expected to cover around 99.3 percent of the companies.


To resolve the so-called ‘Angel Tax’ issue, the start-ups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums. The issue of establishing identity of the investor and source of his funds will be resolved by putting in place a mechanism of e-verification. With this, funds raised by start-ups will not require any kind of scrutiny from the Income Tax Department.


To further incentivise the International Financial Services Centre (IFSC) in GIFT City, the budget proposes to provide direct tax incentives to an IFSC including 100 percent profit-linked deduction under section 80-LA in any ten-year block within a 15-year period, exemption from dividend distribution tax from current and accumulated income to companies and mutual funds, exemptions on capital gain to Category-III AIF and interest payment on loan taken from non-residents.


The Central government has set an enhanced target of Rs 1,05,000 crore of disinvestment receipts for the financial year 2019-20. Along with reinitiating the process of strategic disinvestment of Air India, it would identify more CPSEs for strategic participation by the private sector.

In case of public sector undertakings, the Government intends, in case where the Undertaking is still to be retained in Government control, to go below 51 percent to an appropriate level on case-to-case basis. The Government has also decided to modify the present policy so that it can have the desired 51 percent stake inclusive of the stakes of government-controlled institutions.


While the Finance Minister has proposed enough measures to rekindle the animal spirits of private project investors, the key requirement is the execution of schemes and projects on time and within the budget outlined. This could be ensured only through application of the latest project management practices and monitoring the progress made in various schemes and projects on a regular basis.


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