The budget presented by the Indian government on 5th July 2019 was a monumental one for two reasons, one being the first budget to be presented by a full-time women finance minister, Nirmala Sitharaman, and other being the introduction of drastic policies by the government to make India a $5trillion economy in next 5 years.
The budget has been introduced keeping in mind the requirements of all three sectors of the economy with special focus on boosting the secondary sector which could provide huge employment and boost to the economy. The core of all these policy implementations lies in the ideas of cooperative and competitive federalism to achieve an overall inclusive and sustainable growth.
Let’s try to analyze the initiatives taken by the government:
• To achieve the GDP(Gross Domestic Product) of $5 trillion by 2024-25, the growth rate of the economy is expected to be 8% per annum (as per economic survey), which is aimed to be achieved through the “virtuous cycle” of investments.
• For pushing the investments, the government has introduced new policies and reforms in the following sectors:
To encourage the growth of industries in a country, there is a requirement of basic infrastructure like roads, railways, waterways, logistics, etc. Thus the government will be focusing on completion of projects like Bharatmala, Dedicated Freight Corridor, National waterways Jal Marg Vikas Project, and Sagarmala Project for port-led development.
There will be an inclination towards inviting more private players for taking up the projects through models like BOT(Build Operate Transfer), PPP(Public Private Partnership) and VGF(Viability Gap Funding), for achieving better efficiency, resource optimization, and timely completion.
• FINANCIAL SECTOR:
The two major regulators i.e. RBI(Reserve Bank of India) and SEBI(Securities and exchange board of India) are planned to be kept at the center point for the implementation of the major policies to encourage foreign investments and domestic capital flow. This includes relaxation of norms for FPI/FIIs and FDI(Foreign direct investment) investment in both the Indian market and IFSC-GIFT City, opening up of social stock exchange under SEBI, merger of NRI(Non-resident Indian) portfolio route with FPI(Foreign Portfolio investment) and improvement of bond markets.
Also, the government will be pushing digital payments heavily for better compliance and transparency, through imposition of TDS(tax deducted at source) on cash transaction above a certain limit, removal of merchant discount rate, incentivizing transactions through UPI, RuPay and other online platforms.
RBI will also work on improving conditions of the banking system which is the focal point of creation of new money, through Non performing asset framework(NPA) and strategic disinvestment of loss-making public sector units(PSUs)
• SECONDARY SECTOR:
Micro small medium enterprises (MSMEs) are considered as one of the maximum employment generating sectors, but their potential is still underutilized with a contribution to GDP only around 29%. Thus, the government will give it a push by incentivizing investments under Make in India, Start Up India, Stand up India and reforms in accessing funding like easing angel tax norms, MUDRA loans, etc.
There will be a huge increase in custom duties for giving push to Make in India, which could help India achieve high exports and competitive products on a global scale, which in turn could be helpful in reducing its import bill and Current account deficit.
Further, focus on start-ups and entrepreneurship will be useful in capitalizing the demographic dividend of India, improving employment rate and achieving self-sufficiency in the long run.
• CLEAN ENERGY:
To achieve its INDCs(Intended Nationally Determined Contributions) under the Paris climate agreement, Sustainable development goals(SDG) and long term sustainable growth, the government is focusing on giving push to renewable and clean energy through schemes like FAME India(phase 2). This would not only help us save billions of dollars spent on cleaning the environment but also improve the carbon footprint for the long run.
• EASE OF DOING BUSINESS(EODB):
This factor highly determines the investor’s sentiments for putting their capital in a particular country. Thus the government has been working and will continue its efforts to improve India’s global ranking on EODB Index, through a series of reforms including GST(Goods & services tax), Insolvency and bankruptcy code, codification of labor laws, etc. This would not only push investments but also make the country’s currency stronger in the international market.
• RURAL LIFE (“Gaon, Gareeb, Kisan”):
Till now India’s major population resides in villages and depend on agriculture for their income, thus any policy focusing on these would have the widest and deepest impact on the population. Even though the majority of people are engaged in agriculture but its contribution to GDP is very less, thus indicating inefficient use of human capital. Therefore, government will be focusing on improving the situation by incentivizing people for adopting more efficient methods like Zero Budget farming, crop diversification, water management, and even encouraging them for venturing out in non-farm activities. For this, the government will work on meeting basic infrastructure requirements in rural regions through PM Gram Sadak Yojana, Jal Jeevan Mission, PMAY-G, etc.
There will be huge impetus given to non-farm industries through the promotion of SHG clusters and SFURTI scheme focusing on bamboo, honey and khadi clusters.
• LEVERAGING DEMOGRAPHIC DIVIDEND:
• Youth: For better knowledge development the government has introduced a new education policy aiming at developing world class institutions and improving research in the country. Also, extra-curricular activities have been given equal importance by Khelo India mission.
• Women: (“Nari to Narayani”): To empower women and convert them into human capital, there has been an increase in budget allocation for promotion of SHGs, disbursal of the loan through MUDRA banks and Ujjwala Yojana.
• Health: The health of population directly impacts a country’s growth trend, thus rendering it important for the government to maintain basic amenities for the maintenance of health. For this, they have already started one of the world’s largest scheme that is Aayushman Bharat covering secondary and tertiary healthcare expenses of 40% of the lower population (as per SECC data). Also, there will be an increase in primary healthcare centers for providing basic services across the country.
• What’s there for the common man?
• Taxation: There is no change introduced in the personal tax rate for all except the high net worth individual who’ll have to pay higher taxes. Also, an additional cess has been put on diesel and petrol thus increasing the burden on the common man.
• Ease of living: For improving the lives of people steps like One nation One transportation card, pension for informal sector workers and issuance of Aadhar for returning NRIs will be introduced.
• The focus of government on investment-led growth is a good step towards long term sustainable growth, as it would lead the country to self-reliance, making its currency stronger and its balance of payment stable. But, for achieving this there is a requirement of huge political will, administrative efficiency, reduced red-tapism on the ground level and other qualitative factors that are hard to predict.
• Also, the government needs to be careful of the amount of foreign investment, because too much of long term debt may lead to difficulty in replaying, and eventual involvement of institutions like International monetary fund(IMF) and World Bank, thus impacting sovereignty of the country in long run.
• There has been no proper mechanism provided for maintaining the fiscal deficit at 3% of GDP which was 3.3% in FY19.
• Overall, the focus of the government has been multi-dimensional, to improve the economy in long run, increasing purchasing power, making India a manufacturing hub, improving all sector’s performances, keeping in mind the upcoming SDGs and INDCs, leading India towards becoming a global power.
We’ll have to wait and see how it’ll turn out in the next five years.