MUMBAI // Industry leaders largely reacted positively to Narendra Modi’s first full year budget yesterday, as India’s government tried to carefully balance the desperate need to boost the country’s economy while keeping its finances in check.
But some were disappointed that there was not more of a focus on non-resident Indians (NRIs).
Expectations had soared ahead of the budget, described by some as “a make or break” budget for Mr Modi’s government, as everyone looked to it to deliver the economic growth and business friendly policies promised during its electoral campaign last May.
A 700 billion rupee (Dh41.7bn) increase in infrastructure spending and lower corporate taxes were among the headline announcements in the budget for the financial year which begins in April 1. A long-awaited national goods and service tax is to be introduced by April 2016.
“There is a clear and sharp focus on the four key areas of growth, inclusion, fiscal prudence and tax rationalisation,” said Chanda Kochhar, the chief executive of ICICI Bank. “The budget promotes growth through its focus on infrastructure and ease of doing business.”
Stuart Milne, the group general manager and chief executive of HSBC India, said that it was “a sound performance … to conquer the expectations” delivered by the finance minister, Arun Jaitley.
“A mix of big, long-term reforms and some sharp short-term measures, it is just the perfect budget that the Indian economy needed to achieve sustainable growth,” Mr Milne said.
But for expatriates, there appeared to be little news to cheer about. Mr Modi’s budget did not introduce any new measures aimed at Indians abroad.
“The budget seems to have missed out on the Modi government’s posture of integrating overseas Indians into the country’s growth story as there is no specific scheme that could benefit NRIs who remit billions to India, or any policy indication that will encourage NRIs to invest in India projects,” said Y Sudhir Kumar Shetty, the president of UAE Exchange.
He added that the budget would, however, pave the way for economic growth in India.
BR Shetty, the chairman of UAE Exchange and the chief executive of NMC Healthcare in Abu Dhabi, said that initiatives highlighted by the government to deal with black money were positive signs.
“If stringent regulations are followed in this front, legal remittances would increase India’s foreign assets and broad money, signalling economic growth.”
Stock markets in India, normally closed on Saturday, opened yesterday for a special trading session for the budget. The benchmark BSE Sensex gained 0.4 per cent to 29,361.50 points.
“The budget may lack big-ticket announcements but it has touched upon all the key issues that are important for both economic and social development,” said Ankur Bisen, a senior vice president at Technopak, a consultancy in India. “The impact of this budget will be felt in five years.”
The budget was presented against an improving economic environment, including easing inflation levels and rebounding GDP growth.
India’s finance ministry on Friday issued a forecast that the country’s GDP could grow by between 8.1 per cent and 8.5 per cent in the next financial year, under a recently revised methodology for the government’s GDP estimates, which has pushed figures higher compared with previous forecasts. This is up from a predicted 7.4 per cent in the current financial year.
“Aiming for a double-digit rate seems feasible very soon,” said Mr Jaitley.
Nilesh Ashar, a tax partner at KPMG in Dubai, said: “The super-rich NRIs will cough up more taxes with an enhanced surcharge of 2 per cent on income of more than 10 million rupees [in India]. Overall, the budget has provided a positive economic outlook, with a focus on growth, job creation, more tax benefits to middle class tax payers, unearthing black money and providing a direct tax regime that is internationally competitive.”
Sudhesh Giriyan, the chief operating officer of the remittances company Xpress Money, said that new education measures announced to improve the skills and employability of Indians could create more opportunities to secure better jobs in countries such as the UAE.
“When skills are suitably polished, the workforce is ready for better opportunities in employment across all sectors, not only in India but also globally,” he said.
A better-skilled workforce abroad would mean increased remittances back to India, he said.
Here are some of the key areas of the Indian economy addressed in yesterday's budget:
Infrastructure
Spending is set to increase by 700 billion rupees (Dh41.7bn). The finance minister, Arun Jaitley, said there was “a pressing need to increase public investment”, adding that “our infrastructure does not match our growth ambitions”.
The government announced that it intends to increase spending on roads by 140bn rupees and for railways by 100bn rupees. Mr Jaitley also unveiled a national investment and infrastructure fund and tax free infrastructure bonds for rail, road and irrigation projects.
Fiscal targets
The government’s increased spending will slow its fiscal consolidation plans. It now says it will trim the deficit to 3 per cent of GDP by the financial year ending March 2018, a year later than earlier expected. The deficit is forecast at 4.1 per cent for the year ending March 31, and the government says that figure will be cut to 3.9 per cent during the year starting April 1.
Gold
The budget outlined measures to bring gold into India’s formal financial system, including a gold monetisation scheme that would allow depositors to earn interest.
The budget includes a plan to develop a sovereign gold bond as an alternative to physical gold and the development of an Indian gold coin to reduce the demand for imported coins.Physical gold in India is estimated to amount to more than 20,000 tonnes, but most of this is neither traded nor monetised, according to the government.
Indians are major consumers of gold, which is often used as an alternative to banks as a means of storing savings. Imports of gold weigh on the trade deficit.
“This budget is exceptional for gold,” said Somasundaram PR, the managing director for India at the World Gold Council. “Demand for gold cannot be wished away by supply curbs.”
Financial markets
The government intends to step up consumer protection for its capital markets, proposing a task force to create a neutral financial redressal agency to deal with complaints against financial service providers.
“One vital factor in promoting investment in India is the deepening of the Indian bond market, which we have to bring at the same level as our world class equity market,” according to Mr Jaitley.
He said India would start this process by setting up a public debt management agency this year to bring the country’s external borrowing and domestic debt under on roof.
Foreign investment
The government wants to allow foreign investment into alternative investment funds in India. It also wants to develop its economic relations with South East Asia and plans to set up manufacturing hubs in Cambodia, Myanmar, Laos and Vietnam to boost Indian investments into the region.
Small businesses and entrepreneurs
Plans were revealed to help small businesses through the creation of the Micro Units Development Refinance Agency (MUDRA) bank.
“While large corporate and business entities have a role to play, this has to be complemented by informal sector enterprises which generate maximum employment,” Mr Jaitley said. “These bottom-of-the-pyramid, hard-working entrepreneurs find it difficult, if not impossible, to access formal systems of credit.”
India also intends to create a comprehensive bankruptcy code in the next financial year, which will be designed to meet global standards.
Tourism
The government intends to increase its visa on arrivals scheme, introduced for 43 countries in November, to 150 countries. It also wants to provide resources to restore and improve facilities around some of its world heritage sites, including hill forts in Rajasthan and in Varanasi.
“We are happy with the thrust on domestic and inbound tourism by developing key tourist destinations and sites and making them more tourist-friendly,” said Neelu Singh, the chief operating officer of Ezeego1.com, a travel booking website. “It will help draw a lot of tourists.”
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