A positive Union Budget for Financial Services Yes and No!
The recent Union budget offered the Finance minister a real opportunity to address some of the underlying issues in the Indian economy, streamline taxation and of course address the elephant in the room, Capital! In some areas it did this but at the UKIBC we feel more could have been done.
At a recent NPA (Non-Performing Assets) conference it was estimated that India needs some $150b today to recapitalise the market and a further $30b every year after that to support growth. This coupled with $1.4 NIP (National Infrastructure Plan) means India needs to vastly increase capital inflows but this is not going to be easy.
As I mentioned in my previous blog India is currently over reliant on Banks and NBFC`s (non-banking financial companies) and with only 0.1% of global ESG (Economic, Sustainable and Governance) funds going to India which many argue has the most need for these funds, there is still a lot of work to do! So the big question is how did the budget set about solving these challenges bearing in mind that India needs to understand it’s a competitive market and investors have lots of choice!
India seems to be putting its eggs in four baskets:
- Sovereign Wealth Funds with the grant of tax exemption to interest, dividend and capital gains income for them for Infrastructure investment
- Foreign Portfolio Investors limit in corporate bonds increased from 9% to 15%
- The removal of Dividend Distribution Tax at the company level for foreign investors
- The disinvestment from the state in Air India, IDBI bank, BPCL, Concor and LIC
But will these measures be enough? UKIBC would have liked to have seen the opening up of the Insurance market in India further, as set out in our 2020 Advocacy Report. Not only does this create employment and tax revenues, it also allows investors and businesses to mitigate risk and not to mention the pension premiums created that could be reinvested in infrastructure or the bonds markets in India.
The sale via IPO of LIC (Life Insurance Corporation) is however a good sign as many believe state owned assets dominate the insurance market.