Hopes for the Budget 2020
By Richard Heald
On February 1st, the Government of India will announce its annual budget, laying out its plans for 2020. This could be a momentous Budget as on the one hand, it will allow the Indian Government to articulate its roadmap to achieve its goal of becoming a US$5trillion economy by 2024 and on the other it is the last opportunity to for the Government initiate structural reforms which will probably achieve their potential before the next General Election in 2024.
It is eagerly awaited by the Indian public, Indian corporates and by those UK companies already exporting to and manufacturing, assembling and sourcing in India.
Following the recent slowdown in India’s economic growth to around 4.8 percent, the Indian economy is beginning to show signs to having turned the corner. The budget presents a chance for India to accelerate the domestic economy as well as international trade and investment. It also allows Finance Minister Sitharaman to speak directly to the Industry and to consumers to assure them that the Indian Government does have an economic policy with their interests at its core.
This is a budget where the accompanying narrative is as important as the measures announced since the fiscal “wiggle-room” is limited. Official numbers indicate that the fiscal deficit stands at about 3 percent of GDP, in truth the real figure could be higher. Does the Government have headroom (and courage) to relax their targets? We hope so.
At the same figure, the July interim budget allowed the Indian Government to issue sovereign debt. To date they have not availed themselves of this permission. The increasing list of private sector companies aiming to tap the debt markets would indicate that, at least, they anticipate imminent issues by the Government. This is also a positive.
There has also been good news with the reporting of a record collection of GST of Rs 1.15 lakh crore in January 2020 which has been attributed to plugging of leakages and stricter compliance. We hope this will continue to rise in the coming months and will lead to bolstering additional revenue for the Government.
There are several approaches that the Indian Government could take, several of which I will suggest in this blog.
One such approach is emphasis on job creation to increase economic activity – particularly in the rural economy and in the infrastructure and manufacturing sectors – and drive up consumption. A key component of driving rural growth will be an effective roadmap to implement at Government’s agenda on doubling farmers income by 2022.
Consumer confidence has been hit. We would encourage the Government to India to increase personal tax receipts by simplifying the system and by reducing personal income taxes, long-term capital gains, tax on share buybacks. We would like to see the Government develop a wider tax base with a more transparent, fair and lower tax regime which will help spur people to spend more and build confidence with the consumers.
‘Legal and regulatory impediments’ was the most frequently cited barrier to doing business in India by UK companies in our latest Doing Business in India Report published in November. ‘Taxation issues’ was the third most prevalent barrier. Together, this is clear indication that tax reform would be hugely beneficial to attracting investment to India.
Relaxation of FDI limits from the current 49% to 74% in the insurance industry is widely anticipated and is a key ask from the industry and not only UK based firms. This will allow a greater inflow of international firms to bring in new technologies, new products and ensure better market penetration.
The budget should not merely be considered as a one-stop-shop to solving India’s economic downturn but a fresh opportunity to work towards igniting the economy throughout the next twelve months.
The onus is not only on the Government, but also with all stakeholders, whether they be private or public firms, domestic or foreign, to come together to help drive growth in India as their growth is tied to India’s growth, and a large part of their success globally hinges on their success in India. Active participation and confidence in India will reap mutual benefits and dividends for all – the Government can create an active ecosystem to allow for a business to flourish – but the business has to also take a leap of confidence and repose their faith in the Government that their promises will be honoured.
I was and have been an optimist and a firm believer in India’s potential. That’s why I call for greater cooperation between our two countries, and this is my wish from the Budget tomorrow, that the UK and India can be partners in each other’s growth in years to come.
My next blog will discuss the budget after its announcement by the Finance Minister on 1st February. Additionally, UKIBC are holding two roundtables – one in Delhi and one in London – with our members post-budget to discuss its implications for the Indian economy and UK-India trade and investment in 2020. See the UKIBC website, Twitter and LinkedIn for more on those.
