Setting the tone for the new government, the Union Budget 2019-20 emphasises boosting infrastructure development, improving credit flow through recapitalisation of public sector banks (PSBs), addressing the non-banking finance companies (NBFC) issue, boosting foreign flows and a steady social sector spending to provide basic amenities to all.
At the same time, the budget shows intention to follow fiscal consolidation path by reducing fiscal deficit estimate to 3.3% for FY20 and 3% for the next two years thereafter. In the backdrop of global trade tensions, the government intends to make use of opportunity by inviting global companies to set up manufacturing plants here.
The government has proposed to the Securities and Exchange Board of India (Sebi) that promoter holding limit be reduced from 75% to 65%. If approved, this would provide incremental equity supply over the next three to four years. On a case-to-case basis, the government intends to reduce its holding below 51% in certain centre-owned entities.
Several measures have been taken to boost foreign flows. FDI limits have been relaxed for single-brand retail, aviation, insurance and media. KYC norms for foreign portfolio investors (FPIs) have been eased. Sectoral limit has also been proposed to be raised for FPIs and raising government securities in international markets. The budget also proposes the FPI limit in companies goes up to FDI limit. These efforts to drive investment growthare a long-term positive.
Much-needed impetus has been provided to banks and NBFCs. PSBs will get Rs 70,000 crore capital to improve credit flow. Foreign institutional investors (FII) and FPI investment will be allowed in debt securities issued by NBFCs. The government will provide a guarantee of Rs 1 lakh crore worth of securitisation to buyers of high-rated pooled assets of NBFCs for first loss up to 10% and for six months. It would boost investor sentiment.
By providing tax incentives, an impetus has been provided to the housing sector. However, this is valid only till March 31, 2020. This may be too short a time for giving a meaningful stimulus to housing.
Due to limited fiscal space, the FM did not make any major tax announcements. Cess on petrol and diesel increased by Rs 1 per litre and custom duty on gold is also raised to 12.5% from earlier 10%. By refraining from any populist measures government has continued its focus on fiscal deficit control.
In summary, while the budget maintains a balance between prudence and populism, challenges regarding economic growth have not been fully acknowledged or addressed.