The key message of the Indian Budget 2018 is that the government is staying the course of reforms, writes India Inc. Founder & CEO Manoj Ladwa.
ou have to hand it to Indian Prime Minister Narendra Modi. He can think big, really big.
The world may still be debating the pros and cons of Obamacare, but Indian Finance Minister Arun Jaitley stole the show on Thursday, announcing the world’s largest government health insurance programme, titled National Health Protection Scheme covering… hold your breath… 100 million families. That’s around half a billion beneficiaries.
The absence of a universal health insurance programme on the lines of the UK’s National Health Service (NHS) has been a major blot on India’s quest for greater inclusive growth. This new initiative, under a new flagship scheme called Ayushman Bharat (rather awkwardly translated in English as ‘Longevity for all Indians’), doesn’t just address the issue, it attacks it from the front and promises to change the way healthcare is administered to almost 10 per cent of the global population.
This wasn’t the only bold new step outlined in the Indian Budget 2018. What was really audacious about Jaitley’s last full Budget before the 2019 General Elections was how he built on four years of far reaching and deep institutional reforms to focus his attention and the government’s resources to what many call the real India – the country’s largely neglected rural sector.
He has bravely balanced political compulsions to woo his party’s strong middle class constituency, which powered Modi to the Prime Minister’s office in 2014 and then stood like a rock behind him since then, in a determined attempt to correct the urban-rural divide, which is skewed disproportionately in favour of the former.
The Modi government is clearly confident that its structural reforms are working to deliver the ambitious programmes it announced yesterday. The major message from the Union Budget is that the Indian government is staying the course on reforms.
Such dedicated focus – on farmers, on women, millennials, on technology, the social sector, the last person in the queue as well as infrastructure and the corporate sector – clearly shows that Modi has set his sights on 2019 and beyond!
Five top takeaways for foreign investors:
The major takeaways for foreign investors will have to be:
i) The Indian government is resolute about managing the economy responsibly. By resisting the temptation – many analysts would even call it compulsion – to shower special interest groups and his party’s dedicated constituencies with goodies in his last full Budget before the 2019 Lok Sabha polls, Jaitley has reiterated his determination to walk his brave talk.
ii) Corporation tax has been reduced from 30 per cent to 25 per cent for companies with a turnover up to Rs 250crore (about $36 million). That covers pretty much 99 per cent of all Indian businesses. This will provide a major fillip to the MSME segment, which is the main job creator in any economy. Rising employment opportunities should, hopefully, translate into higher consumption expenditure at the macro level and help push the country’s GDP growth rate into a higher growth trajectory.
iii) The outlay on infrastructure has been increased from $62 billion to $77 billion. This will offer massive business opportunities for domestic as well as foreign companies in the EPC, equipment, capital goods, technology and other sectors. This massive rise in government expenditure on infrastructure will also lead, as the International Monetary Fund (IMF) predicts, to an uptick in GDP growth and make India even more attractive for all investor classes.
iv) India is going digital with a vengeance. The Budget has allocated Rs 10,000 crore (about $1.6 billion) to set up 500,000 Wi-Fi hotspots to service 50 million rural consumers. Then, the government will also encourage Blockchain in payment systems. Further, the Finance Minister has proposed using technology – from blackboards to digital boards – to deliver education to the further corners of the country. The initiative is called RISE – Revitalising Infrastructure in School Education. These are areas in which India does not have sufficient domestic capacity. So, this drive will almost certainly generate large business volumes for large foreign technology companies as well as smaller tech consultants.
v) In the industrial segment, Jaitley has proposed two defence industrial corridors. Then, he has doubled the allocation for India’s sunrise food processing sector and proposed 42 state-of-the-art food processing zones. Both these sectors are very attractive for foreign companies as India is looking for overseas support to help domestic companies find their feet and blossom in these areas.
This Budget showed quite dramatically that the much criticised but very necessary demonetisation exercise, which had sucked out 86 per cent currency out of circulation, has become a feather in Modi’s cap. Low tax to GDP ratio and a small base of direct taxpayers have plagued the Indian economy ever since personal income tax was introduced. Jaitley announced that as many as 85 million taxpayers have filed returns in 2017-18, a staggering rise of almost 20 per cent over the preceding year.
There were, however, no changes in either the rates or the slabs of personal income tax. One reason for this could possibly be the fact that an expert committee is looking at ways to amend the country’s 56-year-old Income Tax Act and the government understandably didn’t want to make changes before receiving the recommendations of the expert group constituted for the purpose.
Overall, I think it’s a path-breaking Budget that allocates resources wisely, shuns the populism that typically defined the last budgets presented by previous Indian governments and places India firmly on track to becoming the fifth-largest economy within a few years, two ranks higher than its current position in the global pecking order.
Like all Budgets, this one, too, has drawn much partisan commentary from supporters and rivals of the Modi government. Don’t go by the chatter; just read the fine print and ask: Will this Budget improve the lives of the greatest number of Indians and will it bump up GDP growth rates by bringing the big drive back to the Indian economy? You’ll find that the Finance Minister has ticked all the critical boxes.
For too long have Indian budgets focused on 1 per cent of its population and made insincere gestures towards the rest. Yesterday’s Budget redresses the balance – by turning its focus on the rural sector, India’s urban poor, the young and the aspirational – as it should.
Some British Chancellors of the Exchequer were known to sip Scotch whilst delivering their budget. I guess Arun Jaitley deserves a big glass of Sweet Lassi for this wonderfully upbeat Budget.