The maiden Budget of Modi 2.0 turned out to be a vision and mission statement for the next five years but ambiguous in its approach towards becoming a $5 trillion economy. Finance minister Nirmala Sitharaman chose to walk down the path of her predecessors by dishing out a typical ‘big on intent’ budget – a sprinkling of incentives, perking of duties, and a tweak-and-a-two aimed at ease of compliance. But then as global investor and author, Ruchir Sharma, mentions that no matter which leader comes to power, the pace of reforms in the country has always been incremental in nature. Stating that no government had ever carried out big breakthrough reforms in this country, unless cornered by a crisis, Sharma made a pertinent point in an earlier interaction with Outlook Business: “The longer a government stays in power, lesser is the reform momentum.”
Against the backdrop of a stuttering economy with GDP growth hitting a five-year low of 5.8% and private investments falling to a 15-year low, the need of the hour was credible measures to kickstart growth and attract foreign direct investment. Instead, a good part of the FM’s speech read like a party manifesto, reiterating the achievements of Modi’s flagship programmes and how they were “testimony to the potential for behavioural change in India.” If at all the Budget just reiterated the government’s emphasis on infrastructure rather ambitiously stating that railway infrastructure would need investment of ₹50 lakh crore between 2018 and 2030, besides touching on existing projects such as industrial corridors, freight corridor, Bharatmala, Sagarmala and UDAN schemes.
The only piece of infrastructure that has been doing well under the Modi government has been road connectivity. The Budget has now set an investment target of ₹80,250 crore for phase three of the Pradhan Mantri Gram Sadak Yojana, under which 125,000 km of village roads will be built. How successful the government would be in getting the private sector kicked up about the PPP model remains to be seen. In keeping with the push for electrification of passenger transport, GST has been cut on electric vehicles from 12% to 5% besides additional income tax deduction of up to Rs.150.000 on the interest paid on loans taken to purchase them. To spur investment in infra, the government wants foreign portfolio investors to buy infrastructure debt funds, besides encouraging equity investment from NRIs.
One would have expected a worried government to kickstart private investment but the Budget didn’t have an answer. Constrained by a widening fisc and falling revenue collection, the government gingerly widened the slab of 25% corporate tax to include companies with a turnover of Rs.400 crore. Though the 25% slab now covers over 99% of companies, as claimed by the government, a material difference for India Inc would have been a 5% cut for companies above the #400 crore threshold. For instance, 900 listed companies above Rs.400 crore in FY18, paid Rs.1.69 lakh crore in income tax, while 690 listed companies in the Rs.100 crore to Rs.400 crore bracket, paid Rs.4,200 crore in taxes in the same period.
That the Budget has failed to excite investors is evident in the way the benchmark indices stayed unmoved right through the course of the minister’s speech, and ended the day in the red. If the government expect investors to buy into its Rs.1.05 trillion disinvestment target, its attempt at the selling the India story has fallen short, yet again.