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Budget 2019 Stays away from Subsidies; Focus on Long-Term Economic Development

Posted by - Sanjeev Mantri, Executive Director
July 09 2019

Union Budget 2019: With change of guard at the finance ministry level and the traditional briefcase giving way to ‘Bahi-khata’, the winds of change seemed to be connoting a radically different Budget. While one didn’t witness ‘out of the box’ ideas in the Budget presented on July 5, it was a statement of purpose with the intent to place the right building blocks in place to get India to the milestone of a $5 trillion economy in the next five years.

The focus of the finance minister was rightly on getting the enablers in place with emphasis on core infrastructure namely roads, electricity, water supply, etc. More importantly, the Budget laid stress on the facilitating elements—education, driving use of digital payments, promoting entrepreneurship and alleviating the fears of the startup ecosystem, etc. The fact that these mega changes are being planned while ensuring fiscal prudence and staying clear of the ‘subsidy’ path is much appreciated and says a lot about the intent of policymakers to move away from populist measures to those that will truly facilitate long-term economic development.

Alleviating pain points

At the same time, the Budget looks at alleviating the immediate pain points being faced by the economy. Non-banking financial companies (NBFCs) have faced turbulent times as defaults hit the sector hard. It was extremely critical to address this issue given the high risk of the contagion spreading across the sector and to the broader economy. The Budget has announced specific steps to address this problem. At the same time, the move to re-capitalise public sector banks will help reduce the strain on banking system. Measures such as tax incentives for affordable housing should help revive demand for the real estate industry which has otherwise been saddled with unsold inventory.

In a move that aligns with India’s intent to become a global hub for electric vehicles, the introduction of tax incentives and other benefits amounting to around `3.5 lakh should rejuvenate the electric vehicles segment.

FDI in insurance intermediaries

For the insurance industry, the move to allow 100% FDI in insurance intermediaries is a welcome step. With long-term capital getting infused in insurance intermediaries, they will be able to invest in expanding and enhancing their distribution capabilities thereby ensuring that insurance products reach the smaller towns and rural areas while effectively addressing the needs of the current customers.

The Budget ticks the right boxes on many counts; however, there are some areas where it has missed the opportunity. The auto sector has been grappling with declining demand for a while and this has accentuated in the last few months. No remedial measures were announced in the Budget to address this issue.

Similarly, the government has stayed away from providing stimulus to other sectors to improve consumer demand, adding to the risk of the Indian growth engine stuttering, at least in the short term. When it comes to insurance, the lack of incentives for critical segments such as health and home insurance is an opportunity lost.

To conclude, I believe that the Budget 2019 does well by focusing on enabling measures for India’s long-term economic progress, though it could have done more in some areas where urgent measures were needed to be taken for immediate relief.

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