13 February 2018

  |  CBI India

Update

CBI India Budget Update 2018

Impact and opportunities in the latest CBI India Budget Update 2018

CBI India Budget Update 2018

India’s Finance Minister Mr Arun Jaitley presented the Budget 2018-19 on 1 February 2018. It was the last full budget of the current government under Mr Narendra Modi as Prime Minister, before the next general elections.

After three years of piecemeal economic reforms, this election- year budget was expectedly short on reforms. A budget meant to cater to the rural poor, the farm sector and senior citizens to improve the ‘ease of living’ of the masses as mentioned by the Finance Minister.

The CBI International Director Ben Digby who was in Delhi on budget day said: “This is a budget which will make life that little bit easier."

"This will be applauded by British companies, who employ one in twenty of the population of India in the organised private sector, and are committed to improving the lives and prosperity of people and communities across the country." 

“British investors will recognise the considerable progress on economic reform the Finance Minister outlined in his statement, including the implementation of the Goods & Services Tax (GST), and measures to improve the ease of doing business, as well as a more open climate for foreign direct investment.

“While firms would have liked to hear more about measures to reduce the compliance cost of GST and corporation tax for larger investors, the announcements on healthcare provision, education, the new defence production corridor and rural infrastructure all provide great opportunities for UK plc in areas which very much play to its strengths.” The CBI in partnership with UKIBC and hosted by City of London organised a budget roundtable discussion the same evening.

After a year of disruption caused by the introduction of the new Goods and Services Tax, the Finance Minister announced two substantial allocations- INR 14.34 trillion (£160 billion) to rural infrastructure and INR 1.38 trillion (£15.5 billion) for social sector including an INR 110 billion (£1.23 billion) to an ambitious healthcare programme.

Consequently, the fiscal deficit target will be missed both this year and the next. Fiscal deficit in the current fiscal will be 3.4% and 3.3% of GDP in 2018-19 against a target of 3%. Economists however, point out that this slippage is more structural than populist.

The government is chasing a target of INR 800 billion (£ 9 billion) in disinvestment and has added 8.5 million new tax payers this year, seeing a progressive increase in the country’s formal economy. India is now a $2.5 trillion economy. Read the Finance Minister’s interview.

IMPACT

Here are some of the budget measures that will impact UK businesses in India

Bonds for corporate finance

The budget proposes to make it mandatory for large companies to raise about a fourth of their financing needs in the bonds market. This will reduce corporate dependence on banks, which are reeling under non-performing assets and promote further deepening of the bond market. Read more here.

Corporate tax pared for MSMEs

Corporate tax for firms with a sales turnover up to INR 2.5 billion (£ 28 million) will now pay a lower corporate tax rate of 25%.  This will benefit the medium and small businesses which account for 99% of tax paying companies. Read more here.

Customs duty on over 50 items raised

In a bid to push the Make in India programme, the budget this year announced and increase between 5%-40% on over 50 items, including cell phones, footwear, fruit and vegetable juices, car parts, toys and several such items.

Cess on tax increased to 4%

The government proposes to replace existing 3% education cess on personal income tax and corporation tax with a 4% 'Health and Education Cess' to take care the education and health needs of poor and rural families.

Long term capital gains (LTCG) tax makes a comeback after 14 years

LTCG tax on equity investments will be applicable to all investors who earn profits in excess of INR 100,000. Market players see this as a negative as this has been levied without scrapping the securities transaction tax which had been introduced in lieu of LTCG. Read more here.

OPPORTUNITIES

The Budget has opened up some clear business opportunities for some sectors like defence and aviation. After relaxing FDI caps in both these sectors in previous years, announcements in the budget this year present clear opportunities to businesses.

Two new defence industrial corridors announced

The Indian government will develop two defence industrial production corridors and bring out an industry-friendly military production policy to promote the defence industry. The first defence corridor will connect Bengaluru with Chennai. Read more here.

Five-fold increase in aviation capacity planned

India may become the world’s largest aviation market in the future with the government’s target to expand airport capacity 5 times to handle 1 billion trips a year. There are currently 124 airports run by the government and 6 additional privately-run airports. The expansion will further get a push by the government’s regional connectivity scheme called UDAN (which seeks to air connect India’s small towns at affordable rates. As many as 56 unserved airports and 31 unserved helipads will be connected under the UDAN scheme. Read more here.

New business opportunities in the water sector

Atal Mission for Rejuvenation and Urban Transformation (AMRUT), a scheme that also focuses on providing water supply to all households in 500 cities, was announced in the budget this year. State level plans of INR 77,640 crore (INR 8.7 billion) for 500 cities have been approved.

Tourism industry gets a fillip

The Budget proposed to develop 10 prominent tourist sites into "iconic tourism destinations"

This, coupled with upgradation of 100 ‘Adarsh’ monuments of the Archaeological Survey of India (ASI), and creation of frameworks to encourage investment in sea plane activities will attract more investments in the sector. Read more.

Block chain tech in, bitcoin out

The Indian government does not consider cryptocurrency legal tender, but is in favour of adopting blockchain technology for ushering in the digital revolution, said the Finance Minister in his budget speech. Read more.

ON THE RADAR

A ready reckoner to decode the Indian Budget 2018-19