INDIA BUDGET 2018-2019 AN ANALYSIS AND COMMENTARY PUBLISHED BY: INDIA NEW ZEALAND BUSINESS COUNCIL [INZBC]
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ABOUT INDIA BUDGET 2018-19 The Union budget was presented to the Parliament on 1 February 2018 by Finance Minister Arun Jaitley.
The minister, while
presenting the General Budget 2018-19 in Parliament, said that Indian society, polity and economy had shown remarkable resilience in adjusting with the structural reforms. IMF, in its latest Update, has forecast that India will grow at 7.4% next year in the backdrop of services resuming high growth rates of 8% plus, exports expected to grow at 15% in 2017-18 and manufacturing back on good growth path.
TABLE OF CONTENTS Budget Highlights
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Analysis by Industry Stakeholders Bhav Dhillon, Treasurer INZBC and Hon. Consul of India to Auckland (NZ).
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Federation of Indian Chambers of Commerce and Industry (FICCI)
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Chandrajit Banerjee, Director General, CII
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A. Amalorpavanathan, Deputy Managing Director of NABARD
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Dr. Jatinder Singh, Director, Director, PHD Chamber of Commerce and Industry
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Sushrutha Metikurke, Regional Manager – South Asia at WELTEC and Whitireia NZ
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Pranjal Sharma, Business Journalist and Author - Kranti Nation
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Bharat R Joshi, CEO of J-Curve Ventures
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Ravi Mehta, Partner at PwC New Zealand
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India Budget 2018-19
BUDGET HIGHLIGHTS ECONOMIC OVERVIEW: • The GDP grew at 6.3 per cent in the second quarter of 2017-18 and is expected to grow at 7.2-7.5 per cent in the second half of 2017-18. • Growth for 2018-19 is forecasted at 7.4 per cent by the International Monetary Fund (IMF). • Exports are expected to grow at 15 per cent in 2017-18. • Fiscal deficit target for 2018-19 is set at 3.3 per cent of the GDP. • Fiscal deficit for 2017-18 is revised to Rs 5.95 lakh crore (US$ 93.54 billion) at 3.5 per cent of the GDP.
AGRICULTURE AND RURAL ECONOMY • The government is committed towards doubling the farmers’ income by 2022. • A total of Rs 14.34 lakh crore (US$ 225.43 billion) will be spent for creation of livelihood and infrastructure in rural areas. • Minimum Support Price (MSP) for all announced kharif crops will be at least one and half times of their production cost, similar to the majority of rabi crops. • Institutional credit to the agriculture sector is targeted at Rs 11 lakh crore (US$ 172.93 billion) for 2018-19, compared to Rs 10 lakh crore (US$ 157.2 billion) for 2017-18. WWW.INZBC.ORG
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India Budget 2018-19
A Fisheries and Aqua culture Infrastructure Development Fund (FAIDF) and an animal Husbandry Infrastructure • Development Fund (AHIDF) will be started with a total corpus of Rs 10,000 crore (US$ 1.57 billion). • An Agri-Market Infrastructure Fund will be started with a corpus of Rs 2,000 crore (US$ 314.41 million). • A restructured National Bamboo Mission will be launched with a total outlay of Rs 1,290 crore (US$ 202.79 million). • Allocation for the National Rural Livelihood Mission is increased to Rs 5,750 crore (US$ 903.93 million) for 2018-19.
HEALTH, EDUCATION AND SOCIAL PROTECTION • Budgeted expenditure on health, education and social protection for 2018-19 is Rs 1.38 lakh crore (US$ 21.69 billion) which is expected to increase by Rs 15,000 crore (US$ 2.36 billion) after additional allocations during the year. • Role of technology in the education sector will be increased with a focus on increased digital intensity. • A new initiative named ‘Revitalising Infrastructure and Systems in Education (RISE) by 2022’ will be launched with an investment of Rs 1 lakh crore (US$ 15.72 billion) over the next four years. • A total of Rs 1,200 crore (US$ 188.65 million) is allocated for Health and Wellness Centres under the National Health Policy. • National Health Protection Scheme will be launched, which will cover over 10 million poor families with a coverage of up to Rs 5 lakh (US$ 7,860). This will be the world’s largest government funded health care programme. • A total of 24 new government medical colleges and hospitals will be set up. WWW.INZBC.ORG
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India Budget 2018-19
EMPLOYMENT GENERATION • As per an independent study conducted, over 7 million formal jobs will be created in the country during 2018-19. • The Government of India will contribute 12 per cent of the wages of the new employees in the Employees’ Provident Fund for all the sectors in the next three years. • As per proposed amendments in the Employees Provident Fund and Miscellaneous Provisions Act, 1952, women employees’ contribution to the EPF will be reduced to 8 per cent for the first three years of their employment with no change in employers’ contribution. This is done to promote more women employment in the formal sector. • A model aspirational skill centre is being set up in every district of the country.
RAILWAYS • Capital expenditure in the railways sector for 2018-19 is set at Rs 148,528 crore (US$ 23.35 billion). • 12000 wagons, 5160 coaches and around 700 locomotives will be procured during 2018-19. • Redevelopment of 600 major railway stations will be taken up. • Electrification of around 4,000 km of railway tracks is expected to be commissioned in 201718. • Work on eastern and western dedicated freight corridors is under progress. • A dedicated institute to train manpower required for work on high speed rail projects will be established in Vadodara. WWW.INZBC.ORG
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India Budget 2018-19
INFRASTRUCTURE AND FINANCIAL SECTOR DEVELOPMENT • Investments in excess of Rs 50 lakh crore (US$ 786.02 billion) are required in the country’s infrastructure to increase the growth of GDP and connect and integrate country’s transport network. • Budgetary allocation for infrastructure is set at Rs 5.97 lakh crore (US$ 93.85 billion) for 2018-19. • All-time high allocations have been made to the rail and road sectors. • Through the use of online monitoring system of PRAGATI, projects worth Rs 9.46 lakh crore (US$ 148.72 billion) have been facilitated and fast tracked. • To promote tourism in the country, 10 prominent tourist sites will be developed into iconic tourism destinations • Around 35,000 km of road construction has been approved under the Phase-1 of the Bharatmala Pariyojana at an estimated cost of Rs 5.35 lakh crore (US$ 84.10 billion).
Under the Smart Cities Mission, projects worth Rs 2,350 crore (369.43 million) have been completed and projects worth 20,852 crore (US$ 3.82 billion) are under progress. A total of 99 cities have been selected under the mission with an outlay of Rs 2.04 lakh crore (US$ 32.07 billion).
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India Budget 2018-19
DIGITAL ECONOMY • Budgetary allocation of Rs 3,073 crore (US$ 483.09 million) for the Digital India programme is made for 2018-19. • A national program will be initiated by NITI Aayog to increase efforts in the area of artificial intelligence. • Mission on Cyber Physical Systems will be launched by the Department of Science & Technology under which centres of excellence for research, training and skilling robotics, artificial intelligence, digital manufacturing, big data analysis, quantum communication and internet of things will be established and promoted. • Budgetary allocation of Rs 10,000 crore (US$ 1.57 billion) is made in 2018-19 for telecom infrastructure. • 500,000 Wi-Fi hotspots will be set up by government to provide internet connectivity to over 5 million rural citizens. • Every individual enterprise in India will be assigned a unique ID.
MEDIUM, SMALL AND MICRO ENTERPRISES • A total of Rs 3,790 crore (US$ 596.43 million) has been provided for the MSME sector for credit support, capital and interest subsidy and innovations. • Formalisation in the MSME sector is happening at a fast pace after the introduction of the Goods and Services Tax (GST) and demonetisation. • Online loan sanctioning facility for MSMEs will be revamped and public sector banks and corporates will be brought on-board the Trade Electronic Receivable Discounting System (TReDS) platform which will be linked with the GSTN. • Lending under the MUDRA Yojana is targeted at Rs 3 lakh crore (US$ 47.16 billion). At present 76 per cent of loan accounts under the scheme belong to women while more than 50 per cent belong to SCs, STs and OBCs. • Additional measures will be taken by the government for growth and successful operation of alternative investment funds. WWW.INZBC.ORG
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India Budget 2018-19
FISCAL MANAGEMENT • Total budgeted expenditure for 2018-19 is set at Rs 2,442,213 crore (US$ 383.93 billion). • Central Government’s debt to GDP ratio will be brought down to 40 per cent, as per the recommendations of the Fiscal Reform and Budget Management Committee. • Growth in direct taxes for 2017-18 (up to January 15, 2018) has been 18.7 per cent while for 201617 it was 12.6 per cent. • Number of effective tax payers increased to 80.27 million by 2016-17 end from 60.47 million in 2015-16 end. • Companies registered as Farmer Producer Companies with an annual turnover up to Rs 100 crore (US$ 15.72 million) will get 100 per cent deduction for a period of five year starting 2018-19. The move is proposed in order to promote ‘Operation Greens’ and ‘Sampada Yoajana’. • Reduced tax rate of 25 per cent will be extended to companies which have reported a turnover of up to Rs 250 crore (US$ 39.30 million) during 2016-17. This move is expected to benefit all the MSMEs operational in the country. • Revenue loss from the reduction in the tax rate during 2018-19 is estimated at Rs 7,000 crore (US$ 1.1 billion). • A standard deduction of Rs 40,000 crore (US$ US4 628.9) is proposed for salaried individuals which will replace the present exemption of transport allowance and reimbursement of miscellaneous medical expenses. The move will help middle class employees in reducing their tax liabilities. Revenue loss from the move is estimated at Rs 8,000 crore (US$ 1.41 billion). • Exempted interest income on deposits with banks and post offices is proposed to be increased from the present Rs 10,000 (US$ 157.2) to Rs 50,000 (US$ 786.02). • Deduction limit for health insurance premium and/ or medical expenditure is proposed to be increased from the present Rs 30,000 (US$ 471.6) to Rs 50,000 (US$ 786.02). • Pradhan Mantri Vaya Vandana Yojana will be extended till 2020. • More concessions will be provided for the International Financial Services Centre (IFSC). • Payments in excess of Rs 10,000 (US$ 157.2) by trusts and institutions shall be disallowed and will be taxable. In case of non-deduction of tax by such entities, 30 per cent of the amount will be disallowed and taxed. • Long Term Capital Gains (LTCG) after January 31, 2018, exceeding Rs 1 lakh (US$ 1,572.04) will be taxed at 10 per cent without any indexation benefit. • A 10 per cent tax is proposed on distributed income by equity oriented mutual funds. • The proposed change in capital gains tax is expected to result in revenue gain of around Rs 20,000 crore (US$ 3.14 billion). WWW.INZBC.ORG
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India Budget 2018-19
• Cess on personal income tax and corporation tax is proposed to be increased from 3 per cent to 4 per cent. The new cess will be called ‘Health and Education Cess’. The move is expected to result in additional tax revenue of Rs 11,000 crore (US$ 1.73 billion). • Rollout of e-assessment across the country is proposed for greater efficiency and transparency in direct tax collection. • Customs duty on mobile phones will be increased from 15 percent to 20 percent and 15 percent on certain parts of televisions. • Education Cess and Secondary and Higher Education Cess on imported goods will be abolished and will be replaced by a Social Welfare Surcharge at the rate of 10 percent of the aggregate duties of customs. • The name of the Central Board of Excise and Customs (CBEC) to the Central Board of Indirect Taxes and Customs (CBIC). Exchange Rate Used: INR 1 = US$ 0.0157 as on February 01, 2018
DISINVESTMENT • A target of Rs 80,000 crore (US$ 12.58 billion) for disinvestment has been set for 2018-19. • Target of 2017-18 has been exceeded and receipts have crossed Rs 1 lakh crore (US$ 15.72 billion). • National Insurance Co. Ltd., United India Assurance Co. Ltd., and Oriental India insurance Co. Ltd., will be merged into a single insurance entity. • A comprehensive Gold Policy will be framed in order to develop gold as an asset class. • A system for regulated gold exchanges across the country will be established.
Source: Press Information Bureau, Government of India, Ministry of Finance. WWW.INZBC.ORG
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ANALYSIS BY INDUSTRY STAKEHOLDERS
India Budget 2018-19
BUDGET 2018: DRIVING BEHAVIOURS TO BOOST MAKE IN INDIA CAMPAIGN By Bhav Dhillon, Treasurer INZBC and Hon. Consul of India to Auckland (NZ). Indian Finance Minister Arun Jaitley deserves a pat on the back for walking the tight rope of managing mutually incompatible goals of fiscal consolidation and delivering goodies for the general public. Often, in that part of the world, these two goals are considered mutually incompatible, with success in one area resulting in complacency toward the other goal. The success in one area is measured and quantified with the lesser amount of damage done in the other competing goals. By those standards, indeed, Finance Minister Mr Jaitley has done a commendable job of delivering a budget that strikes a balance between “fiscal prudence and growth.” The budget has already received thumbs up from International credit rating agency Moody, for not deviating significantly from the path of fiscal prudence and still being on track to foster a robust growth environment. The recent structural reforms enunciated by this government from demonetisation to GST is indeed setting the stage for more robust growth of the Indian economy in the near future, when the benefits of those reforms actually trickle down to everyday lives of the general public. However, for now, maintaining a reasonable growth trajectory was paramount to rebut the detractors of those structural reforms. That goal has been met successfully with India firmly on course to achieving more than 8 per cent growth and becoming the world’s fifth largest economy. In the second half of this year, India will have a growth higher than 7 per cent, whereas next year, 7-7.5 per cent average growth rate has been projected. That would mean that there would be some quarters where growth might exceed 8 per cent, thereby implying we might see some 8 per cent plus growth quarter next fiscal. However, by 2020-21, India should be able to grow at about 8 per cent. The budget has several key aspects such as addressing rural distress and increasing government expenditure in infrastructure, healthcare and education, which obviously would assist in job creation that deserves undiluted appreciation. In the global context, managing rural distress effectively while pursuing robust economic growth is one important and welcome point of difference from the growth story of China – the current toast of the world. Leaving rural distress unattended in large developing societies like India and China is not sustainable for the overall advancement of human development. It’s good to see that India is pulling up its socks on this important issue that would be critical for its sustainable journey toward growth and prosperity. However, I am keen on putting the focus on the government’s plan to increase customs duty on a range of products – an initiative that will go a long way in promoting the “Make in India” campaign of the
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current government. It is important to note that promoting large-scale manufacturing in various segments of consumer goods in India is a desired and a cherished goal, and the Indian economy needs to get in that space sooner, than later. However, creating an environment that precipitates a behaviour that fosters and promotes manufacturing is the real challenge. India for long has effectively used the tool of increasing customs duty to discourage imports and encourage manufacturing – a move that also fosters job-creation. I am sure that we all will recall from our growing up days when successive Indian governments had maintained high customs duty on the import of foreign cars – the days when our roads used to be dominated by Ambassadors and Premier Padmini. The high customs duty regime maintained for long had gradually transformed the manufacturing environment in India, obviously when the other requirements were met, to transform the automobile sector as the “sunrise sector” of the Indian economy. Today, the Indian automobile industry, with an average production of about 24 million vehicles annually and employer of more than 29 million people (direct and indirect employment), is one of the largest in the world. According to a rough estimate, the $93 billion automotive industry contributes 7.1 per cent to India’s GDP. Leading global players like Ford Motor, Tata Motor, Suzuki Motor, Honda Motor, Mercedes Benz – you name it, and you will find them having established a manufacturing base in India. This all has happened partly by driving behaviours that foster car manufacturing in India. The current government is envisaging a similar revolution in the manufacturing of a range of consumer goods, in particular, mobile phones. Following this goal, the Finance Minister has proposed to increase customs duty on mobile phones from 15 per cent to 20 per cent, on some of their parts and accessories to 15 per cent and certain parts of TVs to 15 per cent. Customs duties have been raised significantly to discourage imports, mostly from China and other Asian countries. There has been a similar increase in the customs duty rate on various other products from 10 different sectors such as complete watches, oils of crude and edible grade, fruit juices, perfumes and toiletry preparations, footwear, imitation jeweller – a move that has been welcomed by domestic consumer durable and appliance-makers. It is not unlikely that in the near future there will be a significant push in India’s domestic manufacturing sector and several global players would be setting their manufacturing bases in India to transform the scene like the automobile sector. Indeed, there could not have been a better budget that strives to manage the two most critical sector of the Indian economy – managing rural distress and creating more jobs through promoting domestic manufacturing. About the Author: Bhav Dhillon is the Honorary Consul of India in Auckland and also the treasurer of INZBC. With a passion for serving the community, Bhav Dhillon is a well-known community leader and an established Business Leader of repute. With a sound understanding of most bilateral trade and community issues, he is a strong advocate for the India NZ relationship and involved with the Indian Diaspora in NZ for nearly 15 years. He has business intrests in the Construction Industry, Media and Real Estate.
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India Budget 2018-19
UNION BUDGET’S AGRICULTURE FOCUS WILL BOOST GROWTH PROSPECTS
By Federation of Indian Chambers of Commerce and Industry (FICCI)
Finance Minister Arun Jaitley has done well by announcing measures to help MSMEs and job creation in the last full Budget of the current government. The impetus to the rural economy and the overall agriculture sector in the Union Budget presented by finance minister Arun Jaitley in the Lok Sabha today would be a force multiplier for overall growth in the coming years. The Budget is very much in line with the expectations of FICCI. According to FICCI President Mr. Rashesh Shah, “It will drive consumption in a big way, thus helping growth in other related sectors”. Additionally, the attention to the MSMEs through better access to finance or lowering of the corporate tax rate would also help spur both employment and growth in this vital segment of the economy. FICCI also believes that the stress on jobs in the Budget will help generate meaningful employment going ahead. Another path-breaking announcement in the budget relates to the new National Health Protection Scheme under which an annual health insurance cover of Rs 5 lakh will be provided to nearly one third of the households. This is the world’s largest government funded healthcare programme and would lead to a clear increase in demand for quality healthcare facilities and services and to match this rise in demand, several measures have also been announced to improve supply of quality health services in the country. “While we see a clear focus on the infrastructure sector development in the rural areas, the plans for such development in the urban areas including wider connectivity across the length and breadth of the country have also got the needed attention in the budget,” according to Mr. Shah. Given the kind of structural reforms the government has undertaken in the last year and the need to give a fillip to demand in the economy particularly through infrastructure development and strengthening of the rural economy, FICCI is fully supportive of the new glide path. However, given the performance on the disinvestment front this year, there were hopes that the government would be more ambitious in terms of setting the target for the next year - the Rs. 80,000 crore target for disinvestment receipts in FY19 is a bit conservative in FICCI’s view. The continuation of STT even while re-introducing LTCG will put some additional burden on the market participants. This, however, should not impact markets in the long-term. With the markets giving a compounded return of 15-16% over the last 20 years, a tax impacting 1.5%
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return should not affect the domestic investor appetite for equity investment. Finally, while consolidation process for the public-sector insurance companies has been indicated, FICCI hopes that a similar plan for the banking sector as was widely anticipated ahead of the budget will also be announced soon. SEE FULL BUDGET ANALYSIS BY FICCI: HTTPS://GOO.GL/AD3BPP About FICCI Established in 1927, FICCI is the largest and oldest apex business organisation in India. Its history is closely interwoven with India’s struggle for independence, its industrialization, and its emergence as one of the most rapidly growing global economies. A non-government, not-for-profit organisation, FICCI is the voice of India’s business and industry. From influencing policy to encouraging debate, engaging with policy makers and civil society, FICCI articulates the views and concerns of industry. It serves its members from the Indian private and public corporate sectors and multinational companies, drawing its strength from diverse regional chambers of commerce and industry across states, reaching out to over 2,50,000 companies.
STATEMENT ON UNION BUDGET 2018-19 By Chandrajit Banerjee, Director General, CII The Budget announced had some excellent measures to ease the lives of the common people with emphasis on the farm sector, education, healthcare and social protection. Small and medium enterprises received a boost through tax measures as well as access to credit. Industry appreciates government’s efforts to increase employment and encourage entrepreneurship through various measures. In a difficult year, the FM has done well to contain the fiscal deficit at 3.5% of GDP, a deviation of 0.3% from the Budget estimate. The plan to move towards fiscal consolidation in the coming year would maintain macro stability and enhance investor confidence. Many of the measures in the Budget are in line with CII recommendations such as incentives for new jobs, extending fixed term employment, enhancing quality of education including teacher training and addressing healthcare access. Overall, this is a balanced and prudent Budget that sets the foundation for future growth in the economy. SEE FULL BUDGET ANALYSIS BY CII: HTTPS://GOO.GL/J6UH5Y
About the Author: Chandrajit Banerjee held several senior positions in CII, including management of CII’s regional operations. He was also the first executive director of the National Foundation of Corporate Governance (NFCG), an organisation set up by the Ministry of Corporate Affairs, Government of India. Banerjee is member of various government advisory committees. He is the vice chairman of the Asia Pacific Chapter of UFI, a global association of the exhibition industry. He is the Co-chairman of the Governing Council. He was also the co-chairman of Overseas Indian Facilitation Centre (OIFC), a not-forprofit public private initiative of Ministry of Overseas Indian Affairs (MOIA and CII, established in 2007.
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India Budget 2018-19
THE INDIAN BUDGET
FOCUS ON EXPORTS FROM AGRICULTURE AND RURAL SECTORS By Mr. Amalorpavanathan, Deputy Managing Director of NABARD
India is a federal set up and under Article 112 of the Constitution of India, the Union Government has been given the necessary powers to place the “Annual financial Report”, before the Parliament. This Report is the Union Budget of India. 2. The key objectives of the Budget are to reallocate resources to maximise public welfare, reduce inequality is society by means of taxation, control prices and bring in suitable policies to handle inflation and deflation and manage resources efficiently. The Union budget of India was placed before Parliament on 1 February 2018. 3. The India is now a 2.5 trillion dollar economy and is expected to become the fifth largest economy in the world very soon. The growth of the economy is pegged at 7.4% in 2018-19. More importantly, exports are expected to grow at 15% in 2017-18. The estimated Agriculture production is 275 MT of Food grains and 300 MT of Fruits and Vegetables. 4. The focus of the budget this year has been on the Agriculture and allied sector with pro-farmer policies being announced. A goal had been set in the previous year to double farmers’ income by 2022. At the bottom line, the budget for agriculture and farmers welfare has increased from Rs. 51,576 crore in the previous year to Rs. 58,080 for FY 2018-19. There are several measures initiated to strengthen the agricultural value chain all the way upto export facilitation. Export Testing Centres will be established in order to ensure that commodities being exported will meet the standards prescribed by importing nations. Series of measures have been initiated in the agriculture and allied sectors offers significant potential for collaboration between New Zealand and Indian entrepreneurs. The dairy infrastructure development programmes which include modernising dairy farming in India with an outlay of Rs.1.0 billion will improve the handling of milk and milk derivatives, which will have huge export potential. 5. The cluster approach for cultivation of horticulture crops has the potential to upscale quality and productivity with the help of technology in various aspects of value chain development. Agriculture Market Infrastructure Fund of 200 million will help upgrading 22,000 village level markets as Gramin Agriculture Markets and 585 agriculture produce market committees will substantially improve the market access to the farmers which will be digitally linked in due course with Electronic National Agriculture Market. In addition to the strengthening of connectivity infrastructure, linking the markets with production areas will offer huge potential for logistics, storage and value addition in the marketable commodities, especially fruits and vegetables.
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6. To produce fruits and vegetables of good quality, modern agricultural production technology will be deployed and in order to ensure the benefits reach the farmers, a project names “Operation Greens” will be implemented which will promote farmers produce organisation, agri logistics, processing facilities and professional management owned by the farmers themselves. Special agro financing institutions are proposed to be established to focus on financing of food processing. 7. Medicinal and aromatic
plants play a key role in
promoting agro forestry In-
dian system of medicines
across the world. Therefore, organising cultivation and ascines and aromatic plants will taxation treatment is also producers companies, in Self Help Groups of women in empowering women in the
The budget proposes setting up of state-of the-art testing facilities in all the forty two Mega Food Parks in India.
special programmes for sociated industries, medibe given focus. Favourable announced for farmers addition to involving the the growth story thereby country.
8. Technical expertise is needed in providing Animal Health Care facilities, vaccine production, storage and cold chain infrastructure, Feed Plants, commercial heifer farms, Diagnostic labs, Semen Stations, Breeding Farms, Feed Quality processing labs, Silage making infrastructure, Training inputs, fodder seed farms etc. 9. A key ingredient in improving technology in all these areas is making technology available from more advanced countries like Australia and New Zealand. The potential for collaboration is huge. 10. Emphasis has also been given for use of renewable energy in Farmers lands, especially solar energy. India’s agri-exports potential is as high as US $ 100 billion against current exports of US $ 30 billion. To realize this potential, export of agri-commodities will be liberalized. The budget proposes setting up of state-of the-art testing facilities in all the forty two Mega Food Parks in India. 11. With these policies in place, it is envisaged that the India Farmer and the Indian economy will be poised for a smooth take off to achieve the goal of “Doubling of Farmers income by 2022”.
About the Author: Mr. Amalorpavanathan, currently Deputy Managing Director of NABARD, is a graduate in Agricultural Engineering and a Post Graduate in Management from Indian Institute of Management, Bangalore. He also holds Masters in Development Management from Asian Institute of Management, Philippines. He is a Fellow in Engineering and Chartered Engineer from Institution of Engineers (India) apart from securing distinction in Certified Associate in Banking (CAIIB). Trained in Treasury and Fund Management, Risk Management and Asset Liability Management. He is also Chairman of NABKISAN Finance Limited, a subsidiary of NABARD. Mr. Amal has been with NABARD for more than 31 years.
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BUDGET 2018:
FOCUS ON AGRICULTURE, RURAL ECONOMY, HEALTHCARE, INFRASTRUCTURE DEVELOPMENT AND BOOST TO MSMES By Dr. Jatinder Singh, Director, Director, PHD Chamber of Commerce and Industry India is now a US$2.5 trillion economy and is spearheading towards achieving 8% plus growth. The proposal to extend 25% corporate tax rate to companies with revenue up to Rs 250 crore is encouraging; this will boost SME growth, the engine of economic growth for India. To release the agriculture sector stress, the minimum support price for kharif crops at 1.5 times cost of produce with cluster-model approach for agricultural production will boost the agri sector. This will increase farm produce and enhance farmers incomes. Additionally, the extension of Kisan Credit Cards to fisheries, animal husbandry will boost rural economy. This is in sync with the goals of doubling farmers income by 2022. A renewed focus on preventive and promotive healthcare Flagship National Healthcare Protection Scheme is commendable as this will increase the amount of health cover under insurance and health plans to the tune of Rs. 5 lakh per family per year for secondary and tertiary healthcare. This is a historic move towards enhancing social capital and health of nation as this will affect 50 cr beneficiaries. To give a fillip to the digital economy Rs. 10,000 crore have been allocated to set up five lakh wi-fi hotspots for broadband access to five crore rural citizens. This will give a push to the ‘Digital India’ initiatives of the government to improve digital infrastructure for financial inclusion with cashless operation. Education is the fountainhead of all reforms and in this year. It is pleasing to know that the Union budget stressed on two key areas of education - integration and fiscal accountability. A new scheme - Revitalising Infrastructure and Systems in Education or RISE with a total investment of Rs 1,00,000 crore in next four years shall lend low cost funds to government educational institutions. This will impart quality education to the students in the country. The shift from traditional blackboards to digital boards for enhanced learning experience to students will increase reach and ensure better-quality outcomes. As the industry is moving towards Industry 4.0, the announcement regarding the establishment of a national programme to direct efforts in the domain of Artificial Intelligence (AI), machine learning and robotics is a welcome initiative. This is a big push to the ‘Digital India’ initiatives. Overall, Budget 2018 depicts balance between fiscal prudence and growth.
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About the Author:
Dr. Jatinder Singh is Management Expert with 25 years of experience in initiatives for Policy Advocacy, Value Creation and Strategy in the domain of Education, Skill Development, CSR, Innovations and Startups. He is Director of PHD Chamber of Commerce and Industry, New Delhi, India.
UNION BUDGET 2018 – INDIA
SPOTLIGHT ON EDUCATION
By Sushrutha Metikurke, Regional Manager – South Asia at Wellington Institute of Technology and Whitireia New Zealand Indian Finance Minister Arun Jaitley has announced a number of measures to benefit the education industry and also help improve the education infrastructure in India. However, the total allocation to education for 2018/19 was lower than expected with a less than 4% increase compared to the revised budget estimate for 2017/18. Some of the key takeaways for higher education include: - Use of technology as a driver to increase the quality of education - Set up two new full-fledged Schools of Planning and Architecture taking the total to 18. - Treat education holistically without segmentation from pre-nursery to Class XII - Rs 1 Trillion over 4 years allocated to a new scheme called RISE ( Revitalising Infrastructure and Systems in Education) to step up investments in research related infrastructure. - Initiate an integrated Bachelor of Education programme for teachers and use technology to upgrade the skills of teachers through the digital portal ‘DIKSHA’. - Set up 24 new Government Medical Colleges and Hospitals by upgrading district hospitals in the country. India’s expenditure on education as a share of GDP is low compared to other BRICS economies. According to World Bank data, India spent only 3.8% of its GDP on education in 2013 compared to 6% for countries like Brazil and South Africa. And it has been decreasing every year. There are some positives in this budget with an increased push towards technology and also teacher training programmes. The proposal to treat education holistically from pre-nursery to Class XII may mean more integration across the education sector which currently has several schemes running concurrently. WWW.INZBC.ORG
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There is also a new model for funding infrastructure development in centrally funded institutions (IITs, NITs, and IIMs), moving away from the existing aid mechanism. These institutions would now seek funds based on projects and through the revamped Higher Education Funding Agency (HEFA). However, the budget of the Indian Institutes of Technology (IITs) has been reduced and so has the allocation to the University Grants Commission (UGC). Relevance to New Zealand
India spent only 3.8% of its GDP on education in 2013 compared to 6% for countries like Brazil and South Africa. And it has been decreasing every year.
There is limited relevance of these budget statements to New Zealand institutions active in India. There might be opportunities to collaborate with institutions in the area of teacher training if a right partner can be identified. The use of technology in education is another area New Zealand can offer some expertise in.
There’s more to be gained from policy announcements like the recent changes announced by AICTE to India’s Engineering and Technical course curriculum. The new curriculum is focused on making Engineering studies more practical and making students job ready, with the inclusion of mandatory industrial internship. The Institutes of Technology and Polytechnics (ITPs) in New Zealand have a lot of expertise in this area. There are also no policy changes or budget statements that promote internationalisation of India’s higher education system.
About the Author: Sushrutha Metikurke is currently the Regional Manager – South Asia at Wellington Institute of Technology and Whitireia New Zealand. After an early stint at the NZ Ministry of Economic Development in the area of Intellectual Property, he has held positions at the NZ Ministry of Education and Education New Zealand in international education policy and international relations, with a focus on South Asia and ASEAN. Sushrutha was the International Market Manager at Ara Institute of Canterbury/CPIT in Christchurch, where he was instrumental in establishing academic and research collaborations with Indian institutions. In addition to his role at Ara, he also headed the Christchurch Chapter of the India New Zealand Business Council (INZBC), which was relaunched in May 2016. Sushrutha returned to Wellington in January 2017.
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India Budget 2018-19
A BUDGET TO BRIDGE DIVIDES
By Pranjal Sharma, Business Journalist and Author - Kranti Nation
Growth and development can’t be selective. Countries and economies have done best when most parts of their region and societies have benefited from wealth generation. Over 25 years of economic reforms have helped the country reach several key milestones. The NDA government under Prime Minister Narendra Modi had a slew of issues to deal with when it took charge in May 2014. Since then it prioritised a few issues that it has been trying to address. Health, sanitation, financial inclusion, investment slowdown and tax reforms. On most of these fronts, much has been achieved. About 2 crore new toilets have been targeted for the year. With the JAM trinity, 30.8 crore bank accounts have been created with a sharp fall in zero balance accounts that indicate active usage. For investment slowdown, the government has brought in legislation like the Insolvency and Bankruptcy code that allows banks to emerge from the burden of bad loans. And the introduction of GST has allowed a fundamental change in tax administration. In each of these and other efforts, there have been elements of addressing the severe divides between rural areas and the cities. On most human development indicators, rural areas are worse off than urban. Perhaps the one parameter where villages do better is air and water pollution. Cities are in a terrible state while the air and water in rural areas are still relatively clean. The Modi government has tried to directly address the divide with specific efforts with Budget announcements that build on previous policies. The most important aspect of boosting the rural economy is to build strong connectivity on which economic activity travels. Investing in 30,000 km of rural roads will help enhance access to the many small and medium enterprises that have to move closer to cities for better infrastructure. Finance Minister Arun Jaitley declared that loans worth Rs 6,300 crore were given to small entrepreneurs. These loans will make business sense once the entrepreneurs find it easy to access markets. It is important to make the distinction between support to the farm sector and investing in the rural economy. Increased subsidies or benefits to farmers are undermined by lack of facilities in rural areas. The focus on investing in the rural economy implies a deeper consequence than just offering fertilizer subsidies. The plan to build 42 food parks near farming areas is sensible and should have been in place years ago. Food processing units close to the farm can do well if they are well connected by roads to city markets. Farmers will benefit by quick offtake of their produce while local youth will get employment in the factories. Farmer Producer Organisations or FPOs being encouraged by the government will allow small and marginal farmers to come together for greater profit generation. Though the details are not clear, the effort to upgrade 22,000 rural markets are important for WWW.INZBC.ORG
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enhancing an entrepreneurial ecosystem. These steps, implemented well, can address the key problem of making farming profitable. The challenge, of course, is to ensure that these policies are executed well. Here the use of digital platforms should help overcome resistance from rentseekers who prevent open access to farmers. The electronic national agriculture market effort is gaining momentum but more states have to ensure participation. For such initiatives, the focus on digital connectivity is as important as roads and highways. The Bharat Net project to provide broadband access to 1,50,000 villages is expected to be completed by end of 2018. Plus there is a plan for set up 5,00,000 Wi-Fi spots across the country offering easy access to information and e-commerce to local traders.
The most important aspect of boosting the rural economy is to build strong connectivity on which economic activity travels. Investing in 30,000 km of rural roads will help enhance access to the many small and medium enterprises.
These steps put together will further reduce the digital divide within the country while allowing rural economy comparable facilities for trade and agriculture. As economic activity is rekindled by these efforts, rural income and purchasing power will rise naturally triggering a consumption demand. Consumption in rural areas is important for the industry too. As the industry begins to increase its capacity utilization in manufacturing, long-term sustained demand will arise from rural areas
where per capita income is expected to rise. Divided India will grow unevenly and in short bursts. Sustained growth requires that the consumer might of the 1.3 billion is enhanced and harnessed. India can’t just be an economy of 30 crore middle-class people. It needs the other billion to grow as well. The federal structure of Indian polity can contribute to simultaneous efforts in all states. The Budget announcements by Jaitley build on existing initiatives and hopefully have benefited from the experience of the past. Inequality is a serious challenge for India where billionaires are created faster than in Europe. It will take time and tenacity for the government at the centre to deliver these promises in collaboration with the state bodies. Hopefully, these will be delivered within deadlines.
About the Author: Pranjal Sharma is an economic analyst and author of ‘Kranti Nation: India and The Fourth Industrial Revolution’. Pranjal is an economic analyst, advisor and writer who focuses on technology, globalisation and media. He guides projects on economic forecasting, business intelligence and public diplomacy with Indian and global organisations. Pranjal creates and develops research projects that interpret policy impact on industry and society. As Founding Executive Editor at Bloomberg UTV, he helped launch and run the network. He lives in New Delhi, India.
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India Budget 2018-19
INDIA BUDGET 2018:
HIGH ON TRANSPARENCY AND REFORM By Bharat R Joshi, CEO of J-Curve Ventures The annual finance budget in India is unmatched in anticipation, fanfare and analysis, compared to the exercise in probably any other country. This, in part, is because government continues to be an enormous, and enormously influential, part of developing economies. Government policies, exemptions and spending have implications on both, personal and corporate financial fortunes, and therefore the weeks before the budget are spent speculating, and post facto an equal amount of time spent analyzing, implications the budget announcements would bear. However, the government has been trying to move to words the ultimate goal of making the budget more of non-event through slew of reforms. The idea being, that with increased transparency and devolution of government’s powers and intervention, the budget might become what it really is at its core: a statement of accounts. In this very spirit, the budget has scored highly on transparency and reform. With the present government’s five year term coming to a denouement in May 2019, there were fears that economics might bow to populism. It was, therefore, heartening to see the Finance Minister achieve a precarious balance between the two, focusing equally on the drivers of growth and welfare: infrastructure, healthcare, agriculture, MSMEs, education, employment and investment. As with any government, welfare of the least privileged is, and must, be prioritized over other economic goals, and this too, was adequately addressed through specific measures- most notably on healthcare (insurance, informally ‘Modicare’) and agriculture (minimum support price). This was articulated as ‘Connecting India’: creating a sustainable socio-economic framework to target annual 8% GDP growth, making India the fifth largest world economy. Foreign readers would be glad to note that the Finance Minister spoke of ‘Ease of Living’ (air quality, sanitation, security, transport and water) in addition to ‘Ease of Doing Business’, while corporate tax rate has also been reduced to 25% for 99% of Indian companies (those below INR 2.5 billion). As expected, economic performance softened in the last few months over demonetisation and GST implementation but the forecast remains strong over 7%. In some cases, the forecasts of foreign experts, including those of the IMF, are higher than the government’s own forecast. But benefits have been witnessed in the immediate term: a higher tax base, and a wealth of actionable ‘big data’ that emerged from the dual GST + demonetisation measures. On International trade, there has been some disquiet over the customs duties, which are seen as a measure to encourage tariff jumping, congruent to the government’s ‘Make in India’ programme. While tariffs cannot be the primary engine for boosting manufacturing (or industrial
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growth), we may be reminded that the auto sector- today large, growing and resilient- was initially a product of auto majors jumping tariffs to develop a domestic manufacturing base in India. Having said that, the government overwhelmingly is supportive of multilateralism, globalization and international trade, as evidenced in Prime Minister Modi‘s remarks at WEF’s opening plenary address in Davos last month (which was attended by some twenty heads of state). India remains committed to globalisation, which essentially means free exchange of goods, services and capital across borders, but also seeks to offer a way for capitalism with millennia old values: ‘wealth with wellness; health with wholeness; peace with prosperity’ as PM Modi articulated. Coming back to the budget, readers may wish to exercise caution while using stock markets as a barometer to judge the budget. Serious observers do not necessarily see market movement as a signal of long term market sentiment of the budget. For this reason, I will not dwell on the stipulations of Long Term Capital Gains Tax (LTCG). The budget has been prudent, remarkably so for a government in the fag end of its five-year term, where populism over economics is the norm. Given the word limit, we shall not wade into the minutiae of revenue, spending and so forth. However, readers may be cautioned when studying analysis of a certain sector ‘as percentage of GDP/ spending/ allocation’, due to India’s federal structure. Many items, among them notablyeducation and healthcare, are equally state subjects and also have budget allocations at state level. This budget has been consistent with the previous budgets in its direction, and just might be another important step in moving towards what might ultimately help achieve ‘non-event’ status in the long run: predictability.
About the Author: Bharat R Joshi is CEO of J-Curve Ventures (www.jcurve.in ). J-Curve focuses on a range of verticals through 3 i’s – Insight+, Investment and Implementation, and has alliances with institutions internationally. He serves on boards of ACTL (www.actlindia.com ) and JKTI (Joshi Konoike Transport and Infrastructure). The companies have interests in logistics, technology and infrastructure. Bharat has addressed fora in Asia, Europe, USA and New Zealand. He’s a charter member of TiE (The Indus Entrepreneurs), and was acknowledged in UNCTAD’s World Investment Report 2006. Bharat is a Broadcaster for AIR (All India Radio), writes for print and online publications (Wall Street Journal, CNN IBN, Economic Times, etc), is visiting faculty at SRCC (Shri Ram College of Commerce), Delhi University, and author of Navigating India: a socio-economic commentary and guide for business in India.
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AIMING FOR THE BULLSEYE
A SUMMARY OF KEY TAX PROPOSALS FROM THE BUDGET 2018. By Ravi Mehta, Partner at PwC New Zealand 1) Corporate Tax Rates: ●● Concessional corporate tax rate of 25% further extended to MSME’s (with turnover/ gross receipt < INR 2.5 bn) in FY 2016-17. ●● New “Health and Education Cess” @ 4% introduced to replace “Education Cess and Higher Education Cess” of 3%. ●● No change in Dividend Distribution Tax (DDT) and Minimum Alternate tax (MAT) rates. However, deemed d ividend [to the extent related to loans and advances to the shareholders] will now be subjected to DDT @ 30% ( without any grossing up). ●● MAT not applicable for foreign companies under presumptive taxation. 2) Business Income: ●● Specific ICDS provisions incorporated with retrospective effect from April 1, 2017 (FY 17-18) to negate High Court decisions. The provisions govern treatment of MTM losses, Forex gain or loss, inventory valuation , etc. ●● Compensation for termination or modification of any contract relating to business now taxable as business profits. ●● Scope of ‘eligible business’ expanded for start-ups. incentives. Also, the sunset clause for claiming start-ups incentives has been extended to business set-up from 1 April 2019 to 1 April 2021. ●● 30% additional deduction of emoluments paid to new employees available even if the minimum period employment condition is met in subsequent year. 3) International Taxation: ●● Widening the scope of business connection definition (PE equivalent under domestic law) to align with the language proposed under the MLI. ●● Business connection would now also include ‘Significant economic presence’ which would cover business models (like digital transactions) not requiring physical presence, based on: (a) Payments (from sale of goods, services, download of data/software); or (b) Systematic and continuous soliciting of business activities or engaging with users through digital means - A concept discussed under BEPS Action Plan 1). 4) Capital Gains: ●● Long term capital gains tax to be levied on income earned from sale of listed equity shares or a unit of equity oriented fund (on which STT is paid) exceeding INR 100k @ 10%; however gains till 31 Jan, 2018 is grandfathered. No benefit of indexation available. WWW.INZBC.ORG
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●● Presently, transfer of capital asset between wholly owned Subsidiary Co. and holding Co. is exempt from Capital Gains tax. A similar exemption is now extended to ‘income from other sources’ as well. 5) Other direct tax proposals: ●● New scheme of e-Assessments to be notified ●● No prima facie adjustments to be made on account of differences in withholding tax credit forms ( Form 26AS/Form 16/Form 16A) ●● Mandatory filing of return of income by due date to claim deductions from business income ●● Parent entity or Alternate Reporting Entity (ARE) resident in India need to file CbCR within twelve months from the reporting accounting year. Indian Subsidiaries required to file CbCR in India even if the parent company is not obligated to file CbCR and an Alternate Reporting Entity has not been appointed ●● PAN mandatory for any entity entering into a financial transaction > INR 250k and for persons acting on behalf of such entity (MD, CEO, partner, trustee, etc) ●● For Cases under Insolvency & Bankruptcy Code effective FY 2017-18 Business losses not to lapse, For MAT - Set off of unabsorbed depreciation and brought forward loss allowed 6) Indirect tax proposals: ●● Social Welfare Surcharge introduced at 10% of duties/taxes on imported goods - not applicable on IGST and Compensation Cess. ●● Education Cess and Secondary and Higher Education Cess has been abolished. ●● Custom duty rates have been increased for various products mainly to promote the Make in India initiative. ●● Measures to simplify assessment and adjudication introduced under the customs legislation. ●● Advance ruling legislation under customs have been broad-based. ●● No changes in CGST / IGST legislation. For Complete Budget Ananlysis by PwC, please see their report: https://goo.gl/pJBjVc
About the Author: Ravi Mehta is a Partner at PwC New Zealand based in Auckland. He has over 19 years experience in International tax, legal and general accounting matters. He is one of the leaders in PwC New Zealand, Asia Markets team. With oversight over India and Singapore.
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INDIA BUDGET 2018-2019 AN ANALYSIS AND COMMENTARY PUBLISHED BY: INDIA NEW ZEALAND BUSINESS COUNCIL [INZBC]
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