Richard Heald, Chief Executive of the UK-India Business Council, comments on India’s budget
I never really understand the hoopla which accompanies the Union Budget 2015. Of course, this Budget is the first chance for Minister Jaitley and the NDA Coalition to articulate their vison of the direction of travel for India. But even that does not fully explain the wall to wall coverage in the media, as well as the influx of State politicians – one of whose bodyguards have spent the night sitting in the passage outside my hotel room – and the Indian oligarchs whose private jets currently line the tarmac in Delhi. Maybe it is a need to be close to the seat of power or maybe it is because of the horse trading on the details of the Budget, which really starts now before the final document is presented to the Lok Sabha and Rajya Sabha in two weeks’ time.
Nonetheless, it is said that good Finance Ministers generate luck and Minister Jaitley certainly went into the morning session yesterday buoyed by some remarkable data on India’s economic growth, compared to the doldrums of the dog days of UPA2. On Friday, Minister Jaitley announced a forecast of between 8.1% and 8.5% GDP growth, presented in the Ministry’s latest annual survey of economic conditions, representing a significant acceleration over the 7.4% growth expected for the current fiscal year. Admittedly, recent changes in the way India-government statisticians estimate gross domestic product, which caused recent growth figures to be revised upward considerably, make it “difficult to objectively analyse” longer-term trends at present. Nonetheless the change in fact and in sentiment is remarkable.
This was a Budget which struck a clever balance between being pro-business and being seen to be aware of social needs. That having been said, Mr Jaitley’ s vision contained much pro-business rhetoric set against some positive economic targets. Corporation Tax is to be reduced over 4 years to 25%. GST is to be introduced on 1st April 2016. GAAR was deferred for 2 years for further review. Foreign portfolio companies will be exempted from MAT on their capital gains. There were corrections of inverted duty structures on 22 items – principally benefitting the indigenous electronics sector. Further tax breaks were given to REITS and major investments were announced in the defence, infrastructure and healthcare sectors. Further clarification was given on retrospective taxation. Thus far so good.
Ultimately, everything is in the execution of these measures and in the creation of new domestic markets – a critical factor bearing in mind Mr Jaitley’s tax receipts targets are based on 8.5% GDP growth. We do understand that rationale of the creation of a “monetary policy committee” potentially undermining the authority of the RBI and Governor Rajan. Additionally, consistency of execution is dependent on further changes implemented in the lower levels of decision-making within the bureaucracy. Overall, we believe this budget should give comfort to investors, both domestic and foreign, and set the scene for a revival of the economy by boosting investments and manufacturing.
Make in India
The ‘Make in India’ campaign is now way beyond a myopic policy initiative. When implemented successfully it will lead and integrate other initiatives in a cycle of growth involving: building 100 smart cities, industrial economic corridors, universal healthcare, education for all and developing digital India. This Budget has been a “Make in India” Budget with reforms aimed at improving the business environment by: easing licencing and approvals, adding new processes to e-government platforms, investments in infrastructure, skill development and empowering state governments for speedier decision-making.
For those who have heard me speak on the subject will no doubt feel that my comparison of “Make in India” to an iceberg may feel the analogy is in danger of becoming a cliché. But I will persevere. Notwithstanding, the positive announcements in the Budget, there are parallel events taking place which are equally important to the sustainability of “Make in India”. The Budget Session of Parliament concludes on 8th May. There are a number of Bills relevant to “Make in India” which are to be submitted to the Lok Sabha and Rajya Sabha. Four – Insurance Laws (Amendment) Bill, Constitution Amendment Bill or GST Bill, Coal Mines (Special Provisions) Bill, and Mines and Minerals (Development and Regulation) Amendment Bill – should be passed without too many issues. The Land Acquisition Bill is another matter and has already stirred up a hornets nest amongst the opposition parties in Rajya Sabha. Much in India revolves around land acquisition and the passage of this Bill is seen as another test of the Government and “Make in India”. This will play out over the next weeks.
Goods and Services Tax (GST)
It is not an understatement to say that on its own the implementation of GST is a game changer for the Indian economy. First raised in the 2006-07 budget by the then Finance Minister P Chidambaram there has so far been little actual progress, and its implementation was beginning to seem like a mirage.
The acceptance of the NDA Government of the majority recommendations of the 14th Finance Commission last week that the percentage of tax revenues the States received versus the Centre from 42% to 48% is seen as a further step in the empowerment of the States. It will also have the effect of facilitating the discussions and passage of GST.
The importance of a predictable tax regime cannot be overstated. Prime Minister Modi said as much in his post Budget interview.
The Government’s decision not to appeal against a high court order in the Vodafone case has been a positive indicator for the foreign investor community. The General Anti Avoidance Rules (GAAR) are deferred beyond their stipulated date of April 1, 2015.
However, the Budget chose to issue further clarifications rather than eliminate the spectre of retrospective taxes. The offending amendments remain on the statute books. We are disappointed. Reliance has to continue to be placed on the CDBT and Tax Department to walk the same path as their political masters.
The political context
Of course in wake of the Delhi election results, this budget session is now a crucial moment for the Government to refocus the political agenda on bold economic reforms and avoid populist measures. Its delivery will therefore be key in maintaining investors’ confidence and essential if Modi’s government is to begin replacing recent ordinances with actual legislation.
With so much build-up around the budget, we are keen to have industry’s views on the budget and will be soliciting feedback from our members next week.
Lastly, in February UK India Business Council started a campaign to encourage debate on e-learning in India and released a report “Meeting India’s education challenges through e-learning”. As the country aims to position itself as a manufacturing powerhouse it will need skilled workers to drive the change. Likewise there is a growing population who want to upskill and benefit from the growth in the Indian economy. Our report explores how India can meet these education challenges through e-learning, and how UK-India collaborations can help. Here are a few highlights of the report:
• E-learning essential if India is to cash in on its Demographic Dividend.
• India’s education sector is being revolutionised by rapid increases in Internet penetration and the availability of low-cost mobile devices.
• E-learning looks set for a further boost in India with the Government launching the “Digital India” campaign to bring rural India in to the digital age.
• India is already the second largest market for e-learning opportunities.
• UK’s experience with E-learning makes it an ideal partner for India.