 "A balanced budget with multiple focus areas: Hemant Kanoria")
The Finance Minister has taken a very pragmatic approach and crafted a budget in a manner which can provide a boost to both infrastructure and manufacturing which will create employment and also augment India’s competitiveness vis-a-vis its peers and at the same time adhered to the Prime Minister’s ‘Make in India’ vision. The most encouraging step has been to slightly relax his fiscal discipline targets in order to channelize more funds for infrastructure creation. This is a very pragmatic approach as without a robust infrastructure sector our quest for a double-digit economic growth will only remain a pipedream.
The Finance Minister realises that at this juncture India is serendipitously at a ‘sweet spot’ due to a number of domestic and international factors and thus how crucial it is to improve the ease of doing business in India in order to take advantage of the situation. To this end, a number of steps have been taken. He has committed to bring down basic corporate tax rate from 30% to 25% over the next 4 years. Although he has not clarified the year-wise rates, this in itself augurs well for India to compete with other emerging economies where the corporate tax is low.
The deferment of the GAAR by another two years will soothe foreign investors. He has also done well to tweak existing establishment riles to prompt foreign fund operators to relocate to India. In particular, his proposal to cut down red-tapism by creating an expert committee which is to draft a legislation where need for multiple prior permissions will be replaced by a pre-existing regulatory mechanism is a huge plus for all businesses – the earlier this can be rolled out, the better. He has also proposed setting up of a Task Force to develop a sector-neutral financial redressal agency that will address grievance against all financial service providers. His proposal to put in place a new comprehensive Bankruptcy Code by FY16 that will meet global standards deserves special mention. Allowing NBFCs access to ARCs under the SARFAESI Act is a big plus for players like us. All this while, NBFCs lacked a level playing field vis-a-vis banks.
His emphasis on public sector units to step up investments in infrastructure is very well received. An additional Rs 70,000 crore has been earmarked for infrastructure. Apart from increased outlays for the rail and road sectors, he also intends to mobilise resources for rail, road and irrigation sectors through tax-free bonds. Five new Ultra Mega Power Projects on plug-and-play mode have been announced. Public sector ports have also been encouraged to corporatise and become registered as companies so that they are able to attract investments and also leverage the huge idle land resources that they have.
He is also reviewing the PPP formats in order to strengthen them so that private sector can become more active in infrastructure creation. The mention of how the sovereign must bear part of the PPP project risks reflects his seriousness on how keen he is to make PPP a success story for India’s infrastructure sector. In addition, he has announced the setting up a National Investment & Infrastructure Fund with an annual outlay of Rs 20,000 crore from the centre which augurs well for the financing of infrastructure given the fact that banks now have limited headroom to increase exposure in infrastructure. We had been advocating the need of such a fund and I am particularly happy that the Finance Minister has listened to us.
The budget has a strong rural focus as well. The Finance Minister has looked into the needs of the rural sector which supports almost two-thirds of India’s population and has stepped up investments in rural infrastructure like roads, housing, power supply, hygiene, water supply, cold storages which augur well for a holistic development of rural India. Increased allocations for agro-schemes, focus on enhancing effectiveness of schemes like MGNREGA, proposal to build a Unified National Agricultural Market and enhanced outlay for agricultural credit can transform the rural fabric if implementation is well thought through.
The Minister continues his emphasis on skill development as this can help the nation reap its ‘demographic dividend’. The Budget has also announced steps towards encouraging entrepreneurship at both urban and rural levels which will lead to generation of more jobs and making our youth more self-reliant.
The abolition of the Wealth Tax is another positive step, so are the proposals on gold monetization scheme and sovereign gold bond. The service tax consolidated with the education cess now stands at 14% (up from 12.36%) which can neutralize the reduction on corporate taxes to some extent. The Finance Minister has created disincentives for black money. Going forward, I feel the tax-GDP ratio is going to rise as it will become very difficult to keep transactions unaccounted.
I think one area which seems to have escaped the notice of the Finance Minister is the issue of MAT on Special Economic Zones. I was also looking forward to some announcements on reforms pertaining to power distribution which did not happen as in power it is the distribution which is ‘the tail that wags the dog’. Another area which we have been pursuing with the government for long is how to revive leasing in India as it is an empirically proven tool for infrastructure creation all over the world.
Leasing is confused by tax authorities both as a Sale as well as a Service and thus taxed multiple times, virtually eroding its effectiveness. For a country like ours where majority of the infrastructure players are small contractors, leasing can be an extremely cost-effective tool and for the sake of India’s progress this instrument needs to be revived. We are hopeful that these issues will receive the Minister’s attention and he will take necessary steps. Overall, I think it is a very progressive budget which has focused on infrastructure, agriculture, ease of doing business, skill development and job creation.
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Hemant Kanoria is the chairman and managing director of Srei Infrastructure Finance Limited
The Finance Minister realises that at this juncture India is serendipitously at a ‘sweet spot’ due to a number of domestic and international factors and thus how crucial it is to improve the ease of doing business in India in order to take advantage of the situation. To this end, a number of steps have been taken. He has committed to bring down basic corporate tax rate from 30% to 25% over the next 4 years. Although he has not clarified the year-wise rates, this in itself augurs well for India to compete with other emerging economies where the corporate tax is low.
The deferment of the GAAR by another two years will soothe foreign investors. He has also done well to tweak existing establishment riles to prompt foreign fund operators to relocate to India. In particular, his proposal to cut down red-tapism by creating an expert committee which is to draft a legislation where need for multiple prior permissions will be replaced by a pre-existing regulatory mechanism is a huge plus for all businesses – the earlier this can be rolled out, the better. He has also proposed setting up of a Task Force to develop a sector-neutral financial redressal agency that will address grievance against all financial service providers. His proposal to put in place a new comprehensive Bankruptcy Code by FY16 that will meet global standards deserves special mention. Allowing NBFCs access to ARCs under the SARFAESI Act is a big plus for players like us. All this while, NBFCs lacked a level playing field vis-a-vis banks.
His emphasis on public sector units to step up investments in infrastructure is very well received. An additional Rs 70,000 crore has been earmarked for infrastructure. Apart from increased outlays for the rail and road sectors, he also intends to mobilise resources for rail, road and irrigation sectors through tax-free bonds. Five new Ultra Mega Power Projects on plug-and-play mode have been announced. Public sector ports have also been encouraged to corporatise and become registered as companies so that they are able to attract investments and also leverage the huge idle land resources that they have.
He is also reviewing the PPP formats in order to strengthen them so that private sector can become more active in infrastructure creation. The mention of how the sovereign must bear part of the PPP project risks reflects his seriousness on how keen he is to make PPP a success story for India’s infrastructure sector. In addition, he has announced the setting up a National Investment & Infrastructure Fund with an annual outlay of Rs 20,000 crore from the centre which augurs well for the financing of infrastructure given the fact that banks now have limited headroom to increase exposure in infrastructure. We had been advocating the need of such a fund and I am particularly happy that the Finance Minister has listened to us.
The budget has a strong rural focus as well. The Finance Minister has looked into the needs of the rural sector which supports almost two-thirds of India’s population and has stepped up investments in rural infrastructure like roads, housing, power supply, hygiene, water supply, cold storages which augur well for a holistic development of rural India. Increased allocations for agro-schemes, focus on enhancing effectiveness of schemes like MGNREGA, proposal to build a Unified National Agricultural Market and enhanced outlay for agricultural credit can transform the rural fabric if implementation is well thought through.
Hemant Kanoria, CMD, Srei Infrastructure Finance Ltd
The Minister continues his emphasis on skill development as this can help the nation reap its ‘demographic dividend’. The Budget has also announced steps towards encouraging entrepreneurship at both urban and rural levels which will lead to generation of more jobs and making our youth more self-reliant.
The abolition of the Wealth Tax is another positive step, so are the proposals on gold monetization scheme and sovereign gold bond. The service tax consolidated with the education cess now stands at 14% (up from 12.36%) which can neutralize the reduction on corporate taxes to some extent. The Finance Minister has created disincentives for black money. Going forward, I feel the tax-GDP ratio is going to rise as it will become very difficult to keep transactions unaccounted.
I think one area which seems to have escaped the notice of the Finance Minister is the issue of MAT on Special Economic Zones. I was also looking forward to some announcements on reforms pertaining to power distribution which did not happen as in power it is the distribution which is ‘the tail that wags the dog’. Another area which we have been pursuing with the government for long is how to revive leasing in India as it is an empirically proven tool for infrastructure creation all over the world.
Leasing is confused by tax authorities both as a Sale as well as a Service and thus taxed multiple times, virtually eroding its effectiveness. For a country like ours where majority of the infrastructure players are small contractors, leasing can be an extremely cost-effective tool and for the sake of India’s progress this instrument needs to be revived. We are hopeful that these issues will receive the Minister’s attention and he will take necessary steps. Overall, I think it is a very progressive budget which has focused on infrastructure, agriculture, ease of doing business, skill development and job creation.
__________________________________________________________________________________________________________
Hemant Kanoria is the chairman and managing director of Srei Infrastructure Finance Limited