IndusView, Saturday 28 February
2015 (London): Asia’s third-largest economy unveiled its annual budget today
saying it is aimed at a high-growth trajectory. The budget is focusing on
improving infrastructure, cutting the fiscal deficit and boosting investment so
that growth would accelerate to 8%-8.5% in India’s next financial year starting
in April.
“The budget gives an opportunity
to the increasingly young, middle-class and aspirational India to realize its
full potential,” said Bundeep Singh Rangar, Chairman of London-based consulting
firm IndusView. “The time was ripe for long-awaited reforms to kickstart the
economy.”
Presenting the budget in
parliament Mr. Jaitley said the country was growing at a strong rate, inflation
was down and foreign exchange reserves were high. Falling global oil prices
have given the government the room to spend on creating infrastructure without
increasing inflation or messing with fiscal deficit targets.
He further announced a panoply of
economic and tax reforms and promised $11.36 billions of dollars of investment
towards infrastructure. Five ultra-mega power projects of 4,000 MW capacity
each are planned. The government will introduce tax-free infrastructure bonds
for road, rail and irrigation projects. The focus will be on additional road
and ports projects.
To the delight of business, Mr.
Jaitley said a nationwide general sales tax (GST) system – “a state-of-the-art
indirect tax system” – would be put in place by April 1 next year, replacing a
jumble of local fees and taxes that prevent India from being a single market
for goods and services.
“This is not a ‘big-bang’ budget, but a good
budget more focused on smaller issues, and ironing out a lot of irritants to
investors in the process,” said Rangar. “Neither the financial markets,
nor most analysts, detected the dramatic reforms that Mr. Modi’s supporters
have been urging.”
Manmohan Singh, who served as
India’s prime minister for 10 years under the Congress Party, faulted the
budget as too cautious, arguing that the new government had missed a chance to
cut spending or increase tax revenues.
Corporate taxes, meanwhile, will drop from 30% to 25%, which could
increase Indian firms’ compliance.
This is a positive budget for the Private Equity (PE) industry as
it addresses some of the key pain points of the industry. The removal of
distinction between FPI and FDI is welcome as it is not really possible to
differentiate between the two and has caused delayed response from investors.
Foreign Investment is now allowed in alternative investment funds, which will
stimulate the environment of foreign investment and private equity interest in
India.
There are 200 plus active fund managers operate in India while 100
are domestic fund managers. The PE industry claims over 12% employment growth
in PE/Venture Capital (VC) backed companies against 3% employment growth in non
PE-backed companies.
Modi didn’t take further steps today to wind up fertilizer,
cooking gas and liquid petroleum gas subsidies. Jaitley repeated pledges to
provide homes, toilets and electricity for India’s 1.2 billion people by 2022,
which would be the 75th anniversary of the country’s founding.
India’s economy is projected to expand as much as 8.5% in the next
fiscal year, according to the latest Finance Ministry estimates, the fastest
pace among the world’s biggest emerging markets. The ministry cautioned,
however, that the forecast is based on a revised method for calculating gross
domestic product and India’s economy is still recovering.
