India’s once-in-a-century budget runs into trouble as virus strikes back

  • 17 May 2021
  • Budget
  • Comments Off on India’s once-in-a-century budget runs into trouble as virus strikes back

Many praised India’s annual budget in February, raising hopes that it would spark a rapid economic recovery. However, there are now concerns that its promise may be unfulfilled since it failed to account for a crippling second wave of COVID-19 infections.

The budget aims to resurrect Asia’s third-largest economy by investing in infrastructure and health care, while relying on an aggressive privatisation plan and strong tax collections – on the back of anticipated growth of 10.5 percent – to cover its expenditure in the fiscal year.

India would not see a budget like this in “100 years,” according to Finance Minister Nirmala Sitharaman. At the time, the economy was on course to recover from its deepest recorded depression, thanks to a huge COVID-19 immunisation campaign and a revival in consumer demand and investments.

After the United States, the South Asian country is fighting the world’s second-highest coronavirus burden, with 300,000 infections and 4,000 deaths every day. With numerous sections of the country under varying degrees of lockdown, most of the budget’s growth estimates are now in jeopardy.

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The severity of the problem has investors questioning if India, which was once anticipated to become an economic giant, still deserves to keep its ‘investment grade’ rating after years of debt accumulation.

India’s catastrophic second wave, according to Moody’s, will hinder the near-term economic recovery and may have an impact on longer-term growth dynamics. It lowered its GDP prediction from 13.7 percent to 9.3 percent.

While the government claims it is too early to modify its own figures, officials privately admit that if social distancing measures persist, growth will be far more muted than previously predicted.

Apart from giving 350 billion rupees ($4.78 billion) in the budget for vaccine expenditures, the government had not set aside any funds for contingencies arising from a second wave, and officials say the government may now have to cut back on some expenditure.

A request for comment from India’s finance ministry was not returned.

 

PRIVATISATION DELAYS

The Indian bureaucracy has been hard damaged by the health crisis, with many key employees afflicted with the coronavirus, delaying decisions on privatisations and other suggested reforms.

budget
Two senior officials stated that the privatisation of assets such as oil refiner Bharat Petroleum Corp and national carrier Air India, whose processes are well along, could now be put back to early 2022, three months later than envisaged.

“The virtual data room for BPCL NSE -0.44 percent has been opened for initial bidders,” one of the executives said, “but given the lockdown, physical verification of assets is unlikely right now.”

The delays will have an impact on a number of other privatisation proposals, including two banks, insurance, and energy businesses, which are at the heart of the budget’s proposed reforms and are critical to meeting the nearly $24 billion target from asset sales and privatisations, according to authorities.

According to them, the issue is also likely to postpone India’s largest insurer Life Insurance Corp’s IPO, which was anticipated to raise $8-$10 billion.

According to another source, the lockdowns will begin to influence tax collections in June, potentially decreasing revenues by 15% to 20% compared to projections for the quarter.

How to maintain an Innovation Culture : From Budget 2019 to 2020

How to maintain an Innovation Culture: From Budget 2019 to 2020

Recognizing the efforts of the government to remove the bottlenecks for entrepreneurs is critical. Under the current ‘ Startup India Vision 2024 ‘ scheme, the government has announced the establishment by 2024 of at least 50,000 new startups, 500 new incubators, and 100 innovation zones.

With the beginning of a new year, maybe now is a timely time to take stock of how the 2019 Union Budget has influenced the startup community. Six months later, let’s remember the start-up budget highlights.

Among the sop bonanza provided to startups was the freedom from the angel’s tax heat. In an attempt to alleviate the difficulties arising from the controversial Angel Tax, the Minister of Finance declared that paragraph 56(2)(viib) of the Income Tax Act does not extend to a startup registered with the Department of Industry and Internal Trade (DPIIT). In order to further simplify the Angel Tax issue, the budget also stipulated that startups and their investors who file required declarations and provide information on their returns will not be subject to any sort of scrutiny with regard to sharing premium valuations. In fact, companies receiving funds from private equity firms and real estate funds are now excluded from oversight, in order to meet the demands of the burgeoning investment community.

In a positive turn for eligible startups carrying forward losses from previous years, the budget relaxed norms on meeting either of the two conditions: continuity of 51 percent shareholding or continuity of 100 percent original shareholders. The new provision will help start-ups offset tax liabilities until they start making profits, as well as recognizing that their shareholding pattern may change as start-ups mature.

The budget has given an enormous boost to women entrepreneurs a  which is appreciated. In addition to giving more loans with lower interest rates, the Stand Up India Scheme for Women Entrepreneurs was extended until 2025.

Other happy news for entrepreneurs includes an e-verification system to save start-ups from further scrutiny from the Income Tax Department, a dedicated television channel for start-ups, the creation of a grievance redress platform for start-ups and the extension of capital gains exemptions from the selling of a residential house for start-up-centered investments until FY 2021. Efforts are under way to update and streamline the complex structure of labor law in India into a consolidated bill.

Setting up new business opportunities

Recent efforts by the government to remove bottlenecks for entrepreneurs must be noted. Under the current ‘ Startup India Vision 2024 ‘ strategy, the government has announced the establishment by 2024 of at least 50,000 new startups, 500 new incubators, and 100 innovation zones.

In an attempt to provide superior infrastructure or platform for potential innovators, the Reserve Bank of India (RBI) has announced the release of a proper system for real-time testing of financial products. As the platform proposed would serve as an instrument for entrepreneurs to test their business models, the highest priority will be given to protecting consumer interests

Eliminating Startup Speed-breakers

While the government can rightly claim that the budget is a move in the right direction to keep India at the forefront of the start-up revolution, there are still many challenges for entrepreneurs. The startup community believes, for example, that more can be done to relax the angel tax regulations and further improve the program.

The government also has to tackle pending ambiguities about the Income Tax problems of startups. For starters, investors are worried about the high 28.5 percent tax they will have to pay for startup investments.

Although angel tax will not apply to companies registered with the DPIIT, the law has not been eliminated entirely. While the government is in principle changing the taxation environment for entrepreneurs, according to PwC India, in practice startups can still be penalized for non-payment and evasion of the angel levy. Entrepreneurs are seeking further clarification as to whether the angel tax still applies to companies which have received IT notifications.

Building a robust innovation roadmap

Given the current challenges, the outlook for India’s technology industry looks bright. The Fourth Industrial Revolution has certainly created a goldmine of prospects for business people all over the world. While India is poised to harness new technologies like AI (Artificial Intelligence), machine learning, IoT (Internet of Things), and blockchain, startups need to comply with the new digital period. Main players for India to achieve its $5 trillion economic dream.

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Budget 2020:Senior Citizen Savings Scheme

Demand increases for a full income tax rebate under the Senior Citizen Savings Scheme

Budget 2020: Finance Minister Nirmala Sitharaman will present her second Union budget on 1 February 2020. It will have a dual challenge in this budget— to boost the economy and give the middle class tax relief. In order to hit multiple sparrows with a single arrow, Nirmala Sitharaman may increase income tax benefits under Section 80C and Section 80CCD.

There are nearly 41 million senior citizens in the country with a combined investment of Rs 14 Lakh Crores or 7% of India’s GDP. The average amount of deposits per account is around Rs 3.3 lakh and the interest income from such deposits is 5.5 per cent of the Private Final Consumption Expenditure for FY19. It is imperative that the Government exclude certain interest income from taxes or increasing the threshold.

The basic exemption for senior citizens in Rs 3 Lakhs is too poor. This needs to be increased to at least Rs 5 Lakhs per year.

Government has a very good scheme for senior citizens. Under the Senior Citizens Savings Scheme (SCSS), a senior citizen can deposit Rs 15 lakh and the current interest rate is 8.6%. Nevertheless, the interest on the SCSS is completely taxable, which is a major drawback to the scheme (the amount of interest on the Rs 1 lakh deposit for 5 years is approximately Rs 51,000 which is taxable)