Budget 2019: Putting economy back on track

India is at an inflection point where high growth rate will be the key for overall development. The primary focus of budget 2019 has been towards reversing the weakening growth, boosting domestic and foreign investments, rapid infrastructure building and also at creating a conducive business environment for start-ups and entrepreneurship. IPF spoke to industry leaders to know hits and misses of the budget.
Budget 2019: Putting economy back on track
India is at an inflection point where high growth rate will be the key for overall development. The primary focus of budget 2019 has been towards reversing the weakening growth, boosting domestic and foreign investments, rapid infrastructure building and also at creating a conducive business environment for start-ups and entrepreneurship. IPF spoke to industry leaders to know hits and misses of the budget.
 
Budget 2019 under the regime of Modi 2.0 is a promising agenda bracing some of the key economic challenges while accelerating the growth path for the economy. To arrest the slowdown in the domestic economy, measures to boost investment and employment are necessary. "The Government’s agenda for this year’s budget was to put India back in the growth trajectory. The citizens of India voted for a strong and stable government for the second term with the belief that the weakening growth and investment will gradually reverse, thus stabilising the economy. The planned structural reforms announced in the budget in the form of investment in infrastructure and digital economy, along with the measures to boost the entrepreneurial culture in the country, is a strong testament that the present Government is focused on turning around the economy. Asia’s third-largest economy is anticipated to be bullish in the next 5 years and may reach closer to the target of becoming the $5 trillion economy by 2024 or 2025," commented Krishanu Banerjee, Consultant, Public Sector Practice, Frost & Sullivan.
 
Building India into a $3 trillion economy this year may seem ambitious but is still not a farfetched dream with the kind of results India has shown on the economic front in the recent years. “Technology, digitisation, and modernisation will have a great role in pulling up India to a $3 trillion economy this year. For instance, as more devices get connected, the market for eSIMs is set to explode in India in areas such as connected cars, manufacturing and consumer durables. The government’s move to lower the GST rate on electric vehicles (EV) from 12 per cent to 5 percent and to make EVs affordable for consumers with additional income tax deduction will bring connectivity to the vehicles and we see India strongly moving forward on the eSim journey which has been adopted globally,” stated Deval Seth, Managing Director, Giesecke & Devrient.
 
The primary focus of budget 2019 has been towards reversing the weakening growth, boosting domestic and foreign investments, rapid infrastructure building and also at creating a conducive business environment for start-ups and entrepreneurship. “The Government’s plan to build a supportive ecosystem for manufacturing green energy technologies as well as initiatives for clean water, we believe, is a step taken in the right direction to create and build a clean and green nation. Further, with India set to become a 3 trillion dollar economy this year, we believe the Government has undertaken positive steps and reforms to promote growth and development of the economy, in the years to come,” commented Pramod Chaudhari, Executive Chairman, Praj Industries India.
 
Boosting manufacturing
According to Vikas Khanvelkar, Managing Director, DesignTech Systems Ltd, budget has big focus on social causes like water for every household, education, healthcare and affordable housing. “It provides relief to lower middle class by providing Rs 5 lakh limit for 
income tax. Higher deductions on housing loan interest will boost demand for housing and is a better for realty sector. Rs 70,000 crore bank recapitalisation will improve liquidity for fund availability and large infrastructure investments will give boost to economy and lead to job creation. Overall, a very good budget for majority of people,” he added. For any economy, connectivity is an indispensable factor. One of the key highlights of the budget 2019-2020 is emphasis on Indian Railways and infrastructure. “With regards to the programme, heavy investment efforts were evidenced in SPV structures such as RRTS and proposed on the Delhi-Meerut route. Furthermore, PPP initiatives as well as TOD were encouraged and completion of sanctioned works/projects were emphasised. These projects would ensure more freedom for passenger trains in the existing railway network. The Government has given a massive push to Indian Railways by shedding light that an estimated investment of Rs 50 lakh crores is required between 2018-2030. The proposal that a public private partnership (PPP) be used to unleash faster development and delivery of passenger freight services for railway projects will boost connectivity,” opined Suramya Nevatia, CEO, Hind Rectifiers Ltd.
 
The creation of a global hub to spur the manufacturing of batteries (lithium ion and other chemistries), semiconductor devices, storage technologies, etc in India will assist in meeting the demands of the local economy and possibly boost exports to countries embracing alternate technologies. “The PPP model will contribute significantly towards modernising the railways. With urbanisation being one of the biggest mega trends, investment in building a suburban railway system will not only benefit the public but will also create jobs and increase manufacturing,” said Anand S, Vice President, Frost & Sullivan. 
 
Empowering growth 
The power sector being the fuel and a major part of the economy affects various other sectors in a direct or indirect way. “We are encouraged by the varied interventions of the government towards power tariff and the One Nation, One Grid model that will ensure power connectivity to various states at affordable rates. The government’s announcement to improve and discuss the UDAY-II scheme for a better financial and operational turnaround of discoms will help various other inter-linked sectors to grow and enhance their structure to better suit the needs of its beneficiaries,” commented Ratul Puri, Chairman, Hindustan Powerprojects.Some experts believe that the budget 2019 supports the ambition of the country as a $ 5 trillion economy over the next five years. Sanjeev Ranjan, Managing Director, International Copper Association of India, said, “We were enthused at the announcement of One Nation, One Grid that will ensure power availability at affordable rates. While this is extremely heartening, the government should also pay attention to the quality of power being distributed and raise the efficiency of the grid and reduce economic losses. Further, the ‘House for all by 2022’ mission and additional tax benefits for home owners will enhance access to affordable housing.” 
 
Clean energy 
The budget is focusing on providing impetus to renewable energy sector by providing incentives to domestic manufacturers. “Initiative to boost liquidity for the NBFC sector and further capitalisation of bank will certainly help and its in-line with our demand for bringing in more liquidity into the system, which will help revive the capital investment. Another important takeaway for us is the tax exemption for domestic manufacturers of solar cells, modules and EVs. We expect this to bring down prices of domestic solar modules and batteries. Also there was emphasis to bring structural reforms in power sector to remove barriers, cross subsidy and undesirable duties is positive, which will help direct sourcing of renewable power by large corporate customers, but the fine print is still awaited,” informed Nikunj Ghodawat, Chief Financial Officer, CleanMax Solar.
 
Ratul Puri added, “We appreciate the government’s intent to support the renewable sector through the tax deduction for production of lithium storage, solar PVs and other equipment as well as the allocation of more than Rs 3,900 crore for wind and solar power. India is in the path of maximising its renewable energy potential in line with its commitments towards mitigation of climate change. We are hopeful that all stakeholders will work together to help India achieve its renewable energy goal.”
 
The higher budgetary allocation for schemes like DDUGJY (Deen Dayal Upadhyaya Gram Jyoti Yojana) and IPDS (Integrated Power Development Scheme), continued focus on household electrification as well as allocation towards transmission projects in the renewable energy sector are a positive for equipment suppliers as well as engineering, procurement and construction (EPC) companies in the power transmission and distribution equipment space as this would boost their order inflows. "The focus on promoting mega manufacturing plants for solar photo voltaic cells, solar electric charging infrastructure and lithium storage batteries is a positive for the domestic capital goods sector. Moreover, the increased capex for metro & urban railways as well as the focus on water supply & waste energy management projects would augment the demand for companies servicing these segments in the EPC and capital goods sector. The continued focus on the renewable energy segment is another positive for the original equipment manufacturers (OEMs) in the wind and solar power segment," said ICRA Research.
 
While the Government’s focus on environmental reforms is highly appreciated, according to Sunil Rathi, Director, Waaree Energies, it is imperative to focus on the solar segment as a key contributor for clean energy, which is missing from the budget 2019-20. “With the economic viability of the solar power coupled with the fact that conventional energy sources now have to match solar parity, it would have been heartening to see more focus on the solar segment to promote ecological stability. The infusion of Rs 70,000 crores in the PSBs to stabilise the economy will in-turn benefit the NBFCs, which, in the absence of a recognised banking unit to support small-mid scale solar financing, will provide an impetus to the solar project financing. However, the invitation to foreign PV manufactures to set-shop in India, without prior stabilisation of the domestic manufacturing market, is premature and may prove to be counterproductive for the demand in the sector, which will render the NBFC financial support redundant,” he commented.
 
The government has been indicating some changes in the solar segment for a while; however Rathi believes that there are critical gaps that need to be plugged. “On one hand, while the safeguard duty provided the industry with interim relief, the short sighted implementation of a year, holds the proverbial sword of uncertainty in the industry. Moreover, lack of tangible movement on the anti-dumping policy has dampened the business projections in segment. The only silver lining in the budget is the progressive movement towards adoption of electric vehicles and the incentives being offered to the end consumer. With the promotion of clean energy through the use of EVs is likely to boost the demand in the segment, thus providing impetus to achieve economies of scale and in-turn create a viable ecosystem,” opined Sunil Rathi.
 
Push for E-mobility 
The government’s push for a clean and green environment will propel the industries across the value chain in the EV space. Anand opined, “Manufacturers and material suppliers for this segment will greatly benefit as it will open the doors for innovation such as in light-weighting - focusing on alternate material, which is likely to bring significant cheer to various players (oil companies, tyre manufacturers, chemical companies, battery manufacturers, electronic component developers, communication companies, data analytics players, etc.). This will also aid in the creation of new jobs and increased public spending, thus building a stronger economy. At the same time, lowering the GST on EVs would aid in increasing the EV sales.”
 
The budget encourages EV adoption in India by incentivising the purchase of electric vehicles and developing charging infrastructure. “With further support of lower GST rates and income tax incentives, electric vehicles will become affordable and accessible to the consumers. We welcome the announcements as the government works towards reduction in India’s carbon footprint,” commented Sanjeev Ranjan, Managing Director, International Copper Association of India.Welcoming the government’s move to lower the GST rate from 12 per cent to 5 per cent for purchase of electronic vehicles and the vision to make India as the global manufacturing hub, Sanjay Gupta (India Head), Vice President and India Country Manager, NXP Semiconductors, said, “The push for FAME II by providing the right incentives can encourage a faster conversion rate. Semi-conductors and host of other components will be vital in developing the EV ecosystem in the country and as NXP, we will play a vital role to foster this goal. Initiatives such as complete elimination of customs duty on some EV components could prove to be a gamechanger for the auto-industry. Currently, over 80 per cent of the cars in India use NXP chip for RFID key.”
 
“Research and development is crucial for an advanced ecosystem of infrastructure to exist. The government’s focus on incentivising research by forming a National Research Foundation and encouraging foreign engineers and researchers to come and collaborate is a landmark announcement for India’s electronic industry. For NXP, India is majorly the innovation hub. We run three design/R&D centres in India which innovate technologies for the world,” informed Sanjay Gupta. 
 
Impact on machine tools industry
The budget 2019-20 is a significant one for India’s manufacturing sector as well as the machine tool industry, according to the Indian Machine Tool Manufacturers' Association (IMTMA). As the first ever budget presented by a full-time woman Finance Minister in India the budget looks a promising one to arrest downturn and steer the country’s economy in the right direction, it added. The lower 25 per cent corporate tax on companies with turnover of upto Rs 400 crore is expected to boost investments. It is a positive step towards development of MSME sector and enhancing their production capacities. “Machine tool industry is the backbone of MSMEs and this bodes well for machine tool manufacturers. Indian machine tool industry has around 1000 units engaged in production of machine tools, accessories / attachments, subsystems and parts. More than 90 per cent of these are in the MSME sector and this sector stands to benefit immensely from this budget. The Ministry’s move will therefore eventually give an uptick to machine tool industry’s business,” commented V Anbu, Secretary, Director General & CEO of IMTMA. 
 
Capital goods sector occupies a strategic position in the country’s economy as it provides the machinery and equipment needed for many industries engaged in manufacturing of goods and services. Conventionally the Indian capital goods sector has been dependent on imports. He said, “The reduction in customs duty on certain raw materials is expected to promote indigenous manufacturing. The government’s move towards imparting new age skills like artificial intelligence, internet of things, big data, 3D printing, virtual reality, and robotics as a part of the education curriculum can create a large pool of manpower with industry relevant skills. This will also create avenues for new jobs.”
The increase in budget outlay for defence, infrastructure development including roads and railways, power, and affordable housing is expected to elevate the demand for construction equipments as well as machines. “Machine tool industry needs to gear up to the opportunities that are likely to rise in future. Vibrant manufacturing is imperative for India’s growth. The incentives announced in the budget are but a beginning. It may take some time for the sops to trickle down to the end users resulting in demand for goods and services. Notwithstanding this the momentum given by the budget is expected to spur manufacturers to renew their activities with vigour. Once such manufacturing hits top gear the country will be on the right track to not just meet $3 trillion target this year but may join the exclusive $5 trillion economy in near future,” opined Anbu.
 
Entrepreneur ecosystem
The Government’s continued focus on building a healthy entrepreneur ecosystem, as a key aspect for economic growth, is very encouraging. Vartul Jain, CFO and Senior Vice-President, GreyOrange, elaborated, “Several measures have been taken for easing FDI rules in various sectors which will have a direct impact on innovation, spurring the entrepreneurial spirt. In line with this agenda, the announcement to set up national tech incubators will promote business and economy. This is further visible in the government’s efforts towards boosting investments in MSMEs. Also, the government is actively looking to enhance skills and proliferation of emerging technologies such as artificial intelligence, big data, robotics, etc. Overall, we believe that the Government’s thrust towards digitisation to promote manufacturing and innovation are incremental steps for making India a front runner in technology, across the world.”
 
Though India has not made a mark in R&D, patent filings have nearly tripled in 2007-2018. The budget also lays emphasis on research and innovation. “This clearly shows the government’s mission to foster local innovations to boost the economy. Most developed nations’ growth has been due to innovations and the strong patent protections that help them build a strong economy. India’s focus on innovation is likely to garner a position that will make our country stronger and not be dependent on imports. To establish a National Research Foundation to fund and develop a roadmap for research is a step in the right direction.  Also, to get foreign students to study in India is a good thought that will improve the quality of higher education in the country,” commented Anand.
 
Skilling for growth
The government has announced its plan to spend Rs 100 lakh crore on infrastructure and development over the next 5 years. This vision brings out an opportunity to open enormous roadmaps for the country, hoping to generate employability, especially engineers pertaining to the civil sector in order for project executions and constructions, proving to be positive in our line of business activity. “Taking India forward through technology in both urban and rural areas, the government also spoke about Big Data and AI which will improve the aspects of decision making, speed and accuracy resulting in the ability to benchmark and track the progress of developmental projects. This recognition will be very promising for years to come. Overall, this is a positive move by the government as it also acknowledges to look at the labour rules and ease them with times to come,” commented Jaydev Sanghavi, Executive Director, Aarvi Encon Ltd.
 
The budget is directionally aimed at building a social economy and each of the 10 points - rural India, women empowerment, start-ups, electric vehicles, education, skills, Make in India, infrastructure, employment-generation, ease of doing business - has ingredients for future job creation. “Enabling employment creation extends to multiple dimensions - tax incentives, digital focus,  infrastructure development, promotion of sunrise sectors, empowering MSMEs and social enterprises and sops for higher education to name a few. Extending the Stand up India scheme until 2025, 2 per cent interest subvention for GST-registered MSME on fresh or incremental loans, clearance of loans up to Rs 1 crore for MSME within 59 minutes and payments through an online portal reduce the hassles faced by the MSME,” commented Rituparna Chakraborty, EVP & Co-Founder, TeamLease Services. 
 
In addition, the four labour codes, changes in corporate taxation, simplification of GST filing, impetus in infrastructure, banking, aviation will have an impact on formal job creation. “While we see impetus in high-end skill building capabilities, it has no mention of possible investments to be made in building vocational skills. The expectation was to see more large-scale structural reforms but it has emphasised on the right steps in taking forward some of the reforms initiated in the Modi 1.0. I hope the implementation of the decisions taken is done with choreographic precision to maximise the benefits for the economy,” opined Rituparna Chakraborty.
 
Moving a head
India is at an inflection point where growth will be the key for overall development and to achieve high growth rate connectivity and latest technologies will be the key. However, the budget did not offer much to key sectors like telecom and technologies like 5G. “While the government showed interest in emerging technologies like AI, robotics and big data, we need to understand that India will need 5G to harness the full potential of the latter. Having said that we are very confident that the government will speed up the ground work in embracing 5G,” opined Deval Seth.
 
Quote
Technology, digitisation, and modernisation will have a great role in pulling up India to a $3 trillion economy this year. For instance, as more devices get connected, the market for eSIMs is set to explode in India in areas such as connected cars, manufacturing and consumer durables.
Deval Seth, Managing Director, Giesecke & Devrient
 
The Government’s agenda for this year’s budget was to put India back in the growth trajectory. The planned structural reforms is a strong testament that the present Government is focused on turning around the economy.
Krishanu Banerjee, Consultant, Public Sector Practice, Frost & Sullivan
 
The reduction in customs duty on certain raw materials is expected to promote indigenous manufacturing. The budget will eventually give an uptick to machine tool industry’s business.
V Anbu, Secretary, Director General & CEO of IMTMA
 
While we see impetus in high-end skill building capabilities, it has no mention of possible investments to be made in building vocational skills.
Rituparna Chakraborty, EVP & Co-Founder,
TeamLease Services
 
Rs 70,000 crore bank recapitalisation will improve liquidity for fund availability and large infrastructure investments will give boost to economy and lead to job creation.
Vikas Khanvelkar, MD, DesignTech Systems Ltd
 
The Government has given a massive push to Indian Railways by shedding light that an estimated investment of Rs 50 lakh crores is required between 2018-2030.
Suramya Nevatia, CEO, Hind Rectifiers Ltd
 
While this (One Nation, One Grid) is extremely heartening, the government should also pay attention to the quality of power being distributed and raise the efficiency of the grid and reduce economic losses.
Sanjeev Ranjan, MD, International Copper Association of India
 
Important takeaway for us is the tax exemption for domestic manufacturers of solar cells, modules and EVs. We expect this to bring down prices of domestic solar modules and batteries.
Nikunj Ghodawat, CFO, CleanMax Solar
 
While the Government’s focus on environmental reforms is highly appreciated, it is imperative to focus on the solar segment as a key contributor for clean energy, which is missing from the budget 2019-20.
Sunil Rathi, Director, Waaree Energies
 
The push for FAME II by providing the right incentives can encourage a faster conversion rate. Semi-conductors and host of other components will be vital in developing the EV ecosystem in the country.
Sanjay Gupta, India Head, NXP Semiconductors
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