Budget: Telecom, auto sectors stay in stress zone with no direct relief

Tethering issues in real estate, automobile and telecom services remained unattended in the Budget, despite the severe stress in these sectors. Apart from peripheral measures such as lowering of income tax rates, the lack of direct help from the government left most industry players unsatisfied.

For instance, in real estate, the Economic Survey for FY20 identified that with Rs 8 trillion worth of unsold stock in eight major cities, the sector played a key role in the current deceleration in the economy. However, apart from extension in the date of availing tax incentives for investors in affordable housing, no direct steps have been proposed in the Budget to boost housing sales.

According to Shishir Baijal, chairman and managing director of Knight Frank India, with the economy in the midst of a sharp slowdown, the Union Budget for FY21 was being awaited with high expectations to provide a growth booster.

“However, the Budget fell short of industry expectations, with no major announcement for accelerating growth. Lowering of income tax rates with removal of exemptions may not lead to any meaningful boost to consumption. As far as real estate is concerned, the industry was hoping that the government would come up with measures to boost housing demand,” he said.

“Developer and investor community expectations on provisions pertaining to increased sectoral allocations and deductions remain largely unmet. Moreover, non-applicability of the deduction on housing loans under the new optional individual tax structure may act as a deterrent for those considering housing loans,” said Shubham Jain, group head and senior vice-president (corporate ratings), ICRA.

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Satish Magar, president of CREDAI, said that even though the realty sector needed immediate attention, sector-specific measures like providing more liquidity and one-time restructuring of loans were not addressed.

According to industry executives, the government’s focus remained on affordable housing, where previous tax exemptions for both homebuyers and developers were extended for another year.

The Budget proposed to extend the capital gains tax relief on property valuations to 10 per cent below circle rates, against the earlier provision of 5 per cent.

The automobile sector, reeling from faltering sales since mid-2019, also had little to cheer.

“Industry was looking forward to some direct benefits that could have helped in reviving demand. We had made some specific suggestions like an incentive-based scrappage policy, which hasn’t been considered,” said Rajan Wadhera, president at industry lobby group Siam.

chartHowever, R C Bhargava, chairman of Maruti Suzuki, said carmakers were expecting very little from the Budget. “The urgent requirement for industry is to bring down the cost of production and the Budget has very little scope to do that. The GST council will take a call on rates on car, and states need to reduce the cost of electricity and other input materials to bring down cost of production,” said Bhargava.

He pointed out that the move would leave more money, primarily in the hands of buyers of entry-level cars. Sale of such cars has suffered as the cost of lending increased cost on account of new safety features and a hike in road taxes in many states has increased acquisition costs by above 20 per cent since the past one year.

“Reduction in tax rates will allow more savings for people in the income bracket of Rs 5 lakh. Therefore, the lower end of the market may get a boost if the savings are used to buy a car,” said Bhargava.

Ashish Kale, president of auto dealers association FADA, also agreed that the net positives from lower income tax are likely to act as an immediate sentiment booster. “Especially for the two-wheeler and entry-level passenger vehicle segments, this is a big booster,” Kale added.

According to an estimate, India’s auto industry accounts for 2.3 per cent of its GDP and employs over 5 million people. However, the industry has witnessed its worst-ever half-yearly performance (till December) with overall revenues plunging 10.1 per cent at Rs 1.79 trillion. This has also resulted in around 100,000 people losing jobs and an estimated investment loss of about $2 billion.

Industry body Cellular Operators Association of India (COAI) remained unimpressed with the Budget. “It is disappointing that there were no announcements made regarding the rationalisation of levies and taxes currently imposed on the severely distressed telecom sector, and telecom infrastructure is not taken into consideration that is going to build out the country,” Rajan S Mathews, Director General, said COAI.

Budget 2020: Scheme on I-T disputes won't cheer Vodafone and Cairn Energy

The finance minister announced a new scheme ‘Vivad Se Vishwas’ in the Budget, to end all pending income tax (I-T) disputes. Tax experts, however, say this will not attract big cases such as Vodafone and Cairn Energy, given the government is seeking 100 per cent of the tax demand upfront by March. Nevertheless, the schemes has waived off penalty and interest.

“We have to wait for details of the scheme, as only the announcement has been made. However, to expect 100 per cent of the tax demand to be paid, particularly in the context that many of these demands are highly controversial, does not appear practical and, as such, the scheme does not seem appealing,” said Ketan Dalal, managing partner of Katalyst Advisors. “Also, to expect taxpayers to avail of this scheme by March end, given the ongoing cash flow strain overall, seems impractical.”

Under the proposed scheme, a taxpayer would be required to pay the full tax amount by March 31, 2020. Those who avail of this scheme after March 31 will have to pay some additional amount. The scheme will remain open till June 30. The finance minister said any taxpayer, whose case appeals are pending at any level, could benefit from the scheme. The finance minister added that in the last Budget, ‘Sabka Vishwas’ scheme was brought in to reduce litigation in indirect taxes. This scheme resulted in the settling of over 189,000 cases.

At present, she said, there are 483,000 direct tax cases pending in various appellate forums i.e. Commissioner (Appeals), ITAT, High Court, and Supreme Court.

Steps in Budget should help lift India Inc's optimism: Edelweiss Group CEO

The finance minister has made a laudable attempt to stimulate both consumption and investment, for creating a virtuous cycle in the economy and revitalising sentiment. The measures should help lift the optimism of India Inc, and put India back on a sustainable higher growth trajectory. Higher allocation to the farm sector and rural areas, in a bid to double farmers’ income by 2022, and lowering of the income tax burden on the middle class are clear steps to boost income and purchasing power of Indians. In fact, rural India has been lagging for some time. By leaving more in the hands of the middle class through tax cuts, the finance minister wants to encourage people to move from savings to consumption, which will first lead to recovery and then growth.

Several other measures have been a continuation of the earlier investment-oriented thesis. Along with the corporation tax rate cut announced earlier, the current move to abolish DDT, lowering of withholding tax for FPIs, and the 100 per cent exemptions announced for sovereign wealth funds to invest in infrastructure will send positive signals to foreign investors, boost the infrastructure sector, and kick-start the economic cycle. Given this background, the slippage in fiscal deficit for FY20 to 3.8 per cent is expected. The fact that this is being supplemented through the disinvestment route — with the proposed LIC IPO, and the plan to sell the balance holding in IDBI Bank to private investors — shows there is a clear plan being implemented, which should hopefully help the economy touch its original growth vectors.

Filmmaker Sudhir Mishra's take on the best and worst things in Budget

Has Finance Minister Nirmala Sitharaman steered the economy out of the woods?

More or less the Budget is status quo. It has no imagination. For me “nutrition” is above all and by nutrition I mean both the physical and mental stimulation of people. But most of the experts say this Budget doesn’t take care of that sort of “nutrition” for India.

Is this a populist, please-all Budget?

I am not an expert but for me, unless the Budget triggers employment and innovation and creativity, it is not effective. I don’t see it as “this government versus that government,” and I think this has been the case for the last 20 years.

Will it help the economy, create jobs, restart stalled projects?

If people become physically secure and mentally imaginative, then nothing will stop the country. But for long our education budgets have been going down and most of our universities are not being funded well, in most laboratories science is not being encouraged. There will come a situation where all the patents will lie abroad and for everything India will be forced to look elsewhere. If the push to manufacture and “Make in India” works, I would be happy.

What was the best thing about the Budget? And the worst?

It is good that there are reforms in personal tax. To trigger creativity in cinema, the making of films has to become cheaper too. I have been saying this for 25 years but why are we still taxing people for going to a cinema hall? All the taxes in cinema, because we pay taxes through our nose, should be scrapped. I think cinema should be tax free. Except, of course, for those of us

who make money from it and must pay the relevant income taxes. Also, we are in a climate emergency. I think India should go solar, so the policies encouraging solar power are necessary.

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Nirmala Sitharaman's Budget: Nod to international bullion exchange at IFSC

The government on Saturday proposed to set up an international bullion exchange at IFSC in GIFT City. “The exchange will enable India to enhance its position worldwide, create jobs in India and will lead to better price discovery of gold,” said finance minister Nirmala Sitharaman while presenting the Union Budget 2020-21.

“Finance minister has re-emphasised the importance of GIFT-IFSC as an emerging global financial services hub. The policy pronouncement regarding GIFT-IFSC gives a tremendous boost to investor confidence both in India and abroad,” said GIFT City Managing Director Tapan Ray.

The government has also allowed rupee derivatives to be traded GIFT-IFSC, with an intention to bring all offshore rupee trading onshore with a 22-hour trading window.

In order to incentivise listing of bonds at IFSC exchange, the finance minister proposed further reduction in the withholding rate from 5% to 4%.

“India INX is fully geared up and ready to launch Rupee Dollar Futures and Options contracts trading as soon as approvals are received from regulators,” said V Balasubramaniam, managing director and chief executive officer of BSE’s India Inx-India International Exchange IFSC. “We will also be keen to set up the International Bullion Exchange at GIFT IFSC,” he added.