View: A reformative effort; needed clarity on PSBs, NBFC reforms

By Kaku Nakhate

Keeping an eye on fiscal control, the finance minister has done a commendable job of balancing aspiration while shaping a broadly reformative budget.

The budget is in line with our Prime Minister’s vision of creating an equitable India.


We applaud the budget’s focus on monetisation of government’s infrastructure assets, breaking up of long-standing monopolies of government companies, strengthening of debt markets, digital platforms, improved governance and continued tax reforms.

However, we would have liked to see a clear direction on public sector bank recapitalisation and NBFC reforms to drive the much needed credit growth in the country.

Containing government’s net borrowings to lower-than-expected $75 billion will definitely cheer the bond markets.

Ensuring availability of funds is a key theme of this budget. Opening up of G-Sec markets to NRIs is a historic step and in future will hopefully get India included in the global bond indices. The cap of foreign investment in corporate bonds has been increased to 15% from 9%. Netting of derivatives, extension of withholding tax of 5% on interest payment on bonds to FPIs and QFIs and offering a similar incentive on municipal bonds are a slew of measures to strengthen the debt market.

Further, with the abolition of the Dividend Distribution Tax, companies will be spared the pain of double taxation, a move that could pave way for more FDI.

To enhance availability of capital pools, sovereign wealth funds have been given a 100% tax exemption on dividends and capital gains on their investments in infrastructure, subject to a three-year lock-in period. This along with allocating money towards equity infusion into IIFCL and NIIF, and the proposed InvIT structures for roads and power grids will attract newer pools of monies from the likes of pension funds, infra funds and family offices.

Opening up of railways, city gas distribution and electricity supply to private sector will help break long-standing monopolies of government companies and benefit consumers with better pricing and services.

Further, the finance minister’s announcement to allow onshoring of the bullion market at IFSC, GIFT City is historic. This will enable price discovery of precious metals currently traded overseas by many Indians. Additionally, the introduction of rupee derivatives and reduction in withholding tax on listed masala bonds will help GIFT City to compete with other IFSCs.

The startup ecosystem received a major thrust in the budget as the three-year consecutive tax holiday was extended to larger startups with ?100 crore turnover. Rationalisation of ESOPs, a long-standing demand of this cohort, was also addressed. We believe these measures will further aid the ease of doing business for country’s young entrepreneurs.

The outward orientation of the budget is evident in its promise to rationalise the tax administration. The budget promises to weed out 70 of the 100-odd tax exemptions. But of greater importance is the proposal to place a taxpayers’ charter in the statute books. This should address a nagging concern among foreign investors on the unpredictability of Indian tax laws and the discretionary element in direct taxation. The new tax regime attempts to boost household consumption by putting extra disposable income through rejig in personal income tax rates.

No doubt, the markets will be a bit disappointed by the lack of clear giveaways, like abolition of LTCG or the STT, but our belief is that they will see through the clutter and soon absorb the vision of this budget. Global investor interest in India remains strong; the push towards greater foreign investment in Indian infrastructure will hopefully lead to higher foreign inflows.

The long-term impact of the budget will be visible in two-three years as the economy picks pace and all the promised initiatives bear fruit.

(The writer is Country Head, Bank of America (India). Views expressed are personal)