India’s 2018-19 Budget: How Businesses Benefit

The2018-19 Union Budget presented on 1. February 2018 shows a growth of 6.3% in India’s Gross Domestic Product (GDP) during the second quarter of 2017-18 – it is expected to be 7.2-7.5% by the second half of 2017-18. Growth in exports is predicted to touch 15% through 2017-18. The International Monetary Fund (IMF) has pegged India’sexpected GDP growth at 7.4% in 2018-19.

Here’s a quick recap on how this Budget affects existing and new businesses investing in the country.

Tax reforms

Greater operational efficiency through tax reforms is the economic buzzword. Direct taxes collected for 2017-18 (up to 15 January 2018) stands at 18.7%, up from 12.6% in 2016-17. There were 80.27m effective taxpayers by the end of 2016-17, enabling an increased investment in public services and infrastructure.

The majority of companies in India are Small and Medium Enterprises (SMEs).Simplified company formation procedures, a lower corporate tax rate as well as ease of doing business – all these have stimulated their growth. Companies with a reported turnover of up to Rs.250 crore (US$39.30m) during 2016-17get a lower tax rate of 25%.

Medium, Small and Micro Enterprises (MSMEs) 

MSMEs have received a major thrust in the Union Budget – employment increased, leading to economic growth. The MSME sector has been allocated a whopping Rs.3,790crore (US$596.43m) for credit support, capital and interest subsidies, and innovations.

Introduction of the Goods and Services Tax (GST) and the demonetisation programme has helped formalise this sector. Company formation in India has become streamlined. Businesses in the country now have access to better amenities and skilled services, and function as part of a more professional community.

Employment

Employment is set to go up – over 7 million new formal jobs are predicted across all sectors for 2018-19.The government would be contributing 12% of the wages of the new employees to the Employee’s Provident Fund over the next three years.

The government’s rural development initiatives have helped create a larger, more skilled workforce – access to this pool is yet another draw for businesses looking to expand in India.

Infrastructure

TheFinance Minister laid emphasis on infrastructure – it is the very foundation and a clear “growth driver of the economy”. India needs investments of over Rs.50 lakh crore (US$786.02bn) to connect and integrate the country’s massive transport network, as well as increase the growth rate of GDP.

The Smart Cities Mission is well underway – focusing on 99 selected cities, the Mission aims to make these more environmentally sustainable and economically competitive by 2022, so as to attract new or growing businesses.

The mission has an outlay of Rs.2.04 lakh crore(US$32.07bn). Projects worth Rs.2,350crore (US$369.43m) are complete, while those worth another Rs.20,852 crore (US$3.82bn) are ongoing. 

The digital economy

The government has put migration to a digital economy on a fast track. The Finance Minister revealed that NITI Aayog is taking the lead on a national initiative to direct efforts in artificial intelligence (AI), and its application in business.

The Department of Science & Technology will launch a Mission on Cyber Physical Systems. The mission will support the creation of Centres of Excellence for research, training and skills programmes in robotics, AI, big data analysis and quantum communication. Allocation to the Digital India programme has been doubled to Rs.3073 crore (US$483.09m) in this Budget. A proposed 500,000 Wi-Fi hotspots are to be set up to provide internet connectivity to over 5m rural citizens.

Businesses are evolving and digitalizing all over the world – business models, locations, products and services, and relationships with third parties are all being re-appraised. The government’s digitalization measures will help India to present itself as the right partner, and to offer the right skills to tomorrow’s businesses. 

Investment

The government plans to establish a central authority to regulate all financial services in International Finance Service Centres (IFSCs) in India. As confidence in the country’s suitability as an investment destination grows, more Foreign Direct Investment (FDI) will be attracted to India. The Finance Minister also urged regulators to move from ‘AA’ to an ‘A’ rating for investment eligibility.

The Indian economy is transforming – this Budget has chalked out clear actions for further liberalization as well as a shift towards a digital economy.