Industrial policy, disinvestment, income tax; main points of Nirmala Sitharaman’s first Union Budget

New Industrial Policy likely to feature in Friday's Budget

The much-anticipated New Industrial Policy may be announced by Finance Minister Nirmala Sitharaman in her maiden budget on Friday.

The policy centred around the theme of "Make in India", was first envisaged in the earlier Narendra Modi government under the then Commerce and Industry Minister Suresh Prabhu. New Commerce Minister Piyush Goyal has also given his inputs to the policy, sources said.

The policy would take an approach of cluster-based industrial areas, whereby a certain industrial area would have industries making a certain product.

People in the know said that it will subsume the National Manufacturing Policy, which was notified in 2011, in order to bring about a quantitative and qualitative change and to give necessary impetus to the manufacturing sector.

In line with the scheme of Digital India, the policy will also include the use of Internet of Things (IoT), Artificial Intelligence (AI) and robotic technology for advanced manufacturing. A Commerce Ministry Task Force has already submitted its report on the use of AI for economic transformation.

The new policy was ready by the end of the first term of the Modi government but not announced over concerns of likely repercussions in the general election on the back of its recommendations on labour reforms.

This announcement would be a change in convention as the country's industrial policy is generally announced separately and has never been a part of the budget.

In 1991, the government had announced a Statement of Industrial Policy, which reduced the requirement for industrial approvals thereby doing away with the "licence raj'. Subsequently, the National Manufacturing Policy was announced in 2011, with an aim to grow the share of manufacturing in gross domestic product to 25 per cent by 2022.

The new industrial policy will feature incentives for Indian players to make the country a manufacturing and exports hub to gain leverage of the US-China trade war, according to sources.

Disinvestment, RBI dividend, 5G to fuel India's budget

The NDA-led government might well have the numbers in Parliament but what is in doubt is if it has the fiscal space to undertake measures required to kickstart a slowing economy and more importantly, to revive the rural economy via welfare measures.

In order to fund the welfare measures, the government in its Budget on Friday may come up with a clear road map to raise the funds required. As a part of it, the government is likely to raise the disinvestment target, look for higher dividend from the Reserve Bank of India and the 5G spectrum auction.

"..resources for now expanded Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) and Ayushmaan Bharat as well as new initiatives of the new government will have to be found without compromising the fiscal deficit target as per the revised glide path," the Economic Survey said on Thursday.

Disinvestment in public sector units is a major route for the government to raise capital. The interim budget had set a disinvestment target of Rs 90,000 crore for the financial year 2019-2020. This may be raised further to Rs 1,00,000 to 1,50,000 crore.

Apart from strategic sale of loss-making and defunct PSUs, the government is also likely go ahead with an monetisation programme involving development and sale of surplus land parcel and other non-core assets of public sector enterprises. This would provide additional revenue stream for the Centre with money flowing either directly to its coffers or coming through higher dividend payout by the PSUs.

Senior government officials said that the new asset monetisation programme will hinge on a two-pronged strategy. One will involve strategic sale of loss making and defunct PSEs sitting on large tracts of land that could be commercially utilised.

The second part of the strategy will be to get even existing profit-making PSEs such as the ONGC, the NTPC, the SAIL, the BHEL, the Airports Authority of India, the PowerGrid, to sell some of their non-core assets, including manufacturing units and surplus land to realise funds that could be invested in new projects where private investments is not forthcoming.

A panel led by former RBI Governor Bimal Jalan was set-up late last year to decide the appropriate capital reserves the apex bank should maintain. Going by a report by Bank of America Merrill Lynch, the panel may suggest a transfer of Rs 3 lakh crore.

The 5G spectrum auction which is likely to be held in October, may create a revenue of Rs 4.5 lakh crore in total if the spectrum prices are not changed. Out of the total anticipated amount, Rs 70,000 crore is likely grace the government's coffers in the ongoing fiscal year 2019-20.

Budget likely to clip Air India's wings, no equity infusion likely

Privatisation-bound national carrier Air India might not get financial support from the full Budget 2019-20.

According to highly-placed sources, the airline, which got a meagre Rs 100,000 as extra budgetary support in the interim budget, might not even land a spot in the expenditure document this time.

However, in the interim budget, the government had allocated Rs 2,600 crore to Air India Asset Holding Ltd, a SPV which is being used to park the majority of over Rs 55,000 crore debt of the airline.

On June 27, the Central government decided to restart the divestment process of national passenger carrier and its five subsidiaries.

As per the Ministry of Civil Aviation, continued support from the government had resulted in improvement of financial and operational performance of the airline.

The development comes after the Air India Specific Alternative Mechanism (AISAM), in a meeting last year, decided against divestment at that time due to issues like volatile crude oil prices and adverse fluctuations in exchange rates.

"However, continued support from the government had resulted in improvement of financial and operational performance of Air India. As per the recommendations of AISAM, the government will now go ahead with the process of disinvestment of the company," the Ministry said in a statement.

In December last year, the Centre had prepared a revival plan for the airline, comprising a comprehensive financial package and sale of non-core real estate assets.

The plan comprised of several major elements such as a comprehensive financial package including transferring of non-core debt and assets to a SPV (special purpose vehicle) and strategic disinvestment of subsidiaries.

Besides, the Centre infused Rs 2,345 crore into the financially strained national carrier under its 'Turn Around Plan'.

In addition, an inter-ministerial panel has decided to divest the government's stake in AIATSL.

The revival plan had come after government's efforts to off-load a majority stake in the airline failed. On May 31, 2018, "no response" was received by the government.

Middle class set to gain from higher tax deductions in Budget

The middle-class tax payers may have a lot to cheer about in the Budget proposals to be presented by Finance Minister Nirmala Sitharaman on Friday.

Sources said that the Budget 2019-20 will take the sops announced in the Interim Budget further by raising the basic tax exemption limit for an individual income tax payee to Rs 3 lakh from Rs 2.50 lakh at present to cover for the inflationary impact over the years.

In the Interim Budget, the government had proposed a rebate on all payable taxes if an individual's taxable income is up to Rs 5 lakh per annum. But it kept the basic exemption levels unchanged.

Moreover, individuals would also have increased avenue to save tax as deduction from taxable income available under section 80 C of the Income Tax Act may be raised to Rs 2 lakh from the present limit of Rs 1.5 lakh. The Rs 50,000 additional annual saving window for investment made in National Pension Scheme (NPS) will, however, continue increasing the total savings under Section 80 C to Rs 2.5 lakhs.

The Budget will also reward the middle-class by increasing the ability to buy their dream home. In this regard, the tax deduction limit on interest on home loans may be increased to Rs 2.5 lakh a year from the present Rs 2 lakh limit. But this enhanced benefit will come with withdrawal of deduction for interest on second house that was allowed earlier.

Also, expected for the lower income group is return of a scheme similar to the earlier Rajiv Gandhi Equity Savings Scheme. The RGESS was a tax saving scheme announced in the 2012-2013 Union Budget aimed at first-time retail investors to encourage the flow of savings of small investors in the domestic capital market. The Budget 2019-20 is expected to re-launch the scheme with a new name and additional parameters.

The government's welfare measures for individual tax payers and the rural economy is expected to add further stress to its finances. This is expected to be reflected in the Budget that may reset the fiscal deficit target for FY20 again to 3.6 per cent of GDP from earlier Budget estimate of 3.4 per cent. But the roadmap towards fiscal consolidation may be drawn in a way that 3 per cent fiscal deficit is reached in subsequent year.

Government finance that is contrained by lower growth in tax collections is expected to be augmented in a big way through disinvestment and higher dividend receipts from the RBI.

The 5G auctions and sale of non-core assets of PSUs including their prized land bank may fill the coffers to the extent that deficit may be prevented from going completely out of hand.

with IANS inputs