NEW DELHI — Is prime minister Narendra Modi going to be able to change the economic game in India and play the pro-business card that has built such a fever of anticipation there?
The inaugural budget on Thursday, unveiled by his finance minister, Arun Jaitley, projected growth of 5.4 to 5.9 percent, but even as analysts scrambled to decipher its impact, many of them described it as “underwhelming” and “less than visionary.”
The finance minister himself recognized, and warned, that his budget would be no magic wand.
“The steps I will announce in this budget are only the beginning towards a sustained growth of 7 to 8 percent or above in the next three to four years,” he said, adding that it would not be “wise to expect everything that can be done and must be done within the first budget within 45 days of the formation of the government.”
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In a TV interview after presenting the budget, Jaitley also said that a key point he wanted the world to know was that India was open for investment. “My steps are aimed at reviving growth; the budget’s message is that we are ready to grow,” he said.
It appeared that business leaders understood what he meant. “The Union Budget 2014-15 was going to be a tough balancing act for the finance minister, given the precarious state that the economy was in,” said Sunil Duggal, chief executive officer of Dabur India Ltd. “And he has managed it well. With a plethora of announcements, be it in the form of further opening up FDI, promoting investments in infrastructure and health care or proposals for poverty alleviation and rural development, the finance minister has taken positive steps that would not just boost overall confidence, but also go a long way in generating employment.”
Retailers, who have been calling for the government to give the fast-growing $500 billion retail segment industry status and asking for more clarity on foreign direct investment in multibrand retail, left empty-handed.
However, the finance minster did make a nod that retailers appreciated — with an announcement that foreign retailers who manufacture in India could sell via e-commerce platforms and that “no additional approvals would be needed for these manufacturing brands to sell through e-commerce platforms.”
This first step toward liberalizing the $13 billion e-commerce sector will benefit brands that are manufacturing in India, such as Marks & Spencer, Benetton and Puma.
India already allows 100 percent FDI in manufacturing in most areas.
The jewelry sector, which had been hoping for a cut in import duty on gold, was disappointed as well, but hailed the finance minister announcement on diamond and semiprecious segments. “To encourage exports, pre-forms of precious and semiprecious stones are being fully exempted from basic customs duty,” Jaitley said. “To prevent misuse and avoid assessment disputes, the basic customs duty on semiprocessed, half-cut or broken diamonds, cut and polished diamonds and colored gemstones is being rationalized at 2.5 percent”.
The finance minister also revealed his commitment toward the long-pending Goods & Services Tax. According to independent estimates, it will provide a stimulus to the economy and could push economic growth up to 2 percent. This is intended to replace a series of existing taxes such as excise duty, service tax and value-added tax and has been under consideration for the last few years.
Traveling to India will also get easier under the new budget. The finance minister revealed that e-visas will be issued at nine Indian airports, providing a boost to the tourism industry. “This will facilitate visas on arrival. We will begin the facilities in a phased manner. The necessary infrastructure for e-visas will be installed in the next six months,” he said.
“My predecessor has set up a very difficult task of reducing fiscal deficit to 4.1 percent of the GDP in the current year. Considering that we had two years of low GDP growth, an almost static industrial growth, a moderate increase in indirect taxes, a large subsidy burden and not so encouraging tax buoyancy, the target of 4.1 percent fiscal deficit is indeed daunting. Difficult as it may appear, I have decided to accept this target as a challenge. One fails only when one stops trying. My road map for fiscal consolidation is a fiscal deficit of 3.6 percent for 2015-16 and 3 percent for 2016-17,” the finance minister said.
Although the budget appears to be conservative, business leaders appear to be holding the moment, some of it on faith.
“The government is growth-minded,” said Adi Godrej, chairman of the Godrej Group, “I expect the GDP growth rate to touch 8 percent in 2015-16.