Interim Budget 2019 Expectations: Industries Demand Sops & Credit Support
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With general elections around the corner, enterprises are eyeing the Interim Budget 2019 with high hopes. From real estate, agrarian, NBFCs, start-ups, exports, logistics, jewellery, auto to MSMEs, all industries are waiting for their needs to be addressed by the Finance Minister Arun Jaitley.
Among the usual demands around the increase in tax exemption, infrastructure improvisation, clarity of regulations, organizations have pinned their hopes on the forthcoming budget for introducing provisions for streamlining the industry in the long-run. Here’s what the nation expects from Interim Budget 2019:
The micro, small and medium enterprises have been struggling with credit deficiency for a long while. With liquidity being the core issue, organizations have made efforts to approach private banks to apply for debts but the cumbersome procedure for application has dampened spirits for most of them. In comes the saviour that is Non-Banking Financial Companies (NBFCs).
“NBFCs have increased their overall market share in MSME credit by around 17 per cent YoY till a mid-last year, whereas private sector bank's share only increased by 6.4 per cent and public sector bank's decreased by around 9 per cent,” inputted Bhupinder Singh, Founder, and CEO, Incred. Notably, they were able to decrease their TAT (turnaround time) in loan processing by leveraging cutting-edge technologies that most banks are still hesitant to utilize.
NBFCs’ contribution in improving access to finance to large sections of deserving yet under-served sectors has been applaudable. “NBFCs bring with them a higher risk appetite and skill sets to gauge customer behaviour and meet customer requirements in niche segments,” Gaurav Gupta, Co-founder and CEO, MyLoanCare.in said addressing the diverse segments looking for loans.
Singh believes that the budget should provide some credit support to the segment to enable them to borrow effectively and continue growing. “It will help in bridging the prevailing credit gap and acquaint our nation with experience superior growth rate while tangibly increasing the employment opportunities,” he opined.
Real Estate Needs
While RBI has shown commitment towards addressing capital requirements of the NBFCs in other segments, real estate seems to be a neglected space due to their financial limit. NBFCs expect the forthcoming budget to address the need by providing a refinance window for non-consumer loans. Ever since the IL&FS crisis, real estate has been struggling to meet their financial needs.
“The current crisis that is facing the real estate sector can have a detrimental impact not just on infrastructure development in the country but can result in a far-reaching crisis for the innumerable SMEs who work in the sector as suppliers and vendors to developers,” Gupta fears.
The implementation of policy reforms such as RERA and GST has helped in bringing greater transparency and accountability to the sector, real estate is yet to receive an industry status. While the provision of REITs this year is likely to improve the quality of assets offered, leading to positive investor and consumer sentiment in the sector, the sector leaders still seek clarity on certain aspects.
“GST along with processing fees, stamp duties, registration charges etc are not considered as a part of the value of the property while availing a loan, thereby significantly increasing the outgo from a consumer’s pocket. For instance, the cost of registration as a property in India is ~8 per cent, as compared to 4.2 per cent in developed nations,” provided Anshuman Magazine, Head of India, South East Asia, Middle East and Africa, CBRE putting emphasis on the need for rationalizing the stamp duties/registration costs for Union Territories.
He further shared that there is a need to promote rental housing. A large stratum of Indian population resides in a rented place and hence, the government should take steps to facilitate their smooth stay. “There is a standard deduction from rental income under Section 24 (a) which is 30 per cent of the Net Annual Value of the property. In order to incentivise rental housing, this deduction can be increased to 50% of the NAV.”
Promoting the Sectors
In terms of incentives, the government has taken multiple steps in every sector to provide relief to the related; there are challenges which are yet to be addressed. “While numerous initiatives have been taken to spur affordable housing, however some more developer related benefits such as additional FSI and tax benefits such as tax cuts on prefabricated structures could spur private interest in the segment,” Magazine concluded.
Among the developing spaces, electric mobility is one that the government has been taking extra efforts to boost. EVs have been identified to tackle the growing concerns of pollution, CO2 emissions, and ever-degrading air quality. In order to achieve Narendra Modi’s vision of 30 per cent EVs hitting the road by 2030, the government needs to make favourable policies for power train components and lithium-ion batteries.
Speaking on behalf of the auto industry, Akash Gupta, founder and CEO, Mobycy said, “We expect the government to deliver on its promise of spending INR 20,000 crore for the next two years,” adding, “In addition to budget allocation, we require industry-wide overhauls and policies favouring the mainstream adoption of the EVs.” He further suggested that consumers should also be incentivised for making the switch to EVs.
The Jewellery industry has been vulnerable due to decreased sales on account of high import duty. Recently, the Gem and Jewellery Export Promotion Council (GJEPC) expressed its expectation of a reduction in import duty on polished diamonds to 2.5 per cent from the current 7.5 per cent along with a cut in import duty on gold from 10 to 4 per cent in the upcoming Interim Budget.
Adding to the statement, T S Kalyanaraman, Chairman & Managing Director, Kalyan Jewellers said, “We are expecting an uptick in discretionary consumable spends due to the expected move of increasing the tax exemption slab to INR 5 Lakhs. This will augment disposable income and contribute to enhancing spending on items like gold and jewellery and other consumable sectors. If implemented, it will infuse much cheer for all consumer-facing businesses.”
In the west, Cannabis has been trending like anything. India is also catching up. Multiple start-ups are working towards exploring the field but negligence by the government has worked adversely for space. Highlighting that the contribution of Industrial Hemp in GDP is negligible due to restriction in Government Policy, Rohit Sharma, Founder and President, Indian Industrial HEMP Association (IIHA) is optimistic about the upcoming budget.
“The Government should allocate INR 500 crores for research and development of Industrial cannabis or Hemp. Research and Development should vary in the field of Pharmaceutical and Fibre initially, thereafter, it should also extend to other recreational use like cosmetics and Herbal uses,” he expressed.
Last year’s budget emphasized greatly on increasing the basic income of farmers with the introduction of Minimum Support Prices. In order to follow through and reach the target to double farmers’ income by 2022, major reforms in the Agriculture and Agri-tech spaces are expected this year as well.
“There have been hints indicating a 10 per cent increase in the agricultural credit flow, with a special focus on the Direct Benefit Transfer Scheme. This scheme can act as a game changer for farmers in distress,” stated Samarth Setia, Founder and CEO, Mr. Milkman.
He emphasized the need for a good budget allocation in the Agri-Tech space for converting the Agricultural Sector into a high performing one. “Providing technology to farmers at a subsidized cost, or in a tax-free model, will lead to higher adoption rates, which in turn will make them much more efficient and provide data points that can drive the Indian Agricultural space to new heights,” Setia concluded.
The Indian government has been taking measures to promote the nation’s start-up ecosystem. Recognizing the potential of innovative young dreamers, government has been framing policies to create a favourable environment for the start-ups. Implementation of the Startup India Scheme has been aimed at providing multiple benefits to start-ups but the road has not entirely been smooth.
Highlighting the lack of easy license clearance, tax cuts and minimum regulatory interference, as promised by the government for startup operations, Kumar Abhishek, CEO & Co-founder, Amazon backed ToneTag stated, “From the Union Budget 2019, startups are expecting a faster and easier method for procedural clearance and license approvals.”
With the success of the Digital India scheme, the industry is also looking for an allocation of adequate funds towards the adoption of new technologies such as AI and Blockchain, Abhishek expressed, adding, “Startups are also expecting a decrease in unnecessary regulatory supervision and government interference which will allow them to operate without any pressure.”
Compliance of procedure to avail benefits offered by the government has been a burdensome procedure. While the implementation of Goods and Services Tax (GST) has benefitted the start-ups, there were hiccups in the adoption.
Indian logistics and warehousing industry is at a rapid pace, reaching the international standards. While that is the case, “Government has to work on cluster-based development for various industries so that the common facilities can be shared by the industry and can become competitive and export their produce,” expressed Sunu Mathew, MD, LEAP India.
Space has been lacking government’s support in creating dynamic learning opportunities straight from the education level to inculcate creativity, innovation, and a business spirit in a budding entrepreneur. “The policies should smoothen the barricades and hurdles arising in the aspect of start-ups. The focus should lie upon the simplification of these procedures to initiate cohesive start-up culture in the nation,” said Praveen Vashistha, CEO, Gxpress.
Tarun Arora, Director of IG International, India highlighted the importance of the Cold Chain. “India is the second largest producer of vegetables and fruit but 25 per cent to 30 per cent of it is wasted due to inadequate logistical support, lack of refrigerated storage, supply chain bottlenecks, poor transport and underdeveloped marketing channels.”
He added, “The Food and Agriculture Organisation (FAO) puts this figure at around 40 per cent — worth around $8.3 billion. Without improvements to its “cold chain” infrastructure, from farm harvest to table, India’s food problems will remain highly critical.”
For logistics, the new air cargo policy that mandates integrating post offices to the air cargo value chain at the village post office level and development of regional and state cargo hubs, will act as a gateway for the region and states, connected by domestic trade corridors to production hub.
“The overall impact of the new air cargo policy will be positive as it will help develop regional and state market hubs. It will serve as gateways to your respective regions. This will drive greater multimodal movements; increase speed and reliability of shipments moved from origin to destination and therefore cut total logistics costs, particularly in terms of working capital and reduction in potential loss of sale,” stated Abhik Mitra, CEO and MD Spoton Logistics.
The startup ecosystem has viewed angel tax as a devil ever since its implementation. While the government has recently provided some relief in terms of application, it has not helped the system entirely. “The government should also do away with Angel Tax. India has largely been a B2C dominated market. For B2B businesses such as us to flourish and thrive in the country, our government has to do away with Angel Tax, which is actually hurting the entire ecosystem,” expressed Mithun Srivatsa, co-founder & CEO, Blowhorn.
Adding to his words, Sandeep Chilana, Partner, Shardul Amarchand Mangaldas & Co provided that government should do away with the “ambiguous provisions around ‘angel investment tax’ and it would be imperative for the government to clarify the issue and provide a conducive environment for the start-ups.”