One might say that the Indian economy is experiencing
déjà vu as it is showing signs of sluggishness similar to those when Modi government first took charge.
As expected, Interim Budget 2019 did prescribe populist policy measures intended to address the concerns of the farmers and cater to the needs of the middle-class masses. However, Union Budget 2019 will be a moment of truth for Modi government 2.0 as Indian economy finds itself on the backdrop of sluggish growth, which has hit a five-year low.
Riding on the triumph of a landslide victory, Modi government 2.0 has garnered an amplified attention from India Inc. which expects announcements of key measures addressing slowdown in consumption and foreign investments which are in the grip of inertia. Besides, there are widespread expectations from the masses for implementation of measures which could increase their disposable income and employment opportunities.
While Finance Minister Nirmala Sitharaman would endeavour to make good on the promises made by the NDA in their manifesto, it would be simulating to see how many boxes could be ticked by the Union Budget 2019.
Industry focus: Retail and consumer products
Over the years, the consumer and retail sector had a lot to cheer about the NDA government’s stated development agenda of enhancing the rural economy and doubling the farmers’ income, supporting the poor and underprivileged, developing infrastructure, promoting a digital economy, and prudent fiscal management.
As the time runs out for finalisation of policy announcements via Union Budget 2019, India Inc. has been upbeat as several industrialists have also joined the bandwagon advocating reduction in corporate taxes. Especially, fast moving consumer goods (FMCG), the fourth largest sector of the economy which has borne the brunt of the ongoing rural distress.
The industry expects that the government would prioritise liquidity and hone its efforts on rural economy development. The other areas where the government may look at is fuelling investment demand and strengthening foreign investments.
While the industry is yet to reap dividends of the populist measures (tax reliefs for individuals) of Interim Budget 2019, the consumer and retail sector expects that Union Budget 2019 would shed some light on unfinished business which could help the industry revitalise.
1. The global retail industry was eagerly awaiting further foreign direct investment (FDI) relaxations in the multi-brand and food-retail trading space to make India an even more lucrative investment destination. However, it appears that the government is still evaluating the impact of 100 percnt FDI in single-brand retail on the local mom-and-pop shops and shall continue to test the waters before advocating similar change for multi-brand retail.
2. Given the discretionary demand-driven nature of consumer and retail industry it is expected that the government would announce some relaxation on the individual taxation regime to increase disposable income and boost consumption growth in the country.
3. The Reserve Bank of India recently liberalised ECB guidelines for enabling access to funding requirements of the industry. A move to further liberalise ECB guidelines to include LLP’s would be welcomed by the industry.
4. Lastly, on the tax litigation front, treatment of advertising, marketing and promotional (AMP) expenditure for the benefit of foreign brands has been a matter of protracted litigation and multiple contradictory views are adding to the woes of the industry. Accordingly, prescription of a set of standard guidelines would go a long way to avoid further litigation.
With higher expectations from Modi government 2.0, Union Budget 2019 is expected to be a catalyst balancing the economic growth and revenues. The path set to tackle unemployment by introducing cabinet panels to address the issue itself illustrates that the Budget 2019 might tick most of the boxes.
Paresh Parekh is Partner and Leader at Consumer and Retail Tax, EY India. Chirag Sheth, senior tax professional at EY, also contributed to the article. The views expressed are personal.