Key Budget Announcements and Implications for
Foreign Organisations in India
On 5th July 2019, our newly appointed Hon’ble Finance Minister (FM), Nirmala Sitharaman, presented her maiden budget under Modi 2.0 government for the 6th largest economy in the world currently standing at $2.7 trillion.
A day before, the FM tabled the Economic Survey that laid out Chief Economic Adviser Krishnamur thy Subramanian’s blueprint for a $5 trillion economy by 2024-25, at the core of which is an annual growth rate of 8%. For the current financial year, the Survey has estimated economic growth at 7%, marginally higher than last year’s 6.8%. Relying upon behavioral economics to bring about investment and savings, the plan is focused on increasing exports, job creation, removing policy uncertainty and tackling pending cases in courts.
Being the first budget after the historic victory of the Modi Government in the recent Lok Sabha elections, the expectations from the budget were high. The budget demonstrated the Government’s commitment to the education and development sector. A number of interventions were announced to bring about changes in India’s education system as well as promote impact investing and social welfare.
In this white paper, India’s current economic overview and the key proposals under this year’s budget that affect foreign companies that intend to or are currently doing business in India are being discussed.
10 Vision Tenets for the next decade
- PHYSICAL & SOCIAL INFRASTRUCTURE
- DIGITAL INDIA
- POLLUTION FREE INDIA
- MAKE IN INDIA
- WATER MANAGEMENT AND CLEAN RIVERS
- BLUE ECONOMY (MARITIME MANAGEMENT)
- SPACE PROGRAMMES
- SELF SUFFICIENCY AND EXPORT OF FOOD GRAINS
- MINIMUM GOVERNMENT, MAXIMUM GOVERNANCE
INDIA’S ECONOMIC SNAPSHOT
- From being the 11th largest economy five years ago, India is currently the 6th largest economy in the world. In terms of Purchasing Power Parity, it is the 3rd largest, behind China and the USA.
- The country’s GDP stood at 6.8% in 2018-19 as compared to 7.2% in 2017-18. This moderation in GDP growth is mainly attributed to the slower growth of ‘agriculture and allied’ sectors as well as the services sector (except financial, real estate and professional services).
- While global Foreign Direct Investment (FDI) flows slid by 13% in 2018, $1.3 trillion from $1.5 trillion the previous year, India’s FDI flows in 2018-19 remained strong at $64.375 billion, marking a 6% growth over the previous year.
- Inflation based on Consumer Price Index (combined) declined to 3.4% in 2018-19 from 3.6% in 2017-18. CPI inflation stood at 3% in May 2019.
- The fiscal deficit target for 2019-20 is estimated at 3.3% of GDP vis a vis 3.4% for 2018-19. The target for the next two years is set at 3%.
- India’s sovereign external debt to GDP is among the lowest globally at less than 5%.
Key Strategic Announcements in Education Sector
- Introduction of a new National Education Policy that promises to bring about major changes in the education sector, among others, better governance systems and a greater focus on research and innovation.
- Proposal to start a program, ‘Study in India’, that will be focused on bringing foreign students to study in India’s higher educational institutions.
- India to tap its potential to become a hub for higher education. Proposal to reform the regulatory systems of higher education to promote greater autonomy and focus on better academic outcomes. Draft legislation for setting up the Higher Education Commission of India (HECI) to be shortly presented.
- Proposal to set up the National Research Foundation (NRF) with an annual grant of approx.$3 billion to fund, co-ordinate and promote research in the country through one centralized body instead of independently by various government Ministries. The aim is to ensure that the overall research eco-system in the country is strengthened with a focus on identified thrust areas relevant to our national priorities and towards basic science without duplication of effort and expenditure.
- National Sports Education Board or Development of Sportspersons to be set up under the ‘Khelo India’ scheme.
- Focus on skill-building in Artificial Intelligence, Internet of Things, Big Data, 3D Printing, and Virtual Reality and Robotics. Also, focus on building skill sets needed to work outside India including language training.
Other Key highlights of the budget are:
- Promotion of digital economy
- Relaxation of Foreign Direct Investment (FDI) norms for certain sectors
- Promotion of entrepreneurship and skill development
- Proposals announced to reform India’s education sector
- Fillip to the corporate bond market