India: India's 2018-19 Budget: Top Takeaways For Business

Last Updated: 8 March 2018
Article by TMF Group

The 2018-19 Union Budget, announced at the beginning of February 2018, contained pertinent information for businesspeople investing in the country.

India's Gross Domestic Product (GDP) grew at 6.3% in the second quarter of 2017-18, with a forecast of 7.2-7.5% in the second half of 2017-18. Meanwhile exports are expected to grow at 15% in 2017-18. The International Monetary Fund (IMF) has predicted GDP growth of 7.4% in 2018-19.

Here are the main takeaways from the 2018-19 Union Budget for business.

A new tax system

The Indian taxation system has undergone significant reform to improve its operational efficiency.

The growth in direct taxes for 2017-18 (up to 15 January 2018) has been 18.7%, compared to 12.6% in 2016-17. The number of effective tax payers increased to 80.27m by the end of 2016-17. This has helped the government to further invest in public services and infrastructure.

The Indian government has also reduced the corporate tax rate for Small and Medium Enterprises (SMEs), which represent the majority of companies in India, to stimulate growth and improve the ease of doing business in the country. A reduced tax rate of 25% will be extended to companies which have reported a turnover of up to Rs 250 crore (US$39.30m) during 2016-17.

Medium, Small and Micro Enterprises (MSMEs)

The Union Budget has given a big thrust to MSMEs to help increase employment and economic growth. A total of Rs 3,790 crore (US$596.43m) has been provided to the MSME sector for credit support, capital and interest subsidy and innovations.

Formalisation in the sector is happening rapidly following the introduction of the Goods and Services Tax (GST) and the demonetisation programme. This means that there is a more professional community for businesses operating in the country to become a part of, with good amenities and professional services close to hand.

Employment

It is predicted that over 7 million formal jobs will be created in the country during 2018-19, with the government contributing 12% of the wages of the new employees in the Employee's Provident Fund for all sectors in the next three years.

Having access to a larger, more skilled workforce – boosted by the government's rural development initiatives -  will act as a considerable pull factor for businesses looking to expand in India.

Infrastructure

The Minister for Finance emphasised that infrastructure is 'the growth driver of economy', and that investments in excess of Rs 50 lakh crore (US$786.02bn) are required to help increase GDP growth and connect and integrate the country's massive transport network.

Projects worth Rs 2,350 crore (US$369.43m) have already been completed under the Smart Cities Mission, with projects worth another 20,852 crore (US$3.82bn) underway. A total of 99 cities have been selected by the mission, with an outlay of Rs 2.04 lakh crore (US$32.07bn).

The Smart Cities mission is expected to yield significant results from 2022, making the chosen cities more environmentally sustainable, more economically competitive and therefore more attractive as locations in which to grow a business.

The digital economy

The government, like others across the world, is helping to facilitate the migration to a digital economy. The Minister for Finance said that NITI Aayog will initiate a national programme to direct efforts in artificial intelligence (AI), and its application to the business world.

The Department of Science & Technology will also launch a Mission on Cyber Physical Systems to support the creation of centres of excellence for research, training and skills programmes related to robotics, AI, big data analysis and quantum communication. The Union Budget doubled the allocation to the Digital India programme to Rs 3073 crore (US$483.09m) in 2018-19. It was also announced that 500,000 Wi-Fi hotspots will be set up to provide internet connectivity to over 5m rural citizens.

Businesses across the world are reappraising their business models, location, products and services, and relationships with third parties as they move to the digital economy. The enhancements highlighted in the Union Budget will help India to offer the right skills and the right partners to tomorrow's businesses.

Investment

The Minister for Finance urged regulators to move from 'AA' to an 'A' rating for investment eligibility. He also said that the government will establish a unified authority for regulating all financial services in International Finance Service Centres (IFSCs) in India. This will help to attract further Foreign Direct Investment (FDI) to India as confidence grows in the country's suitability as an investment destination.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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