India Budget: Watch out for rupee gains

Dubai: The Indian rupee could get stronger if investors, especially the foreign ones, react positively to the latest proposals in the Budget for 2020-21. If they do, more foreign funds coming into the markets could firm up the rupee’s recent weakness.

The currency had been under significant pressure each time more data trickled out showing growth was slipping and that key sectors such as automotive and banking were under-performing. The rupee is trading today at 19.47 to the dirham.

“The rupee had touched 19.63 on January 6 after the US-Iran missile spat,” said Anthony Jos, Executive Director at Joyalukkas Exchange. “But by January 13, it went down to 19.25. If this Budget helps get FDI (foreign direct investment) levels back up, the rupee’s is heading up.”

Finance Ministry circular sows doubts

Meanwhile, NRIs in the UAE have expressed concern about a proposal that says an expat could lose his status if he or she resides in India for 120 days at a stretch instead of the current 180-day stipulation. "There's also a mention that if this the case, any non-resident earning outside of India will be required to pay taxes in India," said Jos.

Now, in some situations, say someone between jobs and who ends up staying in India for 120 days, will come under the tax net. Industry sources say they will need immediate clarity from the Finance Ministry about this change. 

Sensex swoons

But despite the effort to please investors, the key stock market index, the Sensex, went into a dive, dropping 900 points.

One of the key investment-focussed proposals is the withdrawal of the DDT, or Dividend Distribution Tax, which is paid on corporate dividends. Investors, especially foreign institutional ones, had given an overwhelming thumbs down when it was introduced. Its rollback suggests that the government is sensitive about keeping investors in a good mood, and more so when the economy needs some booster shots.

According to Yusuffali M.A., Chairman of Lulu Group International, "The removal of DDT for companies is a major step towards attracting investments - I take this as the biggest takeaway from the first budget of the decade. As said rightly by the Minister, entrepreneurship is the strength of India.

"The establishment of seed funds to boost early stage start-ups and setting up an Investment Clearance & Advisory cell is a welcome step to boost investments into India."

Ignored on most counts

Non-resident India barely got a mention in the Budget proposals. The only break from the past was the proposal to allow NRIs to invest in Indian Government bonds.

According to Dr. Ram Buxani of ITL Cosmos Group, "The only significant thing I can see is that NRIs now can invest in government securities. Previously, we could only invest in private companies.

"I am really happy with income tax levels dropping - that will indirectly benefit NRIs whose families reside in India."

Reason for investor bullishness

One of the key investment-focussed proposals relates to the withdrawal of the DDT, or dividend distribution tax, which is paid on corporate dividends. Investors, especially foreign institutional ones, had given an overwhelming thumbs down when it was introduced. Its rollback suggests that the government is sensitive about keeping investors in a good mood, and more so when the economy needs some booster shots.

Another big move will be the selling of a stake in LIC (Life Insurance Corp.), one of India’s blue-chip government-owned companies. Selling this stake would be an easier move for the government than trying to find a buyer for Air India, the national carrier which has been carrying a huge debt pile and also piling on losses.

Healthcare does not get much care

On the face of it, allocating 690 billion rupees for healthcare infrastructure and services might be substantial. But Dr. Azad Moopen, Chairman and Managing Director at Aster DM Healthcare, reckons this as a missed opportunity.

“The outlay has actually gone up by a meagre 60 billion rupees from last year, keeping the allocation to the earlier 1 per cent of GDP,” he said. “We’re expecting that it will go up to 2.5 per cent.”

But what of short-term goals?

The Finance Minister, Nirmala Sitharaman, spent quite a bit of time – she spent two hours and 42 minutes in all, which is a new record – highlighting the government’s plans for farmers and the wider agriculture sector. There were also tax breaks for individuals across various income categories.

But when it comes to specific proposals to tackle India’s short-term requirements, the sentiment is that the minister could have offered more details.

“There is no special package for industries such as construction, real estate, automotive…,” said Tariq Chauhan, Group CEO at EFS Facilities. “The fiscal deficit – now forecast to touch 3.8 per cent of GDP – remains a challenge.

“Sure, infrastructure gets 1 trillion rupees – but no reference has been made to existing dues owed by the government. That’s the key issue before infrastructure companies. Even otherwise, the target for infrastructure is too low compared to what is needed.”

Hit by customs duty hike

According to Rizwan Sajan, Chairman of Danube, "The budget will impact us as the customs duty on furniture imports has gone up - by 20-30 per cent. On the other hand it is good - we will be forced to buy many made in India products.

"And we target the affordable segment in India, where taxation level has come down. This means an Indian will have more capital in hand and is likely to boost our business in India."

“The "Make in India" has been promoted by increasing import duties on certain products like toys, furniture, and footwear, which will definitely boost the economy. If the government is able to pull this off, it is going to serve as a thrust for the entire Indian economy.”