FICCI President Rashesh Shah says Budget 2018 consolidates financial sector reform measures

Rashesh Shah 

There has been a strong focus on the financial sector in the Union Budget 2018-19. We are clearly seeing consolidation of various measures introduced over last three years. There is continuity in widening the social security framework, strengthening the foundation of the financial sector and promoting easier access to finance.

On the social security front, after the success of Jan Dhan Yojana, Jeevan Jyoti Bima Yojana and Suraksha Bima Yojana, the government is now steadily progressing towards universal health coverage. Announcement of a family insurance cover of Rs 5 lakh per family per year under the National Health Protection Scheme for almost one-third of households in India is the most important announcement in the budget.

Access to credit and ease of cash flows has been a key issue facing MSMEs in India. The proposal to widen the participation on Trade Electronic Receivable Discounting System (TReDS) platform, linking it with GSTN and revamping of online loan sanctioning facility for MSMEs by the banks will enable better management of working capital and cash flows by the MSMEs. The use of Fintechs to help reduce processing time of loans for SMEs is another positive step.

The recapitalisation plan of the public-sector banks that was also announced earlier is expected to support additional credit disbursement of Rs 5 lakh crore in the next financial year. This is also positive for the growth of corporate sector and the economy. Recapitalisation of banks should go hand in hand with reforms of the banking sector. Additionally, in line with the consolidation plan for general insurance companies, we look forward to a similar plan for consolidation of banks.

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The proposal to encourage Corporates to tap the bond market for one-fourth of their debt needs will ease the burden on banking system and it can focus more on the priority sector lending to the MSMEs.

Strengthening of corporate debt market has been long standing demand of FICCI. The proposed revision of investment grade bonds from AA to A will go a long way in widening the market and enhancing participation.

The enactment of Insolvency and Bankruptcy Code last year has been a significant reform. However, there had been some tax related issues which were proving a deterrent in achieving the policy objectives of IBC. The budget has in-fact addressed one of the issues, wherein in respect of companies where an application under IBC has been admitted, then for the computation of Minimum Alternative Tax (MAT) the aggregate amount of unabsorbed depreciation and brought forward loss shall now be allowed to be reduced from the book profit. This is welcome. However, the MAT issue related to transfer of assets remains unaddressed.

We also see further moves towards greater transparency in financial system. The government will take all steps to eliminate use of cryptocurrencies which are being used to fund illegitimate transactions. Additionally, the government will explore the use of blockchain technology which is a big positive as this distributed ledger technology can help reduce costs and bring efficiency in delivery of services to individuals.

FICCI is also happy to note that the government will come out with a new National Gold Policy including plan for setting up of Gold Exchanges and revamp the Gold Monetisation scheme making it more attractive for consumers to open gold deposit accounts. FICCI had advocated this in the past and has shared inputs with the government.

Finally, continuation of STT even while re-introducing LTCG will put some additional burden on the market participants. However, this should not impact markets in the long-term. With the markets giving a compounded return of 15-16% over the last 20 years, a tax impacting 1.5% return should not affect the domestic investor appetite for equity investment.

(Rashesh Shah is President of Federation of Indian Chambers of Commerce & Industry FICCI )