Will Budget 2017 Spur Private Investments?

Thu, 2 Feb Pre-Open

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The Union Budget is one of the nation's most closely watched events-not just for the numbers, but also for the announcements that chart the roadmap for economic development in the upcoming year.

This year's Budget was no different. The Finance Minister, Arun Jaitley, announced a slew of amendments, policies, exemptions and proposals to kick-start the economy. They ranged from agriculture, rural development to tax developments, private investments, etc.

What measures were announced to revive private investments?

First, the FM proposed to do away with the Foreign Investment Promotion Board (FIPB). The rationale here was to reduce the additional bureaucracy. As per Jaitley, India has reached a stage where it no longer needs a bureaucratic body to entice foreign investments.

In the recent past, the government has relaxed requirements of obtaining prior government approval for investments in many sectors. This has meant voluntary inflow of investments in many sectors. Further, except for a few sectors like defence and retail, the government has allowed foreign investors to invest in India under the automatic route. As a result, more than 90% of the total FDI (Foreign Direct Investment) inflows now come through the automatic route rather than the approval route.

So the role of FIPB was gradually coming down.

In cutting out the FIPB from the picture, the FM aims to significantly cut red tape measures and reduce the bureaucratic burden on foreign investments.

Secondly, the budget also proposed further liberalization of the FDI policy. If this goes through, there will be more businesses willing to invest in India. This will translate pick-up in the investment engine in India.

Moving ahead, the government also provided clarity to foreign portfolio investors (FPI) as regards to taxation under the direct transfer route. Mr. Jaitley said that FPIs under category 1 and 2 of alternative investment funds are exempted from indirect transfer provisions.

This move will spur foreign investments as it would give clarity to FPIs who had pulled out money from the Indian markets amid uncertainties of tax laws.

All in all, the above developments announced in the budget seem to be a step in the right direction. They have the potential to promote private investments, and in turn foster economic growth.

Currently, there are many reasons that are holding private investments back. India Inc. remains stuck under loads of debt. Capacity utilisation levels are in doldrums. And banks, overwhelmed by huge amounts of corporate loans turning bad, do not seem eager to extend loan to Indian companies.

Overall, the budget seems to have positive policies in store for speeding up investments in the economy. However, as regards to any policy, how the policy is implemented will be the key thing to look out for going forward.

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