The Union Budget ticks all the right boxes by maintaining fiscal prudence and addressing near term issues of stressed sectors, while also maintaining its thrust on infrastructure creation, skill development and ease of doing business.
On the back of fears of a populist budget, the reduction in fiscal deficit target for FY20 to 3.3 per cent came in as a positive surprise. Further, the government has also addressed the stress faced by the NBFC/HFC and banking space through a one-time government guarantee for the purchase of high-rated pooled assets and recapitalisation of the PSU banks.
The extension of lower corporate tax rate to corporate having a turnover of Rs 400 crore will act as a stimulus for the economy. The focus on infrastructure continues with a vision of spending Rs 100 lakh crore in infrastructure over the next five years.
Recognising the need for higher foreign capital flows to fund growth, the proposal to open up FDI in aviation, media and insurance sectors are positive measures. Higher FDI in a capital intensive sector like insurance can aid in deepening penetration of the sector, bring in the much-needed stable long term foreign flows and also assist in providing long tenure funding to infrastructure projects.
Focus on new financial instruments such as InvITs, REITs etc to fund such capex, also provides attractive avenues for insurance companies to enhance investment yields. Overall the budget tries to address the three key issues faced by India - consumption slowdown, muted capex and tight liquidity in certain sectors.
The first budget of NDA 2.0 has also brought a pleasant relief for the policyholders of Life Insurance Companies with revised TDS rates on net income. The new tax deduction rate is of 5 per cent on net income on policies where sum assured is less than ten times of premium. Earlier it was 1 per cent on gross payout. It is a significant step for industry players as now deduction is allowed on net income after deducting premium paid than on gross amount payout.
This development will remove factors like a mismatch between form 26AS, which used to show total payout and income tax return, including net income. Budget has touched administrative issues like interchangeability of PAN with Aadhaar which will go long way in easing compliance and enhance tax inclusiveness, essential for nation's growth.
(The views expressed in this article are personal and that of the author Prashant Sharma. The author is Chief Investment Officer, Aviva Life Insurance.)