India: Repair. Reform. Reap. Union Budget 2019

Last Updated: 8 July 2019
Article by Neeraj Sharma, Maulik P. Doshi and Jigar Doshi


As the Modi Government 2.0 sets foot into its new term against the backdrop of a massive public mandate, it was expected to address the baggage of promises that remained unfulfilled in the last term. With expectations such as bailing NBFCs out of their present crisis, reforms in angel taxation provisions, measures to boost infrastructure development, redressal of the concerns of the farming sector, etc. - the anticipation has been at its peak.

Driving the wagon towards a USD 5 Trillion economy, Finance Minister Nirmala Sitharaman, in her maiden Budget focused on bringing about several transformational economic reforms. Reiterating the ten points of the 'Vision for the Decade' as envisaged in the Interim Budget, the tax reforms announced were primarily aimed at stimulating growth and promoting digitization and transparency, while simultaneously simplifying tax administration.

To attain the vision, investment in infrastructure development, digital economy, and employment generation in medium and small enterprises were necessary. Keeping Gaon, Gareeb, and Kisan as the core agenda, a series of measures have been proposed to focus on rural development.

In sharp contrast to the fall in the Global Foreign Direct Investment (FDI), India's FDI inflows have continued to remain strong. With the aim of further consolidation, various measures have been proposed.

Numerous tax reforms have been proposed for promoting the entrepreneurial category investing in start-ups, tax proposals will aim to stimulate growth, incentivize affordable housing, and encourage start-ups by releasing entrepreneurial spirits. It will also be geared towards promoting a digital economy.

As far as the tax rates are concerned, the turnover limit for the applicability of reduced Corporate Tax Rate of 25% has been proposed to be increased to INR 4 billion to cover 99.3% of companies. However, in a move which could dampen the spirit of the super-rich category, surcharges of 25% and 37% have been proposed for individuals earning above INR 20 million and INR 50 million respectively.

Overall, the Budget looks positive with the government balancing fiscal discipline, infrastructural development, and rural upliftment while setting India on the path towards holistic growth.


GDP Growth

  • The GDP growth rate of the Indian economy is estimated to be 6.8% in FY18-19, as compared to 7.2% in FY17-18. However, the GDP growth rate is projected to pick up to 7.2% in FY19-20, according to the Reserve Bank of India (RBI) and the Asian Development Bank (ADB)
  • The moderation in GDP growth momentum is attributed to both domestic and global causes. At a domestic level, it is mainly attributed to the lower growth in the Agriculture and the services sector (except financial, real estate, and professional services).

Index of Industrial Production (IIP)

  • FY18-19 witnessed a slowdown in production in the manufacturing sector as measured by IIP, slowed down to 3.5% in FY18-19 compared to 4.6% in FY17-18. This is also attributed to the slow growth of the automobile sector, with car sales at a five-year low growth rate as well as the slow growth of the eight core industries.


  • Overall, India has contained inflation within 4%, which enabled macroeconomic stability over FY18-19.
  • Headline inflation, based on Consumer Price Index – Combined (CPIC) declined to 3.4% in FY18-19 from 3.6% in FY17-18, indicating lower price volatility in food and energy products over a 5-year trend.
  • The Wholesale Price Index (WPI), which indicates the average inflation stood at 4.3% in FY18-19, down from 3.0% in FY17-18, with Inflation estimated at 2.5% in May'19.
  • WPI food inflation is estimated at 0.6% in FY18-19, down from 1.9% in FY17-18, with the last estimate for May'19 at 5.1%.


  • The value of India's merchandise exports (customs basis) stood at USD 329.5 billion in FY18-19, up by 8.6% from USD 303.5 billion in the previous year.
  • Imports stood at USD 513.1 billion in FY18-19 compared to USD 465.6 billion in the previous year, marking an increase of 10.2%, driven by an increase in international crude oil prices.
  • The growth both – merchandise exports and imports slowed down in FY18-19, but the decline in growth in imports was steeper than that of exports.

Fiscal Deficit

  • The fiscal deficit saw a slight decline to 3.4% (targeted 3.3%) in FY18-19 from 3.5% (targeted 3.2%) in FY17-18, showing better fiscal discipline.
  • India's current account deficit (CAD) increased from USD 35.7 billion (1.8% of GDP) in Q1-Q3 FY17-18 to USD 51.9 billion (2.6% of GDP) in Q1-Q3 FY18-19. The trade deficit, however, increased by ~22.7% from USD 118.4 billion to USD 145.3 billion at the same time.
  • Capital expenditure of Central Government grew by 15.1% in FY18-19 showing heavy investment in infrastructure to accelerate future growth.

Foreign Investments

  • Growth in investment, which had slowed down, has gained momentum since FY17-18. Growth in fixed investment increased from 8.3% in FY16-17 to 9.3% in FY17-18, and further to 10% in FY18-19. FDI inflows amounted to USD 64.4 billion in FY18-19.
  • The government is aptly introducing additional measures, including easing of FDI norms, to accelerate FDI growth.

Foreign Exchange Reserves and External Debt

  • As of December 2018, foreign exchange reserves stood at approximately USD 395.6 billion.
  • The Central Government debt is estimated to be at 48.4% of the GDP in FY18-19, as compared to the reported 49.5% in FY17-18. The government targets to further reduce it to 48% in FY19-20.

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