Union Budget 2025: Not Enough Economic Future-Proofing
What are the key takeaways from the Union Budget 2025?
On Episode 496 of The Core Report, financial journalist Govindraj Ethiraj is joined by Mr Uday Ved, Partner at KNAV & Co, E.N. Dwaraknath, Partner at Price Waterhouse & Co LLP and Ajay Srivastava, Founder of Global Trade Research Initiative to talk about the key takeaways from yesterday’s Union Budget.
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TRANSCRIPT
Govindraj Ethiraj: Good morning, it's Sunday the 2nd of February and this is Govind Raj at Sriraj Headquarters and broadcasting and streaming as always from Mumbai, India's financial capital. It's the union budget special edition today, so the quick take. Some 10 million taxpayers will benefit from the raising of an income tax limit to 12 lakh rupees per annum under a new tax regime.
Now this was clearly the big headline of the union budget 2025 presented by finance minister Nirmala Sitharaman on February 1st, 2025 again. This was her 8th one which was also a record. There were a raft of other announcements touching a wide variety of areas ranging from nuclear energy to renewable energy in general including electric vehicles and the manufacturing sector infrastructure projects including for the state of Bihar where there's an election coming up.
There were also special sops for entrepreneurs and women entrepreneurs including those from weaker sections of society. The government will launch missions in many areas including cotton and pulses, the latter where it hopes to push for greater self-sufficiency in the country. Now there was also mention of a renewed export thrust including in seafood exports and separately more efforts to bring in gig workers into the formal economy by providing them identity cards which presumably could lead to other benefits in health care and insurance.
The government says it's committed to keeping public spending a priority and there is no reduction in public spending on capital expenditure and the finance minister said that she continues to place emphasis on the multiplier effect that government capital expenditure has shown which has sustained us. Now for 2025-26 the capital expenditure target has been raised by about 10% to a record 11.2 trillion rupees highlighting the government's reliance on infrastructure spending to drive economic growth as you already know. However the capital expenditure target for the current fiscal year that's 24-25 has been revised downwards to about 10.18 trillion from the earlier estimate of about 11 trillion. Now all of this has disappointed the markets despite the increased purchasing power in the hands of consumers because of those tax benefits. The stock markets were flat on Saturday this was a special trading session by the way after rising in the morning and swinging a few times as they usually do. The Sensex retreated and then finally closed at 77 505 up just five points or 0.01 percent from its previous close. The Nifty that's the NSE Nifty 50 was down 26 points to close at 23 482. Amongst the broader markets small cap shares were outperforming with the NSE Nifty small cap 100 ending higher by about 0.4 percent and the Nifty mid cap 100 but ending down by about 0.42 percent. So there is no clear trend that emerged.
Many consumer stocks were up given that 100,000 crore rupees or so that will go into the hands of consumers. However it does not seem intuitive that all this money which will come in the form of savings will necessarily flow back into consumption given that most earners at this level were already stretched as they were consuming close to or beyond their income levels. Now inflation and high prices of goods have already eaten into people's incomes particularly in this bracket which has a relatively higher propensity to consume.
It is my sense that most people would rather pitch for or hope for higher incomes than actually benefits from tax though that's a form of income too. Now will the government's tax measures be sufficient to stimulate economic expansion? Well let's get another view.
Christian D Guzman senior vice president and lead sovereign analyst for India at Moody's Ratings said it really depends on whether consumers do actually spend that money that's freed up from these tax measures and he said that he would place some uncertainty there. On the other hand remember private investment from companies is still sluggish to weak. Remember capacity expansion is still a while away because capacity utilisation is still in that 70 percent range which means businesses have to reach somewhere before they start investing again.
So the larger question is whether this was the budget for this moment. India is in a tough spot. There is inflation domestically and the threat of tariffs and a new world trade order globally at least imminent.
The core report has argued even on Friday that Indian businesses particularly small ones need to be unshackled so they can be take or they can or they will be in a position to take on these new threats which are in addition to old ones. While the budget did speak of the ease of doing business as did the economic survey a day before that and the sheer weight of regulatory oversight on Indian businesses and entrepreneurs there's not really much to suggest an immediate change in approach. There was some tinkering in taxes and we're going to talk about all of that including in TDS and customs but most of it was normal in in the sequence of things and when one would assume that in every budget something gets rationalised or eased off even as new ones get added.
For example tax collected at source a presumptive tax that does not exist anywhere in the world perhaps on an international transaction or transfers including on credit cards has not been dropped as it should have been but merely saw an increase in the value from 7 lakh rupees to 10 lakh rupees. So to me this does not reflect the ease or rather the approach of an ease of doing anything at least business. There is a new tax bill which might contain some clues on how the administration is viewing the theme of ease of doing business but that's going to come only next week and again that's something that we will talk about shortly.
One good takeaway is that there was no real bad news as such which is of course good news on most days including in budgets. Expect industry leaders to give their usual 10 on 10s or at least call it a balanced budget which of course means very little. Meanwhile strap on your seatbelts 2025 will be a tough year and for you as an investor a salary earner earlier or now or as a business owner you will have to depend more on your instinct and gut to navigate here on or in other words not much has changed.
In our special segment today we will we are going to be joined now by Ajay Srivastava founder of the Global Trade Research Institute partner KNAV and company and a veteran tax advisor and consultant and Ian Dwaraknath partner at Pricewaterhouse and company LLP again a tax consultant. Okay thank you all for joining me so we're going to talk about two or three slightly different things but we'll focus predominantly on tax because that is where maybe the most significant announcements have come and the other part being the larger picture which is where is India today in a global context are we ready to take on some of the big challenges that 2025 is going to serve us and that means trade.
So we'll come to all of that so let's start off with tax and let's get a few thoughts in first following the presentation of the union budget 2025 on the 1st of February. So Uday thank you for joining us and would you like to kick off first?
Uday Ved: Sure thank you Govind for having me always a pleasure to talk to you. I think a lot has been said on the tax today I think if you look at the first part of the budget speech for almost 30-40 minutes thought something will come not come the last direct tax particularly direct tax changes which have come up are significant. Surely a common man which was always wanting the changes you know and always felt left out.
So a lot of you know kind of changes on the common man the increasing of the entire an exemption limit up to 12 lakhs of course it has gone from 7 lakh to 12 lakhs is very significant so it will put more money into the hands of a common man and the exemption slab which is for the 30 percent is gone about 24 lakhs which is very significant. So a lot of people not only the salaried class I would say but a lot of SMEs will benefit out of that so that is the one change. The second changes are more on the a lot on the IFSC this international financial service centre that government is really putting a kind of a focus on that.
There were lots of provisions where the sunset close was 31st March 2025 for getting tax incentives and all those lot number of those have been extended by five years which is a welcome change generally the tweaking was always on the year on year where year you know for next five years of the unit is begun in IFSC then those tax benefits are available. So I think there are two things on the litigation I would say transfer pricing a good measure to reduce litigation you have a block of three years where one can now go if you have similar transaction you're filing year on year getting tax audited and everything and when you go to the fine print there are some some surprises but the intent is definitely good to reduce tax litigation and the final point I would make is the new income tax bill in government is keeping the promise the finance minister keeping promise we'll see what comes next week but more simplification and certainty is what is expected with a user-friendly I think so I think there are four or good measure on the certainty part you know and simplification I would say.
Govindraj Ethiraj: So I'm going to come to you Dwarak in a second again for a slightly broader tax take as well but Uday this the fact that this bill is being presented next week would that suggest it's ready because there was some unsurety or scepticism whether it would be ready in the way or people thought it should be ready by now.
Uday Ved: Yeah so then I think finance minister is keeping her promise she said six months from 23rd July of course maybe she's late by 10 days not more than that but so it and last one month when we spoke earlier in one of the show and there are some 20 22 odd subcommittees which were being set up to look into it so maybe when she's saying it is the draft is now it will be presented next week as was announced today for public consultation and comments and suggestions and so on and so forth and then it should become a law whether it will become a law effective from the 1st April 25 or middle of the year or next year we'll come to know but I would believe considering what has been stated it should start becoming a law as soon as possible but we'll come to know when when it gets announced next week.
Govindraj Ethiraj: Right Dwarak so two kinds of questions one is the specific part and which I'm sure you'll get into but the larger question is what's your what's the mood like as in when you after having digested the whole income the the budget and the tax portions of it do you feel things are much better do you feel the sense of unfinished agenda?
E.N. Dwaraknath: It's a little mixed emotions I would say Govind right I think we have to look at this in two distinct contexts first and foremost I would actually give full marks to the government if I look at a 10-year period what do I mean by that if you look at cohesion if you look at clarity of thought and if you look at consistency it's been superb it's like you know if you really run a fortune 500 company and you want to make something of it you get out to every investor call you stress the same things and then slowly but surely you take those steps so that's that's sort of one part of it and you must understand that the finance bill is only one very small part of a much larger fiscal policy right so so I think from a coherence and a consistency standpoint full marks to them and also remember there is a significant effect of compounding if you will right because small changes made over a decade are going to show over a period of time but then there's a flip side to it right the policy is only as good as its implementation definitely I think this finance bill has made some very good changes that they alluded to I think transfer pricing is a very good one the IFSC is a very good one they've introduced some other provisions for a deemed taxation in the case of you know foreign companies which are supporting manufacturing of electronic products in India there's some something out there in terms of rationalisation of TDS etc so some nice things but one can't help but feel that this was a missed opportunity there are a number of things that I believe the government could have done to be really more future looking to be prepared for the world as we are going to see it right with multilateralism failing with countries going into their own you know goals and agendas this was a good opportunity to future proof our system it may come out in the in the draft bill yes in the draft new new acts act that she's talking about but at this moment things like litigation if you really want to spur manufacturing could we have done more yes land and labour reform is taking its time but they you know could you have done more from a tax standpoint could you have done more from a technology and an innovation standpoint so I do believe that some of these were left out clean energy is a big one a lot of talk on clean energy we've set 2070 as net zero target for our country and this would have been a great opportunity for us to really get the ball rolling on it and and the reason why I say it's a missed opportunity just taking off from what they said yes she's going to present a new a new law in parliament next week but in the in the press interview she did afterwards she said it would probably go to a standing committee and she was non-committal in terms of how long it would take to actually legislate it and pass into law right now that week that could be done in a month it could take six months it could take a year but pending that if she had brought in some certainty I think that would have been really
Govindraj Ethiraj: really welcome okay I'll come back and pick up on some more specific one Mr. Srivastava do you want to go first I mean do you want to go with some first takes so it looks like a budget from
Ajay Srivastava: a very confident government and they announced schemes and frameworks for almost everything right starting from agriculture MSMEs exports investments manufacturing services everything they are starting but the allocations needed for real developments they are not adequate for example for exports only 2250 crores have been allocated this is not sufficient for doing any positive dent in the export side and when I looked at the broad numbers I could see the constraints the government is facing so what I did is I converted this lakh crores numbers which are thrown in the budget I don't comprehend them so I converted into billions of dollars so our receipts budget receipts they are 585 billion dollars about 15 15 percent of our GDP that's it and our expenditure it exceeds by this receipts by 50 billion dollars so eight nine percent deficit is there and that explains why there is so much of capital shortage in allocation and then then I see that this revenue side this receipt side we have to borrow you know one fourth of the rupee coming into the receipt side is a borrowed money and for that when we spend the rupee 20 percent is the interest cost so I am unable to reconcile that we have we are sitting on a large foreign exchange reserve of 600 billion billion dollars and we are we are we are collecting money by borrowing 25 percent of our budget receipts are coming through borrowing so all these things they are complex thing I don't think I understand everything but one thing is very clear from this meta level framework is that there is a capital shortage and government is a democratic government they have to they have to tick all the boxes that's why announcements have been made in all the boxes but I think capital allocation is inadequate and that may
Govindraj Ethiraj: reflect in the results after some time right and if you were to look at exports a little more two parts I mean one is at at the micro level do you see anything which would make exporters particularly smaller exporters whether it's in areas like apparel or leather more competitive in a world which is clearly changed and changing further and in 2025 we obviously have to remember that just as of yesterday all the three tariffs that Trump had promised have now gone into effect whether they will last we don't know but at this point they have gone into effect that's 25 percent on Mexico Canada and 10 percent on China India is not on that list right now but we never know
Ajay Srivastava: so given all of this how do we stand so if you know we have to talk sector by sector for example I'll talk about steel so steel our imports are just six percent of our consumption but still we have put so many restrictions through QCO through NOCs and thousands of consignments are lying at the port and somebody told me three days four days back that he paid 30 lakh rupees as a demurrage at the port for a consignment of value of 70 lakh rupees and this is happening at a large scale and you know steel is the basic raw material that not only for the export purpose but for our entire economy so so I say the problems are there for steel different problems are there textile different problems are there petrochemical different problems are there unless we address those problems this top level things may not may not help much we we talk about scale and competitiveness high cost of delivery all those are relevant but I say first do whatever we can do I mean these things are created by us regulatory cholesterol what we call so we have to look at it very very plainly and do something otherwise we are losing battle and we are not recognising why we are losing we are attributing other countries they are dumping they are selling cheap all those may be factors but what we are doing we are not even talking about those things so time we should start talking about those things that's number one and about trump tariff I see government talking that we may be buying some more oil from US and there is a talk of mini deal with the US my prescription is very simple I have been watching trump now for the past 10 years you know wait for him to take first action don't don't act don't act in a weaker way if we offer something that may not be of use with him he will gobble it up and press with some other demands when he let let's wait for him to take first shot and we see what we can do if we whatever we can do we'll do rest we will take proper retaliatory measures if possible that's the only way to deal with bullies he's a bully
Govindraj Ethiraj: I'd love to yeah okay Uday let me come back to you so you know some of the things we discussed before the budget were you know areas like TDS TCS which and and the reason I'm asking this is you know if we are moving towards ease of doing business and that was a term that was used quite often do these moves either individually or collectively represent that I mean I know Dwarak also says that he sees that clarity in forward movement but if you were to now drill it down do you see all these moves as individually or as an aggregate contributing to that ease of
Uday Ved: doing business at least from a tax point of view no so I think that's one part which is a miss today I would say and I think Dwarak did mention that part there are some 35 odd sections right where there are different different TDS rates okay or TCS rates so leave for the time being you know TDS on employees that's one part other than that there are various rates various sections and those could have been clearly been you know rationalised today with maybe one basic rate of you know five percent and extreme case more than ten percent and don't take TDS more as a collection exercise you don't need it between at least between the two resident companies right understand whenever a payment goes to a non-resident there has to be a tax you know TDS at source where the money is going out of the country but within you know within the two resident companies particularly post GST you know you have all the data and one part is paying the tax so that has been used more as a collection exercise which is not good and maybe we'll see that change you know in the new income tax bill but that's one surely there's some twinkling got done on the you know the LRS scheme and something on the TCS front but I would have expected certainly much more on that that I think we possibly see it as a miss I would say right
Govindraj Ethiraj: and just to come back I did mention it in my earlier introduction but you know just to come back to the 12 lakh the exemption limit now is there anything else that people should be thinking about or is it as straightforward as that if I earn 12 lakhs a year then I do not pay any income tax but I obviously file my returns was that a fair conclusion yeah yeah I think on a piece of
Uday Ved: paper yes but there has been some issue on the tax rebates right the section 87a so there is more practical aspects finally I think up to 12 lakhs plus 75,000 if you are an employee on the standard deduction you should not pay the tax finally I think it will be the case but in certain situations those tax rebates have not been given in you know in the in the initial stage so but then I think it should be okay more important the limit going up to 24 lakhs from 15 lakhs to 24 lakhs for 30 percent rate I think that's a significant
Govindraj Ethiraj: change in my view right but your your expectation your expectation if I remember
Uday Ved: Uday was 50 lakhs yeah so I said minimum 25 if you remember I would have liked 50 definitely would have liked 50 yeah that would have been good but you're saying that this itself this this itself as the finance minister results into a kind of a you know tax outgo of close to one lakh crores you know yeah maybe that matches to match beyond a point I would ideally like that to go significantly higher because that's how the most of the developed nations work right you look at the US I think the highest rate of 35 percent would be close to more than 250,000 even more higher than that so if you look at that part then certainly even on a PPP basis 25 lakhs in other in fact this suggestion was made when the government came to power in 2014 in a group of chartered accountants had put up they're saying up to 25 lakhs there should be no tax actually got it it's 10 year old story if you look at the inflation and everything maybe you just rethink but yeah it's still yeah and the impact is bigger
E.N. Dwaraknath: yeah Dwarak you want to wait well not really I sort of agree with Uday that you know probably up to 12 12 75 you end up you will ultimately end up not paying any tax whether it should have been 25 lakhs 50 lakhs or a crore I think I'll leave it to the government to decide I would only say that the demands for a higher number always come from those who want more right and and does
Govindraj Ethiraj: this cover any other for example if I sell a house I sell shares and so would I would everything get taxed I mean if you can you know for those who perhaps are trying to understand the
E.N. Dwaraknath: nitty-gritties of this yeah I'll leave it to Uday to perhaps comment on that yeah so capital gains
Uday Ved: I think with a specific rates are excluded in this as I understand but other than this everything all the income is included see when I meant 50 lakhs it was the I am not saying that don't pay the tax what I said was 20 percent up to today 15 lakhs is starting at 30 percent now it is 24 lakhs it could have gone up to 50 lakhs and you still pay 20 percent tax yeah this just a difference is that delta is 10 percent that's what I meant yeah yeah no and and to come back on the
Govindraj Ethiraj: any exam any exemptions or if you have other kinds of income coming in where will you
Uday Ved: no I think all all income included except I think capital gains which may be taxed in the specific rates and and the the thing was that at least in the terms of at least 80c limit you know paying insurance premium would that be counted answer that seems to be no because that's also you know if you go this is under the new regime if you still go under the old regime you can claim everything but the limit still remains as as was before so even no nothing other than I think
Govindraj Ethiraj: all the income per se right Mr. Srivastava the finance minister talked about some easing of customs duties is are you getting a sense that I mean that's sort of is it a bigger move or is it
Ajay Srivastava: more procedural so two three things are there one she has tried to simplify the custom tariff slabs there are so many slabs and she says that she mentioned that now there will be eight slabs she cuts even more slabs from there so it's a more simplified structure that's number one and number two she she exempted custom tariffs on many items for promoting domestic manufacturing for example lithium-ion battery manufacturing or if somebody is making it wants to import machinery for making lithium-ion batteries and other and EV batteries for EV or mobile phone then machinery is exempted and if somebody if for the for the help for help of export sector handicraft leather exporters have been given and a duty-free import allowances these allowances were not adequate so they have been enhanced for them and then there are certain trade facilitation measures for example the the the duration of licences needed for operating needed to be operated by handicraft exporters those have been increased so basically these three ideas on custom tariff one for promoting domestic manufacturing second for exports and third for trade facilitation but overall these changes they are they are like they are removing the basic difficulties faced on ground by the people and I certainly hope they will they will they will immediately start helping the manufacturing and export sector but I don't say this as a fundamental restructuring of the custom duty that's very much needed but of course
Govindraj Ethiraj: the the basic problems faced have been addressed right Dwarak you spoke about this you know for foreign investors investing in electronic manufacturing is that a very specific condition that has been included does it serve any particular section or kind of companies or is it something that's likely to benefit a lot of people
E.N. Dwaraknath: yeah you're right right go and that is extremely specific to electronic manufacturing so while the government wants make in India to succeed and the broader manufacturing agenda to succeed I think there is a clear thrust towards electronics manufacturing I think there is a thought from the government that we cannot miss this this board at this point in time so the provision that has been proposed is a deemed tax right of 25 percent or rather the computation is at 25 percent and actually 35 percent of that in respect of foreign companies that provide assistance to Indian companies in either establishing an electronic manufacturing plant or operating a plant or producing electronic goods so the reason why I think it's a good move is that a lot of times in fact most times when you set up these kind of electronic manufacturing plants there is a requirement for support from overseas entities right through the presence of people technology and so on and that was often resulting in some sort of permanent establishment disputes or taxation disputes in India so just leaving aside the fact that tax treaties might be available I think this is a positive move in domestic law to bring some sort of certainty in regards to how these non-residents would be taxed in such cases now is it a phenomenal step forward perhaps not but we'll have to see what the new new tax code says but at least it's it's a positive move towards lending certainty and a clear direction that look electronics manufacturing is something that's critical to us we want the Wistrons the Pegatrons you know the rest of these that the Taiwanese companies to come in to set up in India not only that but from the rest of the world so to that extent I felt it is a positive move.
Govindraj Ethiraj: I'm going to come to Mr. Srivastava on the imports part in a moment on in in the context of Chinese you know raw material. Uday two questions so one is there was an expectation of that you know some tax relief for new manufacturing units coming back now I understand it has not.
Uday Ved: No no so it is not not for any new industrial undertaking that we are thinking there was a sunset date of 31st March 2024 for all the new manufacturing unit to be eligible for tax at 15 percent or 17 percent effectively with surcharge that didn't get extended last year even in the 23rd July and the thought was it will come this year maybe for a year or two definitely but that's not come for anything here the change has come only for the non-resident which is helping so there is no even semiconductor they are focussing more on the PLI rather than the tax exemption I think and the finance minister did make that statement that the PLI scheme has worked well and we will possibly compensate you know new unit based on the PLI scheme but here the change which has come is on somebody which is supporting the manufacturing and I think the focus has been more on the semiconductor industry which is supporting and so to the non-resident there where there is a tax litigation as Dharak rightly said they say okay you can come and say deemed profit of 25 percent and one pay 35 percent tax on that which comes to about less than 10 percent right so that's a welcome move for those who are helping it so it's not even that this tax benefit has been extended to the semiconductor industry percent
Govindraj Ethiraj: the tax benefit I'm saying got it so this the incentive to manufacturing or new manufacturing units which is a lower corporate tax is that not being extended I mean this is I mean this is more of a I mean a question as to how you are seeing it because it was not working as in not too many people used it or because or is it some potentially some other reason because you know it's too high I mean it's too much of an incentive and maybe manufacturing will get benefit which others may not
Uday Ved: so the way I look at it is the delta was 25 percent normal rate versus 17 percent that you would say eight percent maybe that delta has been given in the form of the PLI scheme for select industries wherever the government has come out with it so from a manufacturing perspective you 8 percent tax otherwise if you don't fall in PLI and maybe government didn't think that was you know a need of the hour at this point of time so what particularly support those industries in the form of PLI where you know that's a cash incentive being given more than giving the income tax rate the tax rate of 25 percent I think is pretty competitive I would say from a corporate perspective and that was the case right but individual sorry on a different mode individuals are paying far higher than corporates are paying at 25 percent so so maybe that that is the reason compared to the tax when it was 40 percent 35 percent now the one shot the tax corporate tax rate reduced from 35 to 25 in 2019.
Govindraj Ethiraj: So let me ask a slightly broader question for those who are maybe trying to compare so where we stand as I mean in India today or as India in the context of how we are taxed on corporate and personal tax you want me to go yeah just a broader I mean this is your I mean when you look
Uday Ved: around the world I think corporate corporate tax rate of 25 percent 22 and plus with such at 25 is very competitive I would say you know USA is 21 with state it goes to 28 29 with local and other taxes it can go as high as about 40 35 35 percent plus China is close to the same 25 percent Singapore in few countries are 15 17 Singapore Hong Kong and if you look at the large economy corporate tax rate is quite competitive in my view of course you would want benefit on exports and other thing but the rate itself has gone down significantly on the individual front the highest rate is 30 but it goes to 39 with all the surcharge and everything that itself is pretty high I would say at the limit at which the rate per se is not a problem the income tax rate for individuals across the world even USA is 35 percent Europe is more than 50 percent across but the highest lap comes at a very high limit here it comes at today 25 lakhs even today right that itself that's the only issue more than the rate otherwise rate is competitive but you start paying at the very early rate okay uh any thoughts could have been one crore that's
E.N. Dwaraknath: what I said yeah go when the world is coming for 10 seconds on the corporate tax rate I agree I agree with Uday that 25 percent per se is competitive so that's fine but I think you also have to look at it in the context specifically of manufacturing today India's manufacturing is somewhere between 13 to 16 percent of its GDP the objective was to be closer to 25 percent of GDP which is where countries like China Mexico Thailand Vietnam etc are if we indeed wanted to capitalise and still want to capitalise on China plus one Mexico plus one or whatever country plus one then in the absence of your ability to push through labour reform in the absence of your ability to push through land reform you need to create some incentive for companies to want to manufacture in India at least in the short term and now I agree taxation is not the reason why companies will manufacture in India but you need some some sort of a pull to incentivise them to come in and set up their shop here today we have been losing that manufacturing battle to countries like Vietnam and Thailand and Indonesia right quite apart from policy decisions I do believe at least a shorter term extension of the 18 percent rate 70 percent rate than there was referring to even for a short period of time could have helped in addition to PLI's just on that I would put an asterisk otherwise
Uday Ved: 25 percent is compared except that maybe the PLI you are getting four to six percent so maybe governments say we want don't want all manufacturing but select industries where PLI and that seems to be the third person I'm not saying whether he's right or wrong but for the select industry some 14 industries the cash component is close to four to six percent of course on the incremental turnover every year that's what you want to manufacture so yeah but there is always a
Govindraj Ethiraj: other side. Mr. Srivastava so one of the things the budget said was you know on imports of electronic inputs or raw material for manufacturing phones I mean we've seen a slight reduction there so I have two kind of questions one is how do you see those specific steps and where do we stand overall in terms of manufacturing competitiveness in this whole I mean this is also for those who not been following this the whole iPhone ecosystem or the Foxconn ecosystem that we are building in India.
Ajay Srivastava: So let's talk about smartphones low-end smartphones and highest-end smartphones low-end smartphones we use 40 to 50 percent of locally made components if we cut tariffs on this that slowly developing component ecosystem will be destroyed by the surge of imports from China it will be destroyed we should keep on keep this in mind we should not every year try to temper with the tariffs and number two at the highest end smartphones like iPhone pro max 16 there the import content is 90 percent plus everything comes from there if you cut tariffs from there not even 10 percent valuation we expect in this country so what are we doing here so ultimately we have to we have to our tariff policy should support the local valuation and I say because of the past policies PMP programmes that indigenous ecosystem is developing and if we keep on tweaking tariffs every year that would create that gives a signal of uncertainty so I say government should announce this is the tariff for next five years take it or leave it it will provide a lot of certainty to the people who are investing money so that's where we stand
Govindraj Ethiraj: here right yeah but I think the fact that you know we have a new potential potentially damaging tariff regime at least from the US doesn't that change the equation somewhat we don't know what
Ajay Srivastava: Mr. Trump will be doing you know US doesn't make any of these things they export they make agriculture items I mean they produce agriculture or very high-end goods you know what is the largest import from US into India is a crude petroleum oil LNG these are the highest imports and a lot of apples and almonds from there they are not into normal industrial goods they all mostly come from China and Vietnam and other ASEAN countries with so with US it's very difficult to predict anything so that's why I say let's let's wait for them there is no need to tweak our policies in anticipation of what will be coming got it okay we're heading to the end so
Govindraj Ethiraj: quick round up from everyone so Dharak may I start with you so the question at two kinds of questions again as I started first is some of the specific aspects in the budget that you liked or did not like second is what's your larger takeaway in terms of the finished and the unfinished agenda and I'll put the same question to all of you so that you can go first I think two two things that
E.N. Dwaraknath: I liked one is the transfer pricing you know that block period of assessments maybe it's a precursor to bringing that even to normal assessments hopefully second I think the thought process with regard to IFSC and promoting it was something very good as I said earlier perhaps a lot to be done we'll have to wait and watch when the new tax code is is brought into play but I from my part would love to see a greater emphasis on clean energy and I would definitely like to see a
Govindraj Ethiraj: greater emphasis on dispute resolution so quickly on IFSC what is the change that can you know change things as in there is an international finance financial centre we are seeing some activity but not as much as we wanted in terms of people coming in and setting up shop and so on so what is it that materially changes at least dramatically changes thanks to this budget
Uday Ved: so go ahead with that I think you know IFSC the the larger part is more that you are a non-resident for FEMA purpose more than the tax holiday that's how people come in people they see if there is a business case because you are a non-resident you can deal only in dollars it is as good as why Dubai why Hong Kong why New York or London and why not India that's how the IFSC has started the icing on the cake was okay you come here I'll give you a 10-year tax holiday for the unit okay for whether you are a banking unit or an insurance company or a reinsurer uh you know and now you have lots of other activities like universe the foreign education your fin tax sector they are continuously adding new new sectors more related to the BFSI sector larger BFSI sector then there were incentives to the recipient of the income a non-resident who is earning you know the dividend income royalty and then they added this entire aircraft and leasing this time the big change also which has happened there was an if you aircraft leasing there was a treaty aircraft used to be leased more from Ireland because of the favourable treaty between India and Ireland that part by giving tax holiday number of those companies have set up airlines have set up you know the base in IFSC and now they have extended to shipping company also the airline shipping companies are another 10-year tax which I think which are very good and their number of these provisions were either permanent or in number of cases few cases the sunset deadline was 31st March 2025 they wanted to extend year on year there are those three four big changes they have said okay extension for five years as uh uh you know sir was saying about the tariffs you are changing year on year right at least on the income tax front there has been a path and here they have said no not one year you set up a unit up to 31st March 2030 you will get this tax holiday if you are in aircraft or a ship leasing business so I think that gives more certainty that that is one part which IFSC has really played there is some tweaking there we have discussed particularly at the IFSC conference on reinsurance there is a element called minimum alternate tax that is more specific okay which is not addressed in this I was expecting that but not no change in that so there is still tax holiday but no tax holiday okay nine percent tax
Govindraj Ethiraj: nine percent tax in a few cases got it uh you emphasised got it Varik you emphasised lean energy a few times uh you want to illustrate that by an example where you feel we could have
E.N. Dwaraknath: done something I just um I just feel setting up the infrastructure to support it right so for example there have been incentives in terms of lithium-ion batteries right I think Mr. Shrivastava alluded to that right but what are you doing in terms of manufacturing the for the entire support system what sort of um what sort of benefits or incentives are you giving and I'm not for a minute saying that the government should only give there has to be a point in time where they also have to make revenue and therefore there has to be a path forward saying okay for the next three to four years to 2030 which is our first goal these are the kind of uh this is the kind of support that we will provide you to set up all that infrastructure whether it is for setting up plants for green energy plants whether it is for charging stations lithium-ion batteries xyz right and then thereafter from 2030 on till say 2047 this is the sort of policy we'll start following to disincentivize the use of um you know yeah fossil fuels and so on right and thereafter it'll be really you know significant penalties so some sort of a path I
Govindraj Ethiraj: think would have been would have been very helpful got it uh Mr. Shrivastava your uh final takeaways uh the one thing you liked didn't like and the overall sense two best things for long-term
Ajay Srivastava: consequences are one uh FM announced the revamp of bilateral investment treaties so we cancelled all our treaties with the more than 80 countries because we lost some high-profile cases like Vodafone and we came out with a very conservative text which nobody we were negotiating with the tens of countries but nobody is willing to finalise because they they think it's not it's not good enough so it's good she announced that we need a revamp and it will be done soon that's point number one second is least discussed item is Bharat trade net she announced the creation of Bharat trade net you know for exporters today they have to visit more than 10 government offices to for regulatory requirements for exports Bharat trade net will be a single interface if done properly it will bring thousands of MSME exporters into the field of exports MSME firms in the field of exports these are the two best things and what I would have loved is you know I want more discussions on sector specific problems like I talked about steel the problems are there in all sectors and we have to go at the sector level only so I that may not be done in the budget but I would love to see those things happening somewhere thank you okay uh Uday
Uday Ved: last word no I think I would leave on a positive note and they always think but I guess I'm an expert on tax happy with everything litigation could have been addressed better which I'm sure next week we'll get some answer but overall I think growth orientated budget I would
Govindraj Ethiraj: say positive okay uh Uday Dwarak and Mr. Srivastava thank you so much for joining me on this special budget edition and for all your thoughts and insights thank you thank you thank you
