NRIs make a wish list ahead of Indian budget
Most pin little hopes on spending plan ahead of general elections this year.
Non-resident Indians (NRIs) are awaiting the interim budget for financial year 2019-20 and hope some of their concerns will be addressed in the finance document expected to be presented in parliament on Friday.
Issues pertaining to gold, real estate and fixed income instruments are of primary concern and any reform in these areas will be considered as NRI-friendly.
"An NRI-friendly budget would be one that reduces barriers for NRIs to invest in India and allows them to bring back their wealth with minimal taxation," said M.R. Raghu, head of research at Kuwait Financial Centre 'Markaz'.
"The current government had the luxury to swiftly push through several reforms and schemes during its tenure due to its absolute majority in the parliament. Although the effectiveness of implementation is still debatable, reforms like the implementation of a unified indirect taxation scheme - GST - and a financial inclusion initiative [Jan Dhan Yojana] could prove to be positive for the economy in the long run. As it stands, the outlook on India's economic growth in the coming years looks very positive."
According to the International Monetary Fund, India's GDP is forecast to expand 7.5 per cent in fiscal year 2020 and 7.7 per cent in 2021. "India's economy is poised to pick up in 2019, benefiting from lower oil prices and a slower pace of monetary tightening than previously expected, as inflation pressures ease," the IMF said in a recently released World Economic Outlook.
Bal Krishen, CEO of Century Financial, said the 2019 India budget is an "interim budget" as national elections are near and the task of preparing a full budget is generally left for the next government.
"Electoral compulsions will force the government to postpone the announcement of any major policy decision," he said.
As many as 12 interim budgets since India's independence have not announced any major policy changes since the government is just a custodian for a few months. This could be a disappointment to 30 million NRIs who have sent back $70 billion to India, helping it build a $400 billion forex reserve. In fact, it has been a grouse of the NRI community that they have not been compensated adequately for their contribution to India, said Krishen.
Of utmost concern to ordinary Indians is the high customs duty on gold, ostensibly introduced to curb the burgeoning current account deficit. Indians buy gold from outside since prices are lower and quality is better, as well as for investment purposes.Indians belonging to middle and lower economic segments are hit the most and it would be a relief if the government provides concessions under this score.
The Indian government has taken a contradictory approach with regards to fixed-income products, where interest income is taxed in accordance with the local laws.
"We would expect the government to reduce the tax on interest income. This move has the potential to accelerate capital inflows to India. Liberalising foreign investment norms in real estate is another widely expected move," said Krishen.
Even though NRIs remit significant amounts to India, they own a miniscule percentage of Indian equity, according to latest Sebi data. This is in contrast with the $450 billion cumulative foreign portfolio investment (FPI) investment into India. Currently, there are a lot of restrictions on NRI investment and due to the cumbersome regulations, NRIs generally take the mutual fund route.
Some of the restrictions on NRIs include where he/she cannot take more than 5 per cent stake in a single company and the combined stake of all NRIs is not permitted to be more than 10 per cent. On the whole, FPIs seem to have an advantage as regulations permit them to own up to 10 per cent of a company. NRIs have to follow the Foreign Exchange Management Act (Fema) rules supervised by RBI whereas FPIs are regulated by Sebi. Merging the NRI and FPI routes can be a game-changing move, Krishen explained.
Some of the radical reforms initiated by the present government are having beneficial effects on the economy. However, the most radical measure, demonetisation, impacted most people negatively without any benefit to the government, said Dr Azad Moopen, founder chairman and managing director of Aster DM Healthcare.
"An NRI-friendly budget should include income tax exemption for the investments made through NRI funds in India for a specific period. Also, a hike in the period for which a person can stay in India to qualify as an NRI from the present six months to nine months; viability gap funding for airlines to operate to Gulf countries at economical rates; allocate special quota for NRI students with relaxation in the NEET marks for admission to professional colleges, are some of the features that can help NRIs."
Krishnan Ramachandran, CEO of Barjeel Geojit, said there is no specific benefit available to NRIs per se, except the fact that the interest earned on NRE accounts are tax-free.
"Therefore, all benefits and tax reliefs accorded to resident Indians are applicable to NRIs also. In reality, NRIs are discriminated against in spite of being citizens of the country. For instance, NRIs are not allowed to buy agricultural land or plantations."
So, what can NRIs expect from the forthcoming budget? Being a pre-election budget, the government will be constrained from making any big bang reforms. However, from a taxation perspective, some of the reforms that will benefit both residents and NRIs include:
. Increase the minimum income threshold to Rs400,000 to Rs500,000
. Carry forward benefits of interest with respect to house property (presently capped at Rs200,000)
. Withdraw long-term capital gains on listed securities
. Increase in tax deductions to Rs250,000 from Rs150,000 under section 80C and its sub sections.
There has been a lot of news on prospects of the government issuing NRI bonds to shore up foreign reserves and stabilise the currency, explained Ramachandran.Oscar Abraham, legal counsel at a Dubai-based engineering company, said pension plans for NRIs would be a positive step and encourage investment in India.
"From a Gulf perspective, an increase in gold carry allowances into India would be a welcome move. Stocks, bonds and real estate are the other big-ticket items where favourable norms would encourage further investment from NRIs. Considering the rupee's recent weak performance, the 2019 budget is an ideal time for reforms targeted at forex inflows into India."
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