Budget 2016: Keeping in mind the huge uncertainty on the global economic front, the Hon’ble Finance Minister has consciously crafted a budget with a strong focus on fuelling domestic demand. In fact, it is a pragmatic move in the present context as the domestic economy has to be looked at as India’s insurance against any global downturn. The budget lays strong emphasis on agriculture and infrastructure sectors, the two sectors which can absorb large number of semi-skilled and unskilled workforce.
I am unable to recall any recent union budget which has covered agriculture so extensively. This budget has not only substantially enhanced the outlay for agriculture, it is also replete with many well thought through measures that address almost each and every aspect in the entire agri value chain right from irrigation to credit enhancement to procurement of agri-produce to market access or usage of digital platform to reach out to larger sections of the rural population. Add to that, the outlay allocated for building rural infrastructure. The rural sector will also largely benefit from the social sector schemes. This is very timely, especially keeping in mind the level of distress the rural economy is in at present. The measures are also expected to open up entrepreneurship opportunities. The move to open up marketing of domestically produced food products to 100% FDI is another welcome move.
I felt that the decision to adhere to the fiscal target is indeed a brave move, especially when large capital has to be provided for the 7th Pay Commission, OROP and recapitalization of public sector banks. In addition to the inflation being under control, this should hopefully give the RBI a reason to lower interest rates.
In fact, the Rs. 25,000 crore to be used for recapitalization of public sector banks in FY17 seemed inadequate, although the Minister has mentioned that he is open to other sources of capital, if required. I liked the idea of an exclusive bankruptcy code for resolution of financial firms. We also need something for private financial institutions, like was done by the government during the 2008 financial crisis.
On the infrastructure front, apart from the increased outlays, several proposals to revitalize PPPs (like a Bill for dispute resolution, new guidelines for renegotiation of PPP concession agreements and new rating system for infrastructure projects) have been mooted. However, implementation is the key here, and these need to be carried out in a time-bound manner. PPP in infrastructure has to be put back on track and quickly, we have already lost precious time.
Measures to provide fillip to low-cost housing is a smart move to generate mass demand. Reforms in FDI policy for Asset Reconstruction Companies (ARCs) and enabling a sponsor of an ARC to hold up to 100% stake in ARC is a welcome move as this is one area where we need more specialist players.
The move to categorize budget expenditure as Revenue and Capital expenditures and move away from Plan and Non-plan expenditures will help in presenting a clearer picture of which of the expenditure items are productive and which are not.
There are quite a few goodies for the small tax-payers, both individuals and businesses. Allowing NBFCs to be eligible for deduction of up to 5% of their income in respect of provision for bad and doubtful debts is a positive move, although it is still not at par with banks. Re-opening the window for tax compliance to bring unaccounted money into the mainstream is another intelligent move. However, introduction of an additional Dividend Distribution Tax (DDT) beyond a certain amount of dividend, trebling of Securities Transaction Tax (STT) for options, the introduction of new cesses in certain categories are some of the steps that may not go down well with the corporate sector. Postponement of determination of residency of foreign company on the basis of Place of Effective Management (POEM) by one year and the General Anti Avoidance Rules (GAAR) to be made effective from FY18 are unlikely to enthuse investors, especially when the issue of Retrospective Taxation has already created quite a controversy.
Having different categories of corporate tax, depending on the class of company has made it more complicated, rather than simple. The many small changes are of course welcome, but India Inc., was not looking for incremental signals from this budget. In fact, with the absence of GST, investors – small and big, domestic and foreign – were all looking for something to promote private investment too. This budget has missed that.
I’m surprised that there’s not much to promote manufacturing, especially since “Make in India” is such an important plank. Better infrastructure is of course one part of that, but this budget missed this opportunity.
To sum up: The budget will stimulate demand. Its tax proposals may not attract enough investment. All in all, a normal budget.