By Rashesh Shah, Chairman & CEO, Edelweiss Group
Against the backdrop of weak external environment and two back-to-back weak domestic agricultural seasons, the Budget focuses on rural and social development, infrastructure, and financial sector reforms. While the previous Budgets illustrated the pro-growth policies of the government, Budget FY17 clearly embarks on the fiscal consolidation path, by maintaining the fiscal deficit target of 3.5% in FY17, leading to hopes of at least a 50bps rate cut by RBI.
One of the major concerns in the markets prior to the Budget announcement was the possibility of change in tax provisions relating to long-term capital gains. This has been left unchanged and sets positive sentiment for the market.
Finance minister Arun Jaitley has initiated several positive reforms, including the Bankruptcy Code which will help create a formal insolvency resolution process for businesses, either by coming up with a viable survival mechanism or by ensuring their speedy liquidation. The price stabilisation fund for pulses will help moderate inflation, permitting 100% sponsor ownership in ARCs and clarity on taxation. Equally encouraging is the fact that the government is making swift progress on de-bottlenecking the economy, removing structural constraints and improving programme delivery through direct benefit transfer and other structural reforms.
PSUs recapitalisation has been given an allocation of Rs 25,000 crore for FY17. While the market may feel that the Budget has done a little too less, the government has always maintained that the capital needs will be addressed and the budgetary allocation will, in essence, encourage banks to go out and pro-actively restructure and clean up their balance sheets efficiently.
There was considerable increase in the number of basic savings bank deposit accounts during the current year under the Pradhan Mantri Jan-Dhan Yojana, and perhaps urea and food subsidy could be the next where benefits are transferred via Aadhaar-linked accounts.
On the revenue front, the government has done credible fiscal math, including from a taxation perspective. However, garnering R98,000 crore via telecom auctions and Rs 56,000 crore via disinvestments could be difficult tasks. There are measures to promote Make-in-India, generate employment, foster entrepreneurship and galvanise Indian/foreign investments. The finance minister emphasised on the goals of providing impetus to Make-in-India by providing tax incentives to new manufacturing companies incorporated on or after March 1, 2016, and amendments to Companies Act to improve the enabling environment for start-ups. However, these steps are only a beginning of a journey towards structural GDP growth in the medium to long term.