NEW DELHI: Budget 2017 will be presented against the challenging backdrop of an uncertain global environment, domestic economy reeling under the impact of demonetization, subdued private capex cycle and many unknowns confronting the government (such as the roll out of GST).
Given the context, therefore, HDFC Bank expects the government to provide some support to the economy, but the stimulus is unlikely to dazzle.
The bank said in a report on Monday that optics of the budget could disappoint. “Unlike the last three budgets, that saw new projects like Start Up India, Swachh Bharat and Make in India, FY18 Budget is likely to focus more on effective implementation and increased allocation to existing projects. However, given that five states this year and another seven states next year are going into polls, we do expect some popular announcements mainly to help the sectors that have suffered in the demonetisation process like MSMEs and rural economy,” says Abheek Barua, Chief Economist, HDFC Bank.
The bank expects the budget to focus more on effective implementation and increased allocation to the existing projects rather than announcing new schemes/projects. Similarly, universal basic income transfers for the poor are likely to be introduced only on a pilot basis, but low-cost housing could get a bigger boost. Service tax rates could be increased to bring them in line with GST rates and some tweaks in corporate and personal tax regimes are expected.
Here are the key expectations of HDFC Bank from the budget:
1. Rural Push:
* A watered-down universal basic income scheme on pilot basis may be introduced. The government may club the cash components of several schemes and transfer the combined amount into beneficiaries’ accounts every month.
* Ranking of panchayats on benchmarks (such as status of irrigation and presence of soil health cards) to tailor future assistance.
* Higher allocations to existing schemes and interest subventions for the agriculture sector.
* Initiatives to provide greater access to cashless transactions – to aid farmers purchase seeds, fertilizers and other agricultural inputs.
2. Affordable Housing:
* Likely expansion of Pradhan Mantri Awas Yojana and inclusion of people having higher incomes (~Rs 12-18 lakh/year) under the interest subvention scheme.
* A new scheme that may use money from the demonetisation drive – lower interest rate in the range of 6-7% for home loans up to Rs 50 lakh (to first time borrowers).
3. Impetus to the infrastructure sector:
* 12-14% higher budgetary allocation to the sector – against last year’s allocation of Rs 2.2 lakh crore
* Reduction in Minimum Alternate Tax (MAT) for the infrastructural projects
* Mechanism for online clearance of projects
* A new credit rating system for infrastructure projects which gives emphasis to various in-built credit enhancement structures – the government could act as a guarantor for some of these projects.
4. Towards a “cashless” economy:
* The threshold for quoting PAN card for cash transactions could be reduced from Rs 50,000 to Rs 30,000 – for merchant transactions, the limit could come down from the current Rs 2 lakh.
* The government may also announce cash-handling charges for cash payments above a certain limit.
* To keep a track of trail of payments, the government could make Aadhaar number mandatory for filing of income tax returns from FY18 onwards and link all bank accounts to the unique identity number.
5. Tax rate rejig
* To raise the service tax rate from the existing 15% by at least one percentage point as a precursor to the rollout of GST
* Further phasing out of various exemptions and reduction in corporate tax rate.
6. Relief to the common man
* The base slab for income tax exemption could be increased from the current Rs 2.5 lakh.
* A restructuring of tax slabs could also be explored – currently, 10% tax is charged on annual income of Rs 2.5 lakh to Rs 5 lakh, 20% on Rs 5 lakh to Rs 10 lakh and 30% on income above Rs 10 lakh. The first two slabs can be widened or taxed at a lower rate.
* Deduction under Section 80C of the I-T Act (i.e. deductions on investment and on specific instruments like PPF) could be enhanced.
7. Recapitalization of banks
* Allocation could be moderately enhanced from last year’s Rs 25,000 crore, but the government’s pressure on banks for independent resource raising could remain.