Union Budget 2017: Private sector stressed, Narendra Modi government must carry burden of infrastructure sector

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New Delhi | Published: February 2, 2017 3:20:34 AM

Given the current stressed situation in the private sector, it is imperative for the government to take the burden of infrastructure sector.

(Reuters)There was a greater emphasis on rural, infrastructure and particularly affordable housing. (Reuters)

The budget was presented in a volatile environment of demonetisation, monetary policy shifts in the US, crude oil production & prices and increasing protectionism globally. In this backdrop, and given the mixed objectives of achieving growth, higher spending and fiscal consolidation, the finance minister has deviated from maintaining stricter fiscal discipline – setting a deficit target to 3.2%, vis a vis FRBM committee’s recommendation of 3.0% fiscal deficit. However, the target for FY2019 remains at 3.0%.

The FM eloquently shared interesting data, citing figures of cars sold and international travel, demonstrating lack of income tax compliances in India. Given India’s low Tax to GDP ratio (~17%) which is significantly lower in comparison to other developing and developed economies such as the US (~25%), Germany (~37%), the UK (~33%), Japan (~30%) or Russia (~35%), it would be unfair to expect additional tax concessions.

Tax concessions were given to individuals having annual income between R2.5 and R5 lakh, tax rate reduced by 5 percentage points; and to companies in the MSME space with an annual turnover of up to R50 crore, tax rate reduced by 5 percentage points. This move will result in increased consumption and marginal increase in retained earnings of MSMEs.

There was a greater emphasis on rural, infrastructure and particularly affordable housing. The steadfast progress on initiatives in the rural segment such as PM Gram Sadak Yojana, constructing 133km a day, and achieving 100% rural electrification by May 1, 2018 demonstrate government’s resolve to rural development. The overall infrastructure spending allocation of R3.96 lakh crore in FY18 is amongst the highest in any budget so far. Given the current stressed situation in the private sector, it is imperative for the government to take the burden of infrastructure sector.

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On the affordable housing segment, announcements redefining the dwelling area size from built-up area to carpet area, resulting in additional ~20% dwelling area; granting of infrastructure status to affordable housing, thereby enabling the sector to tap into cheaper cost funds, and reduction in the holding period for computing long term capital gains from transfer of immovable property from 3 years to two years are welcome moves.

The key will be implementation of programmes which will convert to corporate and personal incomes and eventually percolate into tax collections. Maintaining fiscal deficit depends on achieving targets for tax collection which have been estimated at a conservative growth of ~15% for direct tax and ~8% for indirect tax.

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