Despite market noise, it has not deviated from its long-term goal of fiscal consolidation
This year’s budget seems to have the legacy of the last budget with focus on agriculture and an ongoing initiative like demonetisation. The agriculture lending target has been substantially revised to R10 lakh crore supported by further provisions for agriculture insurance mainly with the objective of doubling the income of the farmers.
The government has also announced several measures, which will directly or indirectly benefit the micro, small and medium enterprises (MSMEs) of the country, including the proposal to reduce the tax by five percentage points to 25% for MSMEs with a turnover up to R50 crore.
There are 6.67 lakh such MSME units. This move will make MSME sector more competitive as compared to large enterprises and is estimated to bring R7,200 crore in benefits. Further, to encourage entrepreneurs to opt for digital means, the government proposed to reduce the presumptive income tax rate to 6% from 8% for small and medium tax payers with turnover upto R2 crore, which is received by non-cash means. This is a welcome move to digitalisation. The budget has also proposed to create a Payments Regulatory Board in RBI by replacing the existing Board for Regulation and Supervision of Payment and Settlement Systems, which is a welcome move given that payments and banking functions in new digital environment are completely unbundled.
Affordable housing will now be classified as infrastructure and this will impact bank lending, benefiting both builders and customers. Further for the banking sector, the thrust to digital economy, was on expected lines. This will help banks to expand their digital footprint and meet additional 10 lakh new PoS terminals target by March 2017.
Introduction of electoral bonds is a novel idea and seems to be the first of its kind. This is expected to streamline and cleanse electoral funding. Banning cash transactions over R3 lakh will allow banks to diversify their banking activities into new areas, and not mundane ones.
On other macroeconomic measures, the abolishing of FIPB is a welcome move as it removes another hurdle in movement of inward FDI. This measure will boost foreign investors’ confidence. The budget has chalked a clear fiscal path for the years ahead and with the proposed changes in personal income taxes at the lowest slab, the target of 3.2% of the GDP may well be achieved if the new reforms measures like GST kick in within stipulated time.
The Budget has acknowledged that for the progress of the nation the empowerment of women is of prime importance. There was specific mention of increase in participation of women in MGNREGA to 55% from less than 48% in the past. In this regard, the allocation towards schemes for welfare of women has been increased by 17%. The government is also working towards labour reforms which would open additional avenues for their employment. You may also like to watch this video
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The FY17 budget numbers are in line with market expectations. The good thing is that despite a market noise, the budget has not deviated from its long-term goal of fiscal consolidation.