Union Budget 2017-2018
As we are all aware, this year, we had our Union Budget presented to us almost one month in advance on February 1, 2017.
In our country, the budget expectations are usually high as policy reforms are usually announced for the ensuing years. This year, was no exception as this budget 2017 was unique and historic in more than one way, starting with the advancement in the date of presentation of the Budget to February 1st, consolidation of the Railway Budget and in the backdrop of demonetization effects and proposed GST implementation.
In the run up to this budget, the Indian economy that seemed to have stabilized on a growth trajectory registering GDP growth of around 7.6 per cent was subjected to a sudden slow down with the demonetization announcement. Though the decision was laudable for efforts to curb black money, it caused significant liquidity issues and is expected to have lasting impact on a number of sectors including Real Estate, automobiles, FMCG etc, at least for some more time.
The Positive aspect in this budget is the maintenance of fiscal deficit at 3.2% of GDP. In spite of demonetization, we are on the right path towards maintaining fiscal discipline. Further, the Government’s main agenda to transform energize and clean India - TEC India has to be lauded. The approach in spending more on rural areas, infrastructure and poverty alleviation with fiscal prudence is a positive and welcome move.
In India, nearly 96% of companies fall in the category of medium and small industries with less than 50 crore turnover. The reduction for tax for such companies from 30% to 25% was welcomed. From the Industry and business point of view, abolition of FIPB; codifying the labour laws, no moves on long term capital gains for equities, no increase in service tax, providing more clarity to aspects of domestic transfer pricing are appreciative measures.
The budget announcements with regard to the infrastructure; Multi model logistical parks, connectivity between roads and ports, construction of 133km road per day, expansion plans for Airports in Tier II cities, and the new metro policy which will bring employment to youth are all positive aspects.
The digital thrust and the focus on making India the Electronic hub is a positive move, but should be supported by concrete plans.
Focus on Skill development with an industry centric approach, providing online learning platforms; reforms in education, including provision for common testing are all welcome moves for the industries which are starving for skilled manpower.
On the tax proposals, widening the tax base and increasing the compliance is a laudable objective. The proposed changes in the capital gains tax and the increased concessions to the SMEs are to be welcomed.
On the flip side, there is a lack of encouragement for manufacturing sector, including the Auto sector which did not get its share of attention in the budget. To stimulate growth in the Auto Industry, a scrappage policy for old polluting vehicles would have been welcomed by the Industries. Further, sufficient encouragement was not given to R & D and innovation, which are keys to future growth.
With regard to the Corporate, though the expectation was high regarding a tax reduction, considering the tight situation the corporate are facing currently, no such announcement in this budget was a disappointment. Similarly continuation of the double taxation policy in the dividend is a disappointment and is a disincentive for risk capital. Also the salaried class, who contribute to a large share of direct tax revenues of the Government, may be disappointed with inadequate positives for them on the Income tax front.
There were high expectations with regard to a clear road map for GST implementation and we feel this was not addressed adequately. Despite the assurances made by the FM with respect to introduction of GST, there still remain apprehensions whether the changeover to the new system will happen on time and in a smooth manner.
Further, the merger of Railway Budget with the Union Budget did not give space for transparency in the railway budget and made it opaque.” There is a general thought among the members that he combined budget which has been tabled ahead of time could have done more to remove negative sentiments and improve consumption and investment.
On this note, I would like to add that Budget announcements alone cannot bring all the changes that are aimed at. Time bound implementation with well defined end results is the key.
It is believed that India has the potential to grow between eight to 10 per cent if the country continues the pace of reforms. Let us hope this happens !