India Union Budget - Initial Observations

The  budget presented was trying to balance several interests. There was no big ticket reform agenda in the budget.   Budget was presented in an Economic Scenario, where, there is a dampening Global Economic growth as well as the deceleration  in India. There were many challenges to be addressed by the FM. Poor  Consumer demand, lower profit for the corporates , low investments in the economy. and lower tax collection by the government were to be tackled.    The  budget addressed the expectations of the various segments of the Economy. There are programmes for Farmers, Women, Children , SMEs. There is a focus on reviving the Economic Growth with three Major themes;  Aspirational India, Economic Development and Caring Society.

The reduction in personal tax was across many of the income categories and most of the tax payers will be benefitted by the reduction in tax. They have also simplified the tax filing process and introduced a tax payer friendly settlement of pending cases across all the courts  . The reduction of taxes will benefit the tax payers and put more money in the hands of the individuals resulting in higher savings and higher consumption. This will boost the consumer demand for many of the product categories, which is the major issue  today.

Abolition of Dividend Distribution tax and increasing the limit of investment by FPI’s in government securities / bonds, will go  a long way in attracting more capital investment from abroad as they could not get set off for the tax paid in the home country. The decision to go for IPO by LIC, will also attract the foreign investors including Sovereign Wealth funds, Pension funds and long term funds from other parts of the world. This will meet the part of the funds required for investment in Infrastructure.

There is a pressure on government to raise resources to spend on Capex. All the net borrowings by the government are proposed to be spent on Capex, which will add to GDP growth .The income  from  tax source is inadequate and filling this gap, government has prepared a plan to raise lot of revenue from Dividends, Asset Monetisation  and Privatisation.

Large proposed investment in infrastructure ( which is part of the Infrastructure pipe line announced by the Government )will create more jobs as well as increase demand for many other industries .

Increasing the Deposit Insurance from Rs.1 Lakh to Rs.5 Lakh will increase the confidence of investors in Bank Deposits and the banks will be able to attract more deposits from the investors. Further, the government is planning to consolidate few more banks , creating mega banks, which will increase the capacity to fund large projects.

The focus on Agriculture, Irrigation and Rural development will increase the income of farmers and those are living in rural areas. This will help boost the demand in the Rural area, which contributes to more than 50% of demand for many of the consumer products in India.

With a view to develop a healthy society and individuals, the programme on Wellness, water and Sanitation was given the required focus. This will improve the parameters like Child mortality, human capital development and healthy / robust work force.

In the Economic Survey,  there is a  scheme of Assemble in India , under the Umbrella of Make in India programme. There is also an intended strategy to be present in  Global Value Chain in many of the industries. The focus on Skills and Education , will go a big way in developing globally competitive industries in India.

The concessional income tax scheme extended to Manufacturing companies, were also being extended to power generation companies. This will help to address the issues in the power sector and reduce the cost of producing power. To give a boost to SMEs , the method of treating NPAs by SMEs were relaxed.

The areas ,where the government could consider modifying the budget provisions include, the new provisions relating to NRIs, their investments,  taxing their income  and removal of Dividend of tax.  Investors were also expecting exemption from Capital gain tax from Stock markets for two years. To Stimulate the consumer demand, the scope for reducing the KYC requirements for purchase of Homes, Automobiles and Insurance policies could be considered.

The government has formulated many schemes and to realise the budgeted goals it  is very important  the implementation mechanism should be made more effective. There should be a continuous monitoring of the implementation of  schemes and a special organisation structure  has to be created for continuous monitoring , effective feed back  and corrective mechanism.