Union Budget 2016

Mr Arun Jaitley has presented the third budget of the present BJP-NDA Government. Truly speaking, the Union Budget is a statement of Income and Expenditure of Government of India , but it gains importance since the income gets generated from various taxes and levies, affecting all citizens and expenditure statement lays down development agenda for the country. In Indian context, Government is the biggest spender, and direction of its expenditure become policy statements affecting vast majority of population. Government's direct tax (income) policies determine the cut in our take home income and indirect taxes (income for Government again) determine how much of our expenses contribute to the Govt coffers like excise we pay on all the goods we purchase. Similarly, Governmnet's expeniture lays down the road map for infrastructure, public health, education, defence expenditure etc etc. 

Main thrust of budget 2016 is to strenghthen rural economy and infrastructure development.  In the process, Government is trying to generate demand from the vast hinterland, because domestic demand is vital to move the wheels of stalled manufacturing sector. This entire process can turn into a virtuous cycle generating additional jobs which shall further boost demand, thus lifting economy out of its present stagnation. If India has to lift its vast population from poverty then GDP has to grow over 9 % per annum (compared to 7-7.50 % now) for atleast 10 years. This budget may be trying to kickstart that growth curve.

This budget aims to invest in rural infrastructure through building of pucca roads to all villages and electricity for all rural household by 2019, which may generate rural employment also. A major welfare measure is provision of LPG connections to about 2 crore poor households in the next 2 years.These families are presently using wood chullahs. This measure shall improve public health and help in environment conservation. Other rural economy related measures include setting up of a long term irrigation fund, boosting cultivation through expeditious implementation of 89 stalled irrigation projects , provision of crop insurance scheme etc etc. 

There is stress on building of highways, seaports and smaller airports, which may boost employment generation and help in economic revival /growth. 

FM has proposed provision of Rs 25 k crore for recapitalisation of Banks , which falls short of requirements and expectations. But FM has said that if required, additional resources will be mobilised. Since there are no budgetary provisions for these additional resources, they necessarily have to come from outside the book. In this context, it is important to note statements of RBI Governor for permitting Banks to use revaluation of assets towards Tier I Capital and also that of SBI Chairman seeking reduction in Government holding in Public sector Banks to 51 % . So whether these additional resources for recapitalization of Banks come from reduction in Government holding or from recalibration of Bank's Balance sheets or part capitalization from RBI itself, only time will tell.

Resources for the above expenditure are sought to be mobilised through an additional cess of 0.50 % on all services, which may take the effective service tax rate to 15 %. There are some other tax measures like additional surcharge on cars,  tax amnesty scheme for mobilising Rs 30k crores, increase of surcharge on the super-rich etc. 

Apart from the above income and expenditure figures, the beauty of this budget lies in fiscal prudence and simplification of tax matters. Inspite of immense pressure on economy resulting from two sucessive years of droughts (incidentally it is only the 4th time in the past 115 years that the entire country has faced two successive drought years) and a meltdown in emerging economies, the FM has done a commendable job in sticking to the fiscal deficit target of 3.50 % for FY 2017. In another good move, the tax dispute redressal mechanism including retrospective taxes is sought to be greatly simplified and made transparent.

The budget also has some negatives. The most glaring and monstrous of them being taxing of 60 % of interest income on Employee Provident Fund withdrawls. PF is an employee welfare measure and a big source of saving at the end of a long employment journey. It should not be touched under any circumstances.        

Comments

  1. A precise and crispy summary of budget which provides the highlights in manner of easy narrative.

    ReplyDelete

Post a Comment

Popular posts from this blog

Online (Alternate) Dispute Resolution

Debt Resolution Process - Indian perspective

Risks in Banking and their management