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Union Budget 2016-17

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Finance Minister Arun Jaitley presented the Union Budget for 2016-17 and reaffirmed that the economy is on the right track. The budget is aimed at strengthening India's firewalls by ensuring macroeconomic stability and prudent fiscal management; driving growth through domestic demand; and economic reforms and policy initiatives to change lives for the better. With measured focus on social sector reforms and recapitalising India's banking system, this Budget has an overarching focus on improving agriculture, and scaling infrastructure, all of which bode well for the country. The government is now planning to rationalise and channel subsidies to the poor by increasing the burden on the rich, and by increasing spending on public welfare through its own kitty.

Mr. Jaitley said the Union Budget is aimed at improving rural infrastructure and increasing rural income, as the biggest challenge to the economy is agrarian distress. Applauding the budget presented by the Finance Minister, Prime Minister Narendra Modi said the Budget is pro-village, pro-poor and pro–farmers, and is focused on bringing about qualitative changes in the country through a slew of time-bound programmes.

The attached note captures key highlights and summarises major announcements in the Budget.

Please reach out to us should you wish to understand more about the Union Budget and its impact on your business

Publicado en: Economía y finanzas
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Union Budget 2016-17

  1. 1. 
 Union Budget 2016-2017 The Finance Minister summed up his third budget with three li6le words that reflect big: Desire, Dream & Vision; his desire to provide socio-economic security to every Indian, his dream for a prosperous naDon and his vision to transform India. Mr Jaitley has described his three prioriDes as strengthening India's firewalls by ensuring macroeconomic stability and prudent fiscal management; driving growth through domesDc demand; and economic reforms and policy iniDaDves to change lives for the be6er. This Budget has an overarching focus on improving agriculture, and scaling infrastructure, with measured focus on social sector reforms and recapitalising India's banking system; all of which bode well for the country. But rising rural distress aKer back-to-back droughts and a recent heavy elecDon defeat in a largely agricultural state have upset the math from the previous budget calculaDons, especially given the fact that four out of every 10 people rely directly on farming for their livelihoods. Thus, Agriculture has topped the FM’s list of prioriDes – while Rs 35,984 crore has been allocated for agriculture in the next fiscal, the outlay under the MGNREGA programme was being enhanced to Rs 38,500 crore in a bid to think beyond food security and move to income security. Infrastructure got a huge push with an allocaDon of Rs 2.19 lakh crore for road and rail sector. There’s also great news for rural electrificaDon -- 100% rural electrificaDon is expected by May 1, 2018. ConDnuing government efforts to deal with the high levels of NPAs or bad debts, of state-run banks, the Budget has allocated Rs 25,000 crore for recapitalising public sector banks. The markets were expecDng this amount to be higher. Several incenDves have been provided for the health sector. The FM is looking at making quality medicines available at affordable prices by opening 3000 generic drugs stores to reinvigorate supply in 2016-17. The ‘NaDonal Dialysis Services Programme’ – a PPP under the NaDonal Health Mission -- will not only benefit people with renal problems but will also provide tax incenDves to private players in the health sector. A new health protecDon scheme will provide health cover up to INR 1 lakh per BPL family. For senior ciDzens an addiDonal top-up package up to 30,000 will be provided. As promised, start-ups have been given a three-year tax holiday and capital gains exempDon, and the Government will introduce a bill to amend the Companies Act, 2013 in the current Budget Session of the Parliament that would also improve the enabling environment for start-ups. Because innovaDon provides thrust to economic growth, the FM has proposed a special patent regime with 10% rate of tax on income from worldwide exploitaDon of patents developed and registered in India. IncenDves will be also provided to promote entrepreneurship among SC/STs. What comes as a surprise factor was the parDal taxaDon of EPF and PPF. This will reduce pension money significantly when it is withdraw on reDrement. UnDl now there was no tax on investment, on interest accrued and on withdrawal on EPF. The third budget of Mr. Jaitley is rightly focussed on rural development. Given the global turbulence and the fact that demand has unDl now been created within the country, a budget focusing on rural needs will further spur economic acDvity and growth. But as trading came to a close today, the Sensex finally se6led at 23,002 points, down 152 points from the previous day’s close aKer fluctuaDng through the day. We now have to wait and watch how industry and markets react to this Budget as it pans out in the coming fiscal. We live with hope that this Budget will prompt growth and development as the FM pracDces fiscal discipline. Medha Girotra Public Affairs PracDce Lead
  3. 3. What are your ini;al reac;ons to Finance Minister Arun Jaitely’s 2016-2017 Budget speech? My first reacDon is that it is quite a predictable budget. It was expected that the government will give a reemphasis on infrastructure, which it has done. There is some uncertainty about whether it would reduce or bridge the target on the fiscal deficit. The finance minister maintained that target, however he has also announced that he is going to set up a review mechanism or commi6ee to look into the whole Fiscal Responsibility and Budget Management (FRBM) system because in many ways it is quite long. What are your thoughts on the announcements in the agriculture sector? It is certainly forward looking budget in this sector. Usually, in the budget the government always emphasises on what looks good. In that sense, there is a significant thrust on the agriculture sector. With so much talk about the treatment of farmers and farmer distress, I think it’s a good a thing to give emphasise on the sector. However, I wouldn’t hold my breath about how much of this is possible in one year. In my view one of the best things to be announced is the crop insurance scheme for farmers. Based on what the Hon’ble Finance Minister spoke on the floor of the house, how do you see the implica;ons from implementa;on of 7th pay commission and OROP play out? As far as OROP is concerned, I think the government has already adopted that and set out the plan. On the 7th pay commission the Finance Minister has declared that he has made an interim provision so that it will take care of the burden of this financial year. However, both OROP and the 7th pay commission has many implicaDons beyond the coming financial year. It also depends on when the 7th pay commission recommendaDons begin to get implemented. So I think we are covered for this year, but the implicaDons further down the line are yet to be worked out. There have been a slew of measures which have been announced, which include tax sops for small businesses, the increase of the cap from 1 crore to 2 crore. Do you think this is an entrepreneur friendly Budget, and in what way? Yes, I think the increase from 1 crore to 2 crore, provisions for scheduled castes and tribe to become entrepreneurs, are all posiDve steps. It is clearly an entrepreneur friendly budget. How it will translate into results on ground is yet to be seem. It is important to remember that the budget is just an announcement, it needs to be translated into actual acDon. What is in it for Corporate India? Very oKen there are small things that need to be done that do not lead to big news but can be quite important. For instance, an IT plaporm or making processes transparent. There are several such small things that have been announced though there is no big Dcket announcement on the corporate taxes side. I would agree that there has not been great excitement on the side of the corporates, as far as the tax sops are concerned. But the important thing from their perspecDve, is the seqng up of an Asset ReconstrucDon CorporaDon for which they have set aside the money to recapitalise the bank, or clean up their balance sheets. That’s very significant. Do you think the steps announced for the recalibra;on of banking sector? Public sector banks have done a lot of imprudent lending, with people who don’t pay back the money that they have borrowed. This is what puts the banks and the balance sheet under the pressure. UnDl this gets cleaned up in the balance sheets, the banks cannot do fresh lending. What the Finance Minister has announced is that those who are holding all these non-performing loans, they will be handed off to a separate Assets ReconstrucDon Company or what is oKen called a bad bank, because it takes on all the bad assets. It will ensure that the balance sheets get cleaned up, and the banks can restart their lending operaDons. Whereas the Asset ReconstrucDon Company will try separately to recover some of those loans, without in anyway impairing the funcDoning of the bank. I would say this is one of the very important moves which the Finance Minister has made today. One of the pillars the Finance Minister focused on was Educa;on, Skilling India and Job crea;on. Do you see this posi;vely contribu;ng to India’s growth? I think this is another good move in that direcDon, some of these items are good in themselves. But the important quesDon is the scaling. Are you puqng enough money behind these schemes or is it just a token allocaDon? My concern with the skilling India programme is it is a good thing to do, but are you doing it on a sufficient enough scale to really make a difference to the employment market for producDve skilled labour. There is food for thought here. If we compare this budget to last year, do you think the government has progressed? The government has definitely tried to make progress along the lines that had been indicated last year. The main features are to push infrastructure investment, try and maintain fiscal prudence without raising the deficit too much, also on the tax proposal side where the government said they will reduce corporate tax along with reducDon of exempDons, so those things have largely been done. 11:04 AM Beginning of budget speech BSE SENSEX 23,127.57 12:44 PM End of budget speech BSE SENSEX 22,966.34 Sudipto Mundle Emeritus Professor, NaDonal InsDtute of Public Finance And Policy An autonomous research insDtute under Ministry of Finance ECONOMIST VIEW
  4. 4. Government’s focus will be on ensuring macro- economic stability and boosDng domesDc demand besides conDnuing the pace of economic reforms. It has also vowed to provide prudent fiscal management. On a broad level, the focus on infrastructure seems right, as it will certainly help connect the country be6er thereby providing be6er opportuniDes to expand and deepen the domesDc market. Given the condiDon of internaDonal markets it would be wise to focus and build the large opportunity that is available in India. The focus on agriculture and the opening up of foreign direct investment (FDI) through the FIPB route for markeDng food products produced and marketed in India can also boost the agricultural sector. InteresDngly, the government did not wait Dll the fourth year of coming to power to focus on issues that normally see benefits closer to the elecDon year. Eight schemes have been introduced for the agriculture sector-the Pradhan Mantri Krishi Sinchai Yojana, Parmparagat Krishi Vikas Yojana, Organic Value Chain Development in North East Region, Unified Agricultural MarkeDng ePlaporm, Pashudhan Sanjivini, Nakul Swasthya Patra, E- Pashudhan Haat and NaDonal Genomic Centre For Indigenous breeds. These should give a good boost to the rural economy. The Finance Minister also focused on the issue of governance and ease of doing business and importantly consDtuted a Task Force for raDonalizaDon of human resources in various ministries. On the Make in India front the Budget has tried to make a contribuDon to change customs and excise duty to improve compeDDveness in sectors ranging from informaDon and technology hardware to capital goods, defence producDon, texDles, chemicals and petrochemicals to aircraK and ship repair. Taxes have also been simplified and raDonalized to make it easy for doing business in India. The frailty of tax regime that the corporate sector has been poinDng to also received menDon with the finance minister commiqng to a stable and predictable taxaDon regime. Companies will now hope that the Minister and his officials will remain commi6ed to this cause. Overall, it is a Budget that is more focused on macro issues rather than on specific sectors. This should provide the right kind of environment for building strong connecDvity and boosDng producDvity both at the farm and industry level. This also in a way addresses the criDcism that the BJP is interested in corporate welfare over farm welfare. The NaDonal DemocraDc Alliance government seems to be looking to use the Budget to boost growth by giving the rural and investment sectors a big push. However, the most important task for the government will be to maintain fiscal prudence when spending for growth. The “Transform India” Union Budget presented by Finance Minister, Mr.Arun Jaitley, in Parliament today seems balanced at first look and hopefully will have no devil in the details. T S Vishwanath Senior Policy Advisor, Edelman India Non-Tax Revenue INR 1,81,561 crore Revenue Receipts INR 8,03,808 crore Capital Receipts INR 5,10,189 crore With a pro-small business, pro-agriculture budget, the impact of this Budget will certainly not be visible quickly. The way I see it, this budget is about trying to make a long term impact. If the approach works, then the improvements may be more broad-based and have a bigger impact on the jobs front and hence boost demand. The Government’s commitment to sLck to the 3.5% fiscal deficit is good but its reliance on somewhat uncertain revenue sources suggests that the actual figures may well be different from the budget esLmates. Also in the long run, aSempts towards bringing more flexibility to the FRBM may create its own issues. There a bright spot such as iniLaLves on broadening of agricultural procurement and developing SC/ST entrepreneurs’ hubs. Also welcome is the announcement of steps towards developing guidelines for PPP resoluLon such as the Public ULlity (ResoluLon of Disputes) Bill and guidelines for renegoLaLon of PPP Concession Agreements. Some of the tax reforms and financial sector changes may have salutary effects as well. Some of the financial sector changes like broadening the SecuriLes Appellate Tribunal (SAT) and empowering Asset ReconstrucLon Companies (ARCs) may promote business in the long run. However, these steps are unlikely to get much acLon going on the “Make in India” front at least in the immediate run. The other thing which is quite interesLng, I don’t know if it’s posiLve or negaLve, is tax collecLon research. Dr. Rajesh Chakrabar; ExecuDve Vice President Research and Policy Wadhwani FoundaDon POLICY EXPERTS’ VIEWS
  5. 5. Infrastructure Social sector, education, health Roads, incl PMGSY Rural sector Rural employment (MGNREGS) Agriculture and Farmers’ welfare Recapitalisation of Public Sector Banks Pradhan Mantri Gram Sadak Yojana (PMGSY) Prime Minister Fasal Bima Yojana Skill development 2,21,246 1,51,581 97,000 87,765 38,500 35,984 25,000 19,000 5,500 1,804 Major allocations for FY17 (INR crore) Plan Expenditure + Non Plan Expenditure = TOTAL INR 3,45,978 Cr INR 9,68,019 Cr INR 13,13, 997 Cr SNAPSHOT
  6. 6. 
 Edelman India’s Public Affairs (PA) practice combines industry, regulatory affairs and communications knowledge to develop and execute PA campaigns based on solid research and insights that inform impactful strategies. We work with our clients to anticipate issues; plan and respond to the emerging challenges at national, state and local levels. At the core of the offering, is the ability to develop long term relationships and maintain constant engagement instead of an ad-hoc approach. Our team of 30 personnel includes senior industry professionals, domain experts, researchers and writers from a wide range of backgrounds. We have access to an extended group of advisors from civil service, media and NGO circles who help us navigate the vast and complex stakeholder universe in India. Edelman India has offices in Mumbai, Delhi, Bangalore and a vast network of representatives in state capitals. PA PRACTICE • Government outreach • Stakeholder engagement • Issues management • Industry affairs • Policy & regulatory advocacy • LegislaDve tracking • Crisis & risk management • Strategic media relaDons • CoaliDon building • Thought leadership • Market entry • CSR engagement CONTACT US Contact the PA practice: Medha Girotra, Public Affairs Lead @EdelmanIndiaPA Edelman India Private Limited VaDka Triangle, 5th Floor, Sushant Lok-1, Block A Gurgaon, Haryana 122 002, India