Published on February 26, 2016
1. Things to expect in Budget 2016-177
2. Every day brings a new dose of volatility in the markets today. Mostly, this is because of global factors. One reason, however, is very much Indian – slow domestic growth, especially with respect to corporate profits With barely days to go, we have put together some of the main expectations and likely actions in this year’s Budget. Here are the seven key announcements to expect:
3. Growth-oriented: It is quite likely that the Budget may be growth-oriented. “The FM's priority in the 2016-17 Budget will be higher growth,” according to Kotak Securities’ Pre-Budget Analysis report. This, however, is easier said than done considering its fiscal situation. #1
4. Fiscal consolidation: This is the amount by which the government’s expenses exceed its income. You may see a lot of debate around about whether or not the government will meet its fiscal deficit target. It’s a tricky goal, sticking to the target which still stimulating the economy. However, with a strict control on subsidies (thanks to lower oil prices) and an increase in revenue (due to excise duty hikes), the government could achieve the target. For the coming fiscal year, the government could set a lower target of 3.7% of the Gross Domestic Product (GDP). #2
5. Consumption stimulus: A big reason for slow corporate profit growth is poor consumer demand. This could be a big area of focus for the government – improving consumption. Measures like One Rank One Pension (OROP) and the 7th Pay Commission could help in this area. Any cuts in tax rates could also help improve consumption. This is because people will have more money in their hands thanks to these measures. #3
6. Investment stimulus: The economy needs a stimulus on the supply front too. This could come from a 30% increase in capital expenditure – investment in new assets for future profits and growth – over last year’s budget estimate. “Larger and targeted plan expenditure capital outlays, with strict implementation timelines, would likely be announced, to ensure economic recovery and sustainable growth” according to the Kotak report. This is required for the economy to grow at 7.7% rate in FY17. #4
7. Lower subsidies: To meet the higher spending on consumption and investment stimuli, revenue has to be bumped up and other spending, cut. This is the only way to maintain or reduce the fiscal deficit levels. Thankfully, the lower oil price has meant a reduction in the subsidy bill for the government. As a result, the government could budget a lower fuel subsidy bill. However, food subsidy could rise due to the increase in food prices. Direct Benefit Transfer too has helped. It could be implemented for fertilizer and crop subsidy too. #5
8. Higher revenue: Tax is a major source of revenue for the government. The rise in excise duties is expected to add to its coffers and fund a lot of spending. The Budget could announce an increase in duties on various items that are currently given concessions. It could also levy excise duty on exempted products. Moreover, service tax could also increase to the GST rate of 17-18%. Certain exemptions could be removed too. #6
9. Make in India: There are two aspects to this: agriculture and industry production. Drought-laden agriculture could see higher budget allocations. Industry, meanwhile, could expect measures as under the ‘Make in India’ and ‘Skill India’ initiatives. It could benefit from any hikes in customs duty to discourage imports and increase in tax benefits for exporters. #7
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