BUSINESS

Anti-Rich Measures To Cyber Safety: All The Buzz From Budget 2017

Will it please or disappoint?

27/01/2017 4:01 PM IST | Updated 27/01/2017 5:53 PM IST
The India Today Group via Getty Images

A lot is riding on the upcoming Union Budget 2017 given it closely follows the massive demonetisation exercise, the full-scale impact of which is yet undisclosed by the government but is being felt across many industries and livelihoods.

That people and companies would be looking for economic relief and tax sops shouldn't surprise anyone, but India's Finance Minister Arun Jaitley has to now walk the tightrope of balancing the government's fiscal responsibilities with the pressure to lift sagging consumer demand and the economy, along with creating jobs.

Here are some of the biggest expectations from the FM:

Fiscally responsible

That's the number one concern from economists who are looking at the overall budget exercise and the country's fiscal position. Like companies, even governments should try to balance their spending and expenditures within a specified target.

Japanese bank Nomura expects "a popular and prudent plan, not a populist one, with the government sticking to its fiscal consolidation targets, aided by higher revenue collections."

Nomura expects the fiscal deficit target of 3.5 per cent for 2016-17 to be met and to be consolidated further to 3 per cent of GDP in 2017-18. Crisil Research was more harsh in its assessment, saying it would be nothing short of a miracle if India's met its fiscal deficit target of 3 per cent of GDP.

India's finance minister is likely to borrow more than originally planned when he presents the budget on Feb. 1, say experts. According to India Ratings & Research, Jaitley will face the additional dilemma of whether to provide a fiscal stimulus to offset the effects of demonetisation.

Taxes

Given the pressure to spur spending, many expect the finance minister to be generous with tax sops for both personal and corporate income tax payers.

On the personal income tax front, everything from simplifying tax slabs to raising the income tax exemption limit (currently at ₹2,50,000) to bringing back standard deduction is on the wish-list for taxes.

However, income tax relief for corporations seems more likely, according to media reports. "In particular, we expect progress in the stated objective of gradually reducing the corporate tax rate to 25 per cent, while weeding out exemptions," HSBC India Chief Economist Pranjul Bhandari said.

Complicated tax systems have cramped India's ease of doing business, Dinesh Kanabar, CEO of Dhruva Advisors, told CNBC.

'Anti-Rich'

According to the report by brokerage firm Ambit Capital, in an ongoing crackdown on black money, this year's budget is expected to be 'anti-rich' with only a secondary focus on delivering token payments to the poor and tax cuts for the middle class. The government may increase long-term capital gains tax, and introduce penalties for cash transactions, said the report, noting the Supreme Court-appointed Special Investigation Team on black money that has recommended cash transactions above ₹30,0000 and the possession of more than ₹15,00,000 at any time be made illegal. In addition, there could be measures to restrict cash withdrawal from banks.

Affordable Housing

Following PM Modi's December 31 address announcing cheaper housing loans, more detail is awaited in how some of the housing schemes would work.

According to Nischal Maheshwari of Edelweiss Securities "housing finance companies, construction companies could be definitely Budget beneficiaries."

In addition, tax sops like increasing the amount of deduction one can claim under Section 80C which allows for tax deduction of ₹1.5 lakh for housing-related payments like principal amount of housing loan, insurance premium, is expected to be increased.

Public infrastructure

The government is expected to massively increase investments in public infrastructure projects to create employment and prop up sagging demand.

According to PwC, India will need investments of up to $1 trillion in the next seven years to meet its infrastructure and housing demand, with a big chunk of demand to come from housing. Credit schemes and bond markets should be encouraged to address the funding challenges in the infrastructure sector.

The government will have to pay extra attention to the rural economy, especially in the wake of demonetisation. Times of India reported quoting government officials that "There will be more attention on irrigation and agriculture. We are working out the numbers. We will have to address the problems in the rural economy which has borne the brunt of two consecutive droughts."

Railway Safety

This year the Railways Ministry won't present a separate budget, ending decades of a colonial era practice. Following a string of deadly rail mishaps, the government is considering putting aside ₹1 lakh crores in a special fund dedicated to critical railway safety upgrades, The Indian Express reported. The investment is part of Finance Ministry's ₹55,000 crores in budgetary support to Indian Railways for 2017-18. The fund, Rashtriya Rail Sanraksha Kosh, will be used to renew aging rail infrastructure such as rail tracks, signalling systems and bridges in the next five years. The first tranche for investment from the fund will be ₹20,000 crore.

Make in India

Given this is one of PM Modi's pet projects, and with the backdrop of continuing slowdown in the industrial and manufacturing sectors, more incentives are likely here.

Mobile handset makers, for instance, are asking for a 10-year tax holiday and continued differential duty structure to encourage local manufacturing, said Ritesh Suneja, group chief financial officer at Lava.

Cashless economy

This has been a burning agenda for the government since the cash crackdown. Expect more incentives for digital payments and cashless lifestyles.

Experts expect incentives for companies that manufacture equipment like PoS machines and micro ATMs. PTI reported the government may cut or eliminate excise duty on manufacturing of micro ATMs, finger print readers, biometric cards and PIN cards.

There may be taxes to discourage large cash transactions, as recommended by a government-appointed committee of chief ministers that has proposed taxing cash transactions over ₹50,000.

Cyber security

With growing cyber threats, and the government's push for cashless and use of digital, IT companies expect concrete measures to strengthen cyber security laws in the country.

"As India digitatises rapidly, holistic approach to cyber security is a pre-requisite to foster and sustain the trust of all stakeholders -- consumers, businesses as well as government," Sanjay Rohatgi, Senior Vice President, Asia Pacific and Japan, Symantec told Business Standard. According to him, the government must consider setting aside at least 8 per cent of its overall IT budget specifically for cyber security, starting with the upcoming budget.

Healthcare

Public health experts say India needs to nearly double its public health spending to at least 2 per cent of GDP from the current 1.2 per cent.

However, as the government is already in the process of working on a broad health policy, the National Health Protection Scheme (NHPS) which aims to increase this spend to 2.5 per cent of the GDP, the upcoming budget may not have any immediate health sops.

Separately, health insurers want the budget to grant lower service taxes to boost the take-up of health care insurance services in the GST framework. The life insurance penetration in India stands is at about 3 per cent to 4 per cent, notes.

Support to start-ups

Start-ups would also welcome tax holidays and regulatory relief. For example, a single window license regime that improves business environment will encourage start-ups, said Peyush Bansal, Founder and CEO of Lenskart. A "futuristic tax policy (single tax regime through the roll out of GST) will also encourage innovation and entrepreneurship," he said.

On the other hand, some startups want less regulation to reduce uncertainty in regulation for startups. In fact, Shailesh Vickram Singh, an Entrepreneur and venture capitalist wants start-ups to be left alone. "The last few years of hyper-activity by the government—in terms of ever-changing regulations, and new and innovative forms of taxes—have created immense uncertainty for entrepreneurs and investors," he writes for HuffPost India.

Swachh Bharat cess (0.5%)

People expect more transparency and engagement on the Swachh Bharat cess which is aimed at cleaning up India. In a survey by social engagement platform LocalCircles, which polled 1,00,000 citizens 37 per cent of respondents said the government should involve more citizens and municipal bodies with the collected revenue in the Swachh Bharat drive, which has collected about ₹7,000 crores.

Sugar subsidy could go

The government may put a stop to offering ₹18.50 per kg subsidy on sugar purchase to states in an effort to save about ₹4,500 crores. The Centre's contention is that there is no demarcation for below poverty line (BPL) families in the new Food Law and there are apprehensions that state governments may divert subsidised sugar.

MORE:Business

More On This Topic