Re-balancing for Growth

HIGHLIGHTS: Union Budget 2016

The investments in rural, social and infrastructure sectors with specific incentives is expected to create jobs for millions of youngsters joining the workforce every year. The initiative in the area of education and skill development should enhance the employability of youth across the country.

The infusion of Rs 25,000 crore towards PSU bank capitalisation, while lower than general expectation, would force banks to improve operating efficiencies to deliver on increased credit growth while reducing their stressed asset portfolios. Some of the good reforms in the financial sector are:

 

• Resolution for bankruptcy and insolvencies
• Deepening of Bond markets
• Reform of FDI policy in the areas of insurance, pension, ARCs and stock exchanges
• Tax deduction of provisions towards Non-performing Assets by NBFCs to the extent of 5 per cent of their income
• The willingness to divest below 50 per cent government shareholding in Banks 
• Listing of PSU General Insurance companies.
  

New initiatives on taxation include taxing high income assesses through tax on dividends, Securities Transactions tax on options and increased surcharge on individuals with income greater than Rs 1 crore per annum. However, the perceived fears of Capital gains tax were put to rest with no untoward levies on this front. The various measures to provide relief to small tax payers and with a focus to initiate pension plans and measures to provide affordable housing would assist the lower and middle class. Also, steps to reduce litigation and simplification of tax administration would go a long way in future compliance.

 

The continued focus on maintaining the fiscal deficit @3.5 per cent of GDP and giving consumers a higher wallet share towards spending should see India achieve its targeted GDP growth in excess of 7.5 per cent in FY17. I believe this balanced budget gives an opportunity to the Reserve Bank of India, to announce a policy rate cut.