'Budget 2017 might see a number of welfare measures and pro-poor schemes'
January 30, 2017
Even before Budget 2017 is opened, government has made two significant changes to the budget process. The tradition of passing the budget on the last working day of February which was a part of the British administration in India has been done away with and this year's budget would be presented on February 1. This marks an end to another tradition from colonial era. The other change is the merger of the railway budget with the union budget. These changes however, are not the ones that industry and masses at large are awaiting. Their expectation in these times of confusion and chaos are much bigger and aspirational.
Budget 2017 is certainly one of the most anticipated budgets of recent times. With economy still grappling with post demonetization issues, the Prime minister's speech on New Year's Eve has set a strong positive precursor for the budget. Some of the new initiatives announced by the PM in his New Year speech are welcoming and clearly indicating a lot more focus on the lower and middle lower strata of the society in the coming budget.
From an industry stand point; there are two major expectations from this budget. With the sudden spurt in cash deposits with the bank, government now has substantially more data and hence ammunition to widen the tax base. In a country of 1.23 Billion people, only 12.5 Million pay income tax. This is less than 1%, which means that 1% population pay for expenses incurred by the government for the 100% population. With more data available now, the government has an opportunity to widen the tax net and hence reduce the burden on population already paying taxes. In effect, industry is expecting significant sops coming their way both on direct and indirect tax fronts. This can be in form of lower tax rates, tax holidays, and new exemptions among others.
Another major expectation is also related to cash deposits with the banks. Post demonetization was announced, banks have got deposits worth approximately INR 15 lac crores. With the banking system flushed with surplus funds, the industry is expecting a significant reduction in interest rates. We are already seeing initiatives by government and RBI to lower the interest rates but considering the quantum of idle money available with the banks, industry is certainly expecting much more. With the GDP growth under stress and demonetization further hampering the industry sentiment, government would have to take big steps so that the benefit of surplus liquidity reaches the end user and the industry gets the much needed impetus.
Goods and Services Tax (GST) getting deferred by a few months comes with its own set of positives and challenges. On the positive side, people are still grappling with issues arising out of demonetization and there is a view that this might adversely impact GDP growth. In such times of chaos, GST implementation would have been a nightmare since it is also a big change and would have added to the confusion. Also, previous GST implementations across the world suggest that in the short term, GDP does take a hit during the transition period while GST is getting implemented. On the flip side, it is best to have any tax implementation in the beginning of the financial year for ease of implementation. We might subsequently loose this advantage.
In a nut shell, the industry is expecting a growth focussed populist budget and the masses are expecting a welfare, pro poor budget. The government, anyways under stress due to post demonetization challenges and impending elections in two large states, would need to walk a tight rope to please varied factions and there couldn't have been a better timing for them to deliver such a budget.
Vivek Wadhera is CFO of ORIX India