After the historic announcement around demonetization, the citizens of India are eagerly awaiting the announcement of the Union Budget 2017-18, which for the first time will incorporate the Railway Budget as well.
A populist budget could be expected given the liquidity issues in the economy post demonetization coupled with the impending elections in four States of the country.
Considering that the idea behind introducing demonetizationwas towork towards curing the country of its problem of untaxed funds, the government could incorporate additional measures that would benefit the under-banked sections of society.
FULL COVERAGE: UNION BUDGET 2017-18
The Indian economy was growing at a substantially rapid pace of around 7.6% right up until the demonetization initiative was announced. Hence, the Union Budget 2017-18, must aim to revive India's positive-growth route. It could look at increasing capital expenditure by the government, reviving private capex by providing necessary support to various industries and a calibrated move towards the GST regime.
From a microeconomic approach the forthcoming Union Budget could include some favorable policies for citizens at an individual level. For instance, the honest tax payer who endured most of the sudden demonetisation drive could get their due by way of an increase in the basic tax exemption limit and the 80C limits.
FULL COVERAGE: RAILWAY BUDGET 2017-18
Constantly pegged against PPF, the National Pension Scheme (NPS), could be given attention as well. Given the increased expectation of financial social security, the government could look at NPS being converted from an EET to EEE based scheme. For the economically weaker sections of society, the Union Budget may constitute multiple welfare measures across various social segments ranging from education, health, and housing.
Announcing policies which are for the economically weaker sections of society will not only demonstrate the government's concern for them, but also work as a catalyst for the forthcoming state elections.
Housing and agriculture are vital areas of concern in the country. This year, the affordable housing segment should get special attention. The government might introduce measures for low cost housing and offer cheaper home loans, thus giving a much-needed push to the Pradhan Mantri Awas Yojna and achieving the vision of 'Housing For All by 2022'.
Introducing enhanced measures such as irrigation infrastructure, availability of high quality fertilizers and seeds, will give an impetus to the agriculture sector.
For the benefit of the corporates, a revised roadmap for GST and afurther reduction of corporate tax rate could be on the cards. Additionally, the government may also be compelled to further promote foreign investments thereby improving India's ranking on the 'Ease of Doing Business' scale.
Giving a major push to itsflagship policies such as Start-up India, Make in India and Skill India will help the government tackle the challenge of unemployment in the country. In an otherwise 'dormant' economic environment wherein private capex is yet to pick up, the government could look at increasing capital spending to boost railways, roads, and ports infrastructure. Given the number of train accidents this year, accelerating the process of railway modernization could be a wise step.
Prime Minister Narendra Modi has called for an increased contribution from market participants for economic development. However, fears of interference with capital markets tax rates have not yet dispelled despite Financial Minister's assurance of no long-term capital gains. From the Capital markets perspective, there is a high possibility that the definition of long term could be tinkered with as in case of dividend income. Also, raising of STT or short term capital gains tax cannot be ignored.
Demonetization has clearly triggered high expectations from the Union Budget 2017-18. Across sectors, the overall outlook leans towards getting a populist budget.
Dasvir Ankhi, Head - Wealth Management & Advisory Business, Tata Capital