Union Budget 2017-2018 Review: Aditya Birla Money

"A right cause never fails" – That is how the FM started by quoting Mahatma Gandhi in context of the demonetization drive the government undertook. The continuation of this drive was visible in Union Budget 2017-18 in the form of embargo on cash transactions beyond a threshold (3 Lakhs), capping of cash donations to political parties and various cashless and digitization drives. The language and intent of the Union Budget was straight forward and centered around i) Quality of expenditure (Capital expenditure upped by 24%); ii) benefits to the society’s lower strata (infrastructure in rural India, MNREGA allocation higher by 24%; infrastructure status to affordable housing); iii) Agriculture & Farming (Micro Irrigation Fund, Higher allocation to Mudra); iv) better tax compliance (to bring in MSME into the taxfold, the corporate tax has been cut by 5% for firms with turnover up to Rs 50 crore; v) public spending in the absence of private Capex (Increase in Infra spending by ~25%); vi) Fiscal prudence (3.2% Fiscal deficit) and lower net borrowing (Rs 3.5tn). There was status quo on the Capital gains (securities)  front.

Other key proposal / highlights were:1. Total allocation for rural, agricultural and allied sectors for 2017-18 is Rs 1,87,223 crore (+24%); Allocation for infrastructure stands at a record Rs Rs 3,96,135 crore (+24%); Defense expenditure excluding pension at Rs2,74,000 crore (+12%)2. Penalties on cash transaction above Rs 3 lakh3. Personal income tax  - Tax slab of Rs 250,000 to Rs 500,000 to attract 5% instead of 10% earlier; Surcharge of 10% for those whose annual income is Rs 50Lakh to Rs 1Crore; 15% surcharge on incomes above Rs 1 crore to continue.4. Clarification on Indirect transfer (concerning FPIs) was a welcome move; Foreign investment promotion board (FIPB) to be abolished. This is symbolic in terms of the intent and simplification of doing business rules.5. Political parties will be entitled to receive donations by cheques or digital modes; Maximum cash donation any party can receive will be Rs 2000 from one source; An amendment being proposed to RBI Act to enable the issuance of electoral bonds for political funding.

Budget took a small pause on fiscal consolidation by targeting fiscal deficit @3.2% for FY18, 20bps higher than planned in the government’s medium term fiscal consolidation program. The lower reduction in fiscal deficit is to stimulate demand in a weak economic environment post demonetisation – a step in right direction. Clearly no –ve news (especially on the capital gains and indirect tax front) is +ve from market’s perspective. Budget is positive for most sectors, particularly Infrastructure, Agriculture and Financials. With quality spending (Capital expenditure) and not too expansionary budget, we are in the reckoning for a possible rating upgrade during the course of next year. Overall by containing the Fiscal deficit @ 3.2% and restricting the net borrowings @ Rs 3.5tn, the government has taken a balanced approach towards fiscal prudence and growth, and clearly sent a message that buoyancy in tax and tax compliance will be a thrust area for the Government (assumptions of 15% growth in direct taxes and 8% growth in indirect taxes, being such an example)Disclaimer: The views and investment recommendations expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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