One can foresee that the short-term impact on GDP, triggered by demonetization, and the impending elections in four states of the country, will majorly impact the policies of this year‘s budget
India is looking forward to the Union Budget 2017-18 announcement on February 1, 2017. It is the first time that the Railway Budget will be combined in the Union Budget and be presented much earlier as compared to previous years.
One can foresee that the short-term impact on GDP, triggered by demonetisation, and the impending elections in four states of the country, will majorly impact the policies of this year’s Budget.
The government may look at devising additional measures that will benefit the under-banked sections of the society to curb the problem of untaxed funds. To accelerate India’s economic growth, the Budget could look at increasing capital expenditure by the government, revive private capex by providing necessary support to various industries and take a calibrated move towards the GST regime.
Giving a major push to its flagship policies such as Start-up India, Make in India and Skill India will help the government tackle the challenge of unemployment in the country.
To improve the conditions of the economically weaker sections of the society, the Budget could have welfare provisions that improve education, health, and housing. Housing and agriculture continue to affect millions of lives in India.
From a microeconomic perspective, the Budget could look at introducing some vital policies for individuals. There is a special focus on affordable housing and the government can look at introducing measures for low-cost housing and offer cheaper home loans to push towards achieving the vision of ’Housing For All by 2022'.
In terms of surging agricultural activity in the country, farmers must be provided adequate irrigation infrastructure and access to quality fertilizers and seeds. Also, since the honest tax payer has suffered many difficulties owing to the sudden demonetization drive in the country, the government could consider rewarding them by increasing the basic tax exemption limit and the 80C limits.
Given their increased expectation of financial social security, it could also look at National Pension Scheme (NPS) being converted from an EET to EEE based scheme.
In an otherwise ‘dormant’ economic environment wherein private capex is yet to pick up, the government may look at increasing capital spending to transform transport systems in the country. Railways modernization project calls for special attention as well.
Most corporates are awaiting a revised roadmap for the already delayed GST Bill and reduction in corporate tax rates. Though Prime Minister Narendra Modi has called for an increased contribution from market participants for economic development, we expect that this Budget could addresses the fears of interference with capital markets tax rates.
Further, raising of STT or short term capital gains tax cannot be ignored. The recent outflow of Foreign investments might also compel the government to promote foreign investments as well as improve India’s ranking on the ‘Ease of Doing Business’ scale.
Hopefully, the Union Budget 2017-18 will bring in a 'feel good' factor for all.
Author is Dasvir Ankhi, Head–Wealth Management & Advisory Business at Tata Capital