Budget 2016: Balance between fiscal deficit and promoting manufacturing

Abhaya K AgarwalA significant Outlay of Rs. 2,18,000 Cr. has been proposed for rail and road sector. High investment in rail and road projects clearly reflects Government’s intent to boost the manufacturing sector and overall improved investments. Target of spending Rs. 86,500 Cr on irrigation projects in next 5 Years, 100% electrification by 2018, exemption of certain parts of dialysis equipment and unified agriculture marketing scheme are some of the major announcements which are likely to boost the manufacturing demand-supply. Rationalisation of duty structures in certain manufacturing goods, 100% deduction of profits for construction of affordable housing would also improve the availability of funds for infrastructure and strengthen the domestic manufacturing base. As the current economy is going through a tough time and balance sheet of the private sector players are not in a healthy state, budget has taken the right approach of not over emphasising on PPP projects. Public utility resolution bill, issuance of new guidelines for renegotiation of PPP contracts, credit rating of infrastructure projects are some of the positive announcements to address the private sector concerns in timely implementations of large infrastructure projects. Announcement of 100% FDI in marketing of food products produced and manufactured in India is likely to boost the Make in India campaign and also likely to positively impact on the agro business. Similarly, FDI permitted last year in defence is also likely to strengthening India as defence manufacturing base.Announcement of reduction in corporate tax rate to 25% -29% for new manufacturing companies do not seems enough and probably a higher rebate could be an encouraging step. Promoting entrepreneurship through “Stand Up India Scheme” is an encouraging step to promote business enterprises among SC/ST. Increase in the turnover limit under Presumptive taxation scheme is an encouraging step to support MSME segments. Overall budget has tried to strike a balance in promoting manufacturing sector and at the same time keeping fiscal deficit intact through emphasis on Make in India & Skilling India and special focus to key social initiatives of government such as Swach Bharat ( preventive health), Jan Dhan Yojana ( financial inclusion) and Digital India ( bridging digital divide). However, timely and faster implementations of schemes remain the key challenge area.Author is Partner and PPP Leader, EY