Chief Executive Officer
KPMG in India
Budget 2016-17 is all about the bigger picture, ushering optimism and providing growth impetus to the economy. It spells a ‘transformative agenda’ for the country with focus on nine key pillars. In his Budget speech, the Finance Minister clearly stated that “India has been hailed as a ‘bright spot’ amidst the slowing global economy by International Monetary Fund”. To continue the growth momentum, this Budget is resilient and promptly addresses the pain-points of the economy, reaffirming India’s ambition towards economic progress. The Finance Minister’s commitment to fiscal deficit target of 3.9 per cent for FY15-16 and 3.5 per cent for FY16-17 has been sacrosanct and all Budget announcements have been derived keeping this in mind.
Sector-wise, agriculture, rural, social sector and infrastructure have clearly emerged as winners. On one hand, renewed focus on farming and rural economy can help address the rising distress, create gainful employment and build domestic demand; on the other, increased public expenditure towards rural road projects and a commitment towards 100 per cent village electrification by 1 May 2018 can help create an infrastructure for sustainable and inclusive growth.
Taking steps to further enhance ease of doing business, a number of administrative reforms have been introduced to fast-track company incorporation process, reduce unwarranted litigation and strengthen dispute resolution mechanism. All these reforms aim at providing a simplified and stable tax regime.
Foreign Direct Investment (FDI) in several sectors including insurance and pension, Asset Reconstruction Companies (ARC), stock exchanges have been further liberalised. Hundred per cent foreign investments have been permitted in marketing of food products produced and manufactured in India. This can bring in more investments into the food processing sector.
The government has stuck to its earlier commitment of infusing INR25,000 crore into Public Sector Undertaking (PSU) banks in FY2016-17, under the Indradhanush plan. To some this has been disapproving. However, the underlying issues in the banking sector are deeprooted and need comprehensive action on all fronts, not limited to capital infusion. The proposed road map for consolidation of PSU banks is a step ahead in this direction. As a test case the government has started the process of transforming a key bank, where it would reduce its stake to below 50 per cent.
Major tax breakthroughs involve a new tax amnesty scheme to improve tax compliance, lowering of corporate tax rate for new manufacturing companies that have been setup post 1 March 2016 to 25 per cent, a 29 per cent tax rate for smaller companies and tax exemption in three out of five initial years of operation for start-ups.
Largely the Budget makes a case to address the uncertainties clouding the mainstay sectors of Indian economy. Simplification of tax regulations, increasing rural demand for goods and services, attracting foreign investment, aiding Indian corporates in their expansion plan, laying ground for an export conducive environment have been the key drivers of the Budget policy. Though crucial reforms such as land acquisitions and Goods and Service Tax (GST) have not really seen the light of the day, many key proposals that were announced are aimed at making India a friendlier investment destination. Overall, sentiments are high, as this truly transformative Budget sets the stage for a sustained inclusive and equitable growth.