The Union Budget 2017 Decoded

Budget 2017 announced by the Finance Minister Arun Jaitley is very comprehensive given the fact that it impacts both lower and upper strata of the society to a very large extent– reducing the individual tax rate from 10% to 5% for the lower slab, reducing the tax rate from 30% to 25% for MSMEs having a turnover up to Rs.50 Crores; imposing a surcharge of 10% on individual incomes in the range of Rs.50 lacs to Rs.1 Crore are the breakthrough proposals announced. Relaxation in the promoters’ holding limit for carry forwards of losses and the 3 –year tax holiday provided to start-ups will further boost the Prime Minister’s “Start Up India” campaign. For the educational sector, the FM announced online education portal- “Swayam”, which offers virtual education for 350 online courses, which provides more thrust to the government’s Digital India movement.

The FM has identified the right focus areas like agriculture, infrastructure, rural development and youth and has substantially increased allocations in all these areas in keeping his vision of “Transform, Energize and Clean India”. The reforms in direct tax legislation for the lower income group are likely to increase tax compliance and widen the tax base. The budget has avoided other populist measures to stay on track to meet targets of FRBMA Act.

The Union budget 2016-17 has substantially increased allocations (30%) for the eight north-eastern states. Under flagship, Digital India initiative government has proposed to set BPO promotion scheme for the north-eastern states so as to stimulate employment opportunities for the region. The government has also taken several steps to put Arunachal Pradesh and Meghalaya on the rail map.  The government has already identified thematic circuits for the North –East for promoting it as a major tourism hub. With the aforesaid steps, the government has tried to ensure cultural and economic connectivity of north-east region with the mainland.

The merger of the railway budget with the general budget failed to show any added advantages, with the railway budget ending up being sub-par. Another front where the budget failed was the meagre allocation of 10,000 crores towards bank recapitalization in the face of mounting NPAs and approaching deadline for implementation of Basel III norms. Although, the rising oil prices, the 7^th Pay Commission and the reduction in the income tax rates would put further pressure on the government for meeting its target of achieving a fiscal deficit of 3.2% of the GDP.

Demonetization, being one of the most hotly contested topics prior to the budget saw considerable stimulus in the budget. The revision of withdrawal limits from ATMs, the introduction of BHIM app and Aadhar pay along with the cut in direct tax rates are measures likely to offer some relief to the cash-starved economy. These measures will potentially boost demand in the economy and the increase in public spending will ensure that the effects of demonetization will not spill over to the next financial year.

__________________

About the Authors:

 Anand Mittal and Girraj Goyal

(Members, Finance & Investment Club, IIM Shillong)