Friday, February 26, 2016

Pre-Budget 2016 last strokes

Budget Run Up – The Last Strokes
The long wish list of the budget 2016-17 in the double-digit growth pitched economy has GST implementation as the top agenda and implementation of recommendations of Justice Eswar Committee on tax reforms as the second top item.

Farm sector and rural development find a big surge in the budget run up news columns. Declining credit is a cause for worry in these sectors as the banks hit by NPAs and loan write-off are in no mood to oblige the farmers. Agriculture infrastructure targeting market yard digitisation and revamp calls for a big ticket from the challenging budget 2016.  A separate budget for agriculture would have made lot of sense but the government has no such plans. Still hopes ride high in this sector.

Make-in-India requires a big manufacturing push and this is possible mostly with the MSME  sector that has so far drawn little attention.

MSME  Ministry recently redefined the eligibility criteria whereby the aggregate value of the Plant and machinery under the same ownership located anywhere will be reckoned to classifying as MSME, providing for vertical growth. This will correct the distorted subsidy regime engendered by horizontal growth.


The revised definition requires that the Government allow tax holiday for the manufacturing start-ups for at least three years up to threshold turnover of up to Rs.500crores in the context of continuing decline in exports during the last 14 months.

Angel investors have thus far focused mostly on the start-ups in software and real estate sectors and not in manufacturing sector. Angel funds venturing into manufacturing sector also need to be provided a tax holiday for five years to make Make-in-India achieve its target.

The other most important area that needs transparency in budget accounting is the levy of CESS. Education Cess has no track record of having been spent in the sector. Swatch Bharat Cess is again travelling in the same route going by the experience during the last six months. It may be no surprise that some more areas than roads, education, and swatch Bharat could be the target of the FM for CESS as he may want to appear concessionary on tax regime.

Several senior citizens are finding increasingly safe avenues of saving unattractive as they would like to supplement their pension with monthly interest to meet up with the rising expenditure on basic living and health. The premium on insurance policies is going beyond their capacity for those crossing 65 years. This sector would like to have their deposits with banks get higher interest than others and the present restrictions on eligible tax exempted deposits to be relaxed from the cap of five years to three years. Existing concessions available for octogenarians be made available for those crossing 70 years.

Notwithstanding the current market volatility, share transaction tax at 0.50 percent would provide on-line accretions into the revenues and he can reduce through this measure the corporate tax to 20% from the existing 30%. The economy as voiced by the OECD, IMF, S&P, Moody’s etc., has the latent potential to be the leader among emerging market economies and Asia if the clean-up of the financial sector is hastened through structural and strategic reforms with a monitorable road map.

Budget summary should be in the areas sworn by the ruling party: Agriculture, Digital India, Start-Up and Stand-up, Skill India, Make-in-India, Swatch Bharat and safe India and Niti Aayog should give the Report card at the beginning of every Parliament session.
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