The government is focusing on rural and agriculture sector, job creation, financial reform, infrastructure deficit and some much needed tax reforms. If implemented well, theese policies can not only take India ahead towards achieving inclusive growth but also act as a stimulus for the industry through revived rural demand

This year’s budget was an important one, not only for putting the economy on the growth path amidst a global slowdown, but also for political reasons. It came just ahead of 2016 state elections and will have an impact on the ones to be held in 2017. While the previous one had a lot in store for corporates, this time it has been able to overcome the so-called urban bias and instead has focused on reviving rural demand and thereby achieving inclusive growth. While many things can be passed off as unfulfilled expectations for the corporates, this year’s proposals revealed clarity of thought on how best to take India forward.
The proposals presented by FM Arun Jaitley on February 29, aimed at ‘transforming India’ based on nine pillars, viz, agriculture and farmer welfare; rural sector; social sector; education, skill and job creation; infrastructure and investment; financial sector reforms; governance and ease of doing business; fiscal discipline; and tax reforms.

Focusing on Rural Economy
While the emphasis on increasing the share of the manufacturing sector in national income is evident, and is also required for long term growth, that can’t come at the cost of the agricultural sector; especially considering the fact that 60% of our population is dependent on agriculture and allied activities. Thus the focus on agriculture and farmer welfare is particularly important in order to achieve inclusive growth.
This time around the government has announced pro-farmer measures, with a substantial allocation of `35,984 for the distressed sector as well as farmer welfare. The government is also bringing more land under irrigation and also has addressed crop insurance issues.

Rajesh Aggarwal, managing director of Insecticides India Limited, opines, “Lack of irrigation is a major problem confronting the excessively rainfall dependent agriculture sector in India. In this context an important budget announcement has been on the front of increasing area under irrigation by 28.5 lakh hectares as well as a commitment of Rs 6,000 crore for recharging of ground water, especially in drought hit areas. Apart from this, the Rs 15,000 crore allocation for interest subvention for agri loans will certainly offer relief to a large chunk of distressed farmers and help in reviving the rural economy.”

Substantial investment has also been committed for job creation in villages through MGNREGA. Plus, the government has also put in place measures to lift the standard of living in rural belts with ‘Housing for All’ and electrification of villages by 2018. All these measures together are expected to revive rural demand, which will eventually be good for the industry.

Economic Measures & Policy Interventions
The policy proposals demonstrate a clear impetus towards flagship programmes Start up India, Make-in-India, Stand-up India, Digital India and Swachh Bharat mission, along with extending a helping hand
to priority sectors (rural sector, social sector, infrastructure sector, banking sector) and vulnerable sections of the population.

Rs 25,000 crore has been allocated to recapitalise banks, which is significantly higher as compared to last year. But many feel that it is still insufficient, looking at the state of the banks and the extent of capital expenditure expected to take place. However, the Finance Minister has assured in subsequent statements that adequate funds will be given for bank recapitalisation.
The infrastructure sector again

gained a lot of focus. Between railways and roads, both national highways and rural roads, the total planned outlay in 2016-17 is a massive Rs 2,18,000 crore. This will be a significant boost to infrastructure and allied sectors, and will be a major stimulant in job creation and bringing in investment.

Under the FDI Policy, the key
change is to allow FDI under automatic approval route up to 49% in the insurance and pension sector, up to 100% in ARCs, up to 100% in marketing of Indian food products, and in NBFC activities (other than specified 18 activities) regulated by financial regulators, and permitting hybrid instruments subject to conditions. Another change came into effect via clarification, in which the government has allowed 100% FDI in marketplace-based e-commerce businesses, albeit with some caveats. This will be a significant boost to players like Snapdeal, Flipkart and Amazon, among many others.

Macro-economic stability has been assured with fiscal deficit sensibly in control and quality spending on roads, rail and public infrastructure. The PPP model is being revived with new legislative measures, and the minister has assured a friendlier business environment with the proposed changes in tax and corporate laws.

Taxation and Reforms
On the taxation front, there is still no clarity on the timelines for implementation of GST, which is one of the most anticipated reforms. However, on the direct tax side, the minister reiterated his commitment to implementing GAAR from April 1, 2017. Bankruptcy law and a framework for commercial dispute settlement under PPP framework are the two most significant regulatory reforms rolled out.

Commenting on the positive reforms on taxation, Mukesh Butani, managing partner, BMR Legal says, “There are a lot of positives. The budget buries the bogey of retrospective tax, and provides one time opportunity for settlement of past disputes; implementing outcomes of BEPS in the form of equalisation levy cess in B2B digital transactions of 6% shall help garner revenues. The budget rolls out a host of administrative reforms by way of fixing loopholes and measures to improve taxpayers’ experience, and that is definitively a step in the right direction to evolving taxpayers’ service focused administration.

Improvised dispute resolution shall encourage settlement of languishing tax disputes and help unclog dispute resolution mechanism. One time window for voluntary disclosure by delinquent taxpayers finds its way back into legislation, and it’s encouraging to see the FM not propose a prohibitive penalty on disclosure.” For new manufacturing enterprises an attractive rate of 25% corporate tax and for start-ups a tax holiday for three years has been promised. However, the overall rate cut for corporate tax has eluded.

Overall, the announcements have struck a good balance between the social and economic sector, giving impetus to the economy by taking calculative measures while achieving inclusive growth. It only indicates that the government has a clear vision for India and is putting the pieces together one by one to complete the puzzle. And, from the political perspective, these measures will ensure that the government has some good things to talk about when major state elections happen in 2017, setting the stage for the big one in 2019.

Mrinmoy Dey