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Budget 2017 unlikely to have any 'big bang' measures
Published : Jan 28, 2017 - DNA

Budget 2017 is unlikely to have any 'big bang' measures, Dun & Bradstreet India said in its Budget expectations report.

The 2017 Budget is expected to be presented on February 1 this year, moving away from the age-old tradition of presenting it on the last working day of February. This year, the government will also break away from a 92-year-old practice and present the Budget and Railway Budget as a single financial statement.

This year especially all the eyes are on Budget 2017 in the aftermath of demonetization and various income declaration schemes. The industry and corporates are also looking for direction on a) corporate tax, and b) GST.

"We anticipate that the Union Budget for FY18 would be devoid of any major or big-bang reforms/ initiatives as it is likely to focus on hand-holding the implementation of the many major initiatives already taken and assurances made by the government earlier," Lead Econonomist, Dun & Bradstreet India, said.

This government has differentiated from the earlier ones, by making announcements of growth initiatives a round the year affair and not just in the Budget.

"In a way, the government has been making a serious attempt to bring the Union Budget closer to what it essentially is, a mere accounting and allocation exercise, while making reforms an on-going year-long process."

Singh also said that in the upcoming Budget 2017, there will be more questions raised than expectations.

"How will the government manage to combat the overall slowdown in demand, especially in the rural segment, and create the much-needed employment? In terms of allocation, will the segments/sectors impacted by demonetisation receive greater focus and limit the possibilities of any major initiatives? Given the moderation in the projection of Indian economy, will the Union Budget be tilted towards populist or reformist measures? Can we expect the Union Budget for FY18 to pave way towards increasing disposable income by providing some relief under personal income tax?" the report said.

However, the report still listed out some expectations given that FY16 growth is likely to taper on the back of demonatization and is likely to remain subdued for the next few months.

Expectations

Rural

Rural demand could get a push from additional sops or benefits.

Consumer demand

Overall consumer sentiment needs a push after demonetization when the Prime Minister removed 86% of the currency (in value terms). This can be done either directly by increasing the disposable income by altering the tax exemption limits (progressively taxing the higher income groups) or indirectly by making the consumer goods segment or services more affordable.

MSME sector

Both demonetization and GST has and will have in the medium term a profound impact on the largely un-organised MSME segment in India. Hence, the budget is expected to announce some initiatives or exemptions to the MSME segment.

Infrastructure

The other important segment, which would need emphasis, is the infrastructure sector. The investment activity needs to be accelerated to support growth which is expected to have been considerably affected by demonetisation. Thus, the prerogatives would be not only to increase fund allocation to various schemes/initiatives, but also to ensure effective utilization of the funds allocated and fast track the execution of the various infrastructure projects.

Moreover, railways are likely to draw significant attention in this space.

Direct and indirect tax

Increasing the revenue collection both from direct and indirect tax in the ensuing year would be crucial. While demonetization was a push (involuntary) which forced people to declare their taxable income, combining it with a voluntary compliance mechanism for declaration of taxable income would make the entire method of increasing the tax base more robust.

The government would be relying on GST for indirect tax collection. However, the near-term is likely to be challenging with adjustment costs for the private sector (coping with inter-sector implications of new tax rates), and the Central Government (trying to compensate states for revenue loss).

Fiscal deficit

Under the fiscal consolidation roadmap, even as the government remains committed to reduce fiscal deficit to 3% by FY18, any slippages in budgeted disinvestment, rise in global crude oil price, need for recapitalization of state-run banks and slowing economy could pose considerable challenge to the Central Government.