Thought Leadership
By Pawan Bindal
Director - Operations
Dun & Bradstreet India

Budget 2017: Economy needs a booster dose, says Dun & Bradstreet In conversation with MoneyControl

The Union Budget 2017-18 will be uniquely important in many ways. It will mark the first time that Railway Budget would be merged into the Union Budget. Further, it would also mark a departure from the past in terms of being presented on 1st of February instead of the usual end-February. However, the topmost question on everyone’s minds is how the erudite Finance Minister would handle the economy poised at intersection of two mega ‘policy’ events – demonetization and GST implementation. And his task could not be more onerous and momentous.

The economy needs a boost.

Demonetization has caused significant short-term disruption and there is a need to provide a healing touch as well as to demonstrate the path for long-term gain. Similarly, GST has the potential to catalyze economic rewards in the long term. But the impending GST implementation will require considerable efforts to ensure that short-term challenges do not clog the growth engine.

And to make the matters even more challenging, global political and economic environment remains eerily uncertain given Trump’s recent election victory and Brexit scenario still playing out.

The mood in the Indian economy was aptly captured in the recent Dun & Bradstreet survey – the ‘Composite Business Optimism Index’, which stands at 31-quarter low reaching 65.4 for Q1 (Jan-Mar 2017). This fall in the index when contrasted with 95.3 levels achieved just ahead of the 2014 elections, demonstrates the herculean task facing the Finance Minister.

The need to induce growth is evident. The need for growth-inducing action through the budget is also demonstrated in various economic indicators. Investment activity has been underwhelming, and gross fixed capital formation declined by 3.2% during Jul-Sep 2016.

Growth in bank credit has been slow for many quarters now, and reached a many-decade low of 5.1% as on end-December2016. Worryingly, GNPA (gross non-performing advances) ratio of SCBs increased to 9.1% in September 2016 from 7.8% in March 2016, pushing the overall stressed advances ratio to 12.3% from 11.5%.

However, despite the challenges, there are some bright spots that the Finance Minister could leverage to deliver a budget that revives the animal spirits in the economy.


Tax proceeds following income disclosure scheme and demonetization could potentially provide fiscal headroom for FM to allocate greater funds to rural sector as well for infrastructure.

With GST on the horizon, the FM could use it as a policy opportunity to streamline tax structures and introduce measures that help in ‘ease of doing business’.

The corporate sector is also looking for progress on the direct tax roadmap already laid out by FM. In previous budgets, the FM indicated to reduce the Corporate Tax rate from 30% to 25% while phasing out exemptions. With current corporate tax rate incidence at 35% (including surcharge, cess, etc.), a definitive step towards lower direct tax will encourage compliance and boost sentiment.

A clear schedule and detailing on GST implementation would also provide ‘tax & policy certainty’ to the corporate sector that can catalyze investment activity.

Focus on MSMEs

The budget would have to attend to the concerns of the employment-generating MSMEs segment. The budget should address simplification and rationalization of indirect tax and service tax structure for MSMEs across sectors in line with movement towards GST.

Some of the steps that could reduce the compliance and tax burden include streamlining of the refund process, correcting inverted duty structures, and providing greater clarity on reverse charge mechanisms.

Another point of interest would be the framework that budget ends up creating for adjudicating ‘tax disputes’ concerning MSMEs following demonetizationdeposits. Needless to say, a fine balance would have to be struck to ensure rightful tax compliance while avoiding the ‘tax terrorism’ tag.

In keeping with the focus on tax compliance, budget should provide clear incentives to MSMEs for adopting digitization and transparency.

In the ultimate analysis, as always, the FM would have to attempt a fiscal tightrope of lowering tax rates and yet spending higher for driving growth and jobs.However, the tax revenue scenario would be further influenced by GST implementation and the aftereffects of demonetization, and the calculus could go in many directions. Whether the FM can pull off an ‘ideal’ budget in these circumstances, only time will tell. What looks likely though, is that Arun Jaitely’s 1st February 2017 speech will go down as the “most-watched” budget in recent history!

Click here to check out the article on