Five Indian states are going into elections in 2017. There is a lot to win and lose for political parties. Total 690 seats are at stake. The next year will be even more significant as 7 states will be conducting elections, and the battle will be for 964 seats.

On this backdrop, the Union Budget 2017-18 to be presented on February 1, 2017 remains one of the most crucial and a much-awaited event. This time, the Government has preponed the budget by over 3 weeks of its usual schedule.

Adv. M.L. Sharma, an Indian lawyer known for filing a series of Public Interest Litigations (PILs) had filed a PIL demanding that the Union Budget 2017-18 should be deferred until the last phase of State elections is not concluded. The elections in 5 States —Uttar Pradesh, Punjab, Uttarakhand, Goa, and Manipur, are to be conducted between February 4, 2017 and March 08, 2017.

However, the Supreme Court has found little merit in the PIL. The Chief Justice of India (CJI) Council questioned the petitioner, “What’s the big deal if budget is presented on February 1 instead of March 1? Which law is violated by this?” The CJI Council also gave a second chance to the petitioner asking him to come “Well Prepared” and noted that, “We tried to find the provision, but we did not get. You show us which provision of the law is violated, which provision of the Constitution is violated.”

The Supreme Court has granted the petitioner time till January 20th to justify his supplication.

The Government has maintained that the Union Budget is a constitutional exercise that affects the entire country and not only the States that are going into elections. Following the exhaustive exercise of demonetisation, the Union Budget 2017-18 has become all-important.

Clearly, the expectations from the Union Budget 2017-18 are extremely high, and speculations are rife that it would be a populist one.

So, what’s in store?

Eying the State elections, the Government may announce pleasing measures to appease voters post-demonetisation pain. In fact, Prime Minister, Mr Narendra Modi has already begun to do that.  In his New Year eve address to the nation, he attempted to strike a chord, especially with the financially weaker sections of the society. 

Here are some findings of the Pre-budget Expectations Survey Report of Deloitte…

• 58% respondents expect the basic exemption limit (the personal income tax slab) be raised from Rs 2.5 lakh to Rs 5 lakh.
• Nearly 71% respondents believe the exemptions under Section 80C of the Income-tax Act, 1961 should be increased to Rs 2.5 lakh from the present Rs 1.5 lakh; while remaining 29% expect it to be raised to at least Rs 2 lakh.
• When it comes to National Pension System (NPS), 88% respondents feel there should be complete parity between the provisions for Provident Fund and NPS as far as the tax treatment and withdrawals goes; NPS should be entirely exempt.
• 53% respondents believe the deductions for investments in long-term infrastructure bonds, over and above that offered vide Section 80C of the Income-tax Act, 1961, should be reintroduced and in place of Rs 20,000, the threshold limit for such qualifying investments must be raised to Rs 50,000.

 

"Tax simplification figured quite a lot... on direct taxation, corporate and personal income tax, reducing exemptions, bringing down the tax rate and aligning tax system to make India competitive with international destinations." –Arvind Panagariya, vice-chairman of NITI Aayog  “This is the last big budget before the 2019 elections. The government will focus on policies that will play out by 2019”—Naushad Forbes, president of industry association CII.

There is a belief that the Government may overlook the fiscal prudence in the upcoming Union Budget, and may announce significant fiscal stimulus which includes restructuring the corporate as well as the personal taxation regime and leave more discretionary income in the hands of the citizens, whereby saving and consumption can get a boost.

The Reserve Bank of India (RBI) Governor has already highlighted that sovereign debt of India (combining that of the States and the Centre) is the higher among G-20 nations. So, we hope the Government does take cognisance and there isn’t significant aberration. Hence, the Government’s guidance on fiscal deficit for fiscal year 2018-19 needs to be closely watched. Anything in the range of 3.0% to 3.5% would signify walking on the path of fiscal consolidation.

The World Bank has slashed India’s GDP growth forecast for the fiscal year 2016-17 to 7.0% from the previous estimate of 7.5% citing the impact of demonetisation. “The immediate withdrawal of a large volume of currency in circulation and subsequent replacement with new notes announced by the government in November contributed to slowing growth in 2016,” the World Bank said in its report. The discretionary spending has dipped significantly post demonetisation. A recent survey run by State Bank of India (SBI) on the impact of demonetisation on small businesses too, indicates that small businesses are taking a hit. Two-third of respondents said they witnessed a fall in revenue immediately after the demonetisation was announced. As per the estimates of Knight Frank, a real estate consultancy firm, even the real estate sector has felt the brunt. Sale of residential properties in India’s top 8 cities has dropped nearly 44%, and new launches declined by 60% in the October-December quarter.

So in the aforesaid backdrop, the Government is warranted to do whatever it takes to triumph better economic growth. Potentially, Government is expected to increase infrastructure spending and allocate more towards education, healthcare, rural economy in the endeavour to create jobs. As mentioned before, the current dispensation would focus one leaving a disposable income in the hands of individuals to drive the consumption story of India, which in turn can drive economic growth and bring revenues vide indirect tax.  If the Goods & Service Tax comes into force from April 1, 2017 or mid-September 2017, clocking around 2.0-2.5% is possible and can draw in better indirect tax revenues for the Government. 

Hence, it is expected that the Government would astutely take ‘populist measures’ and ‘popular measures’. Economically unviable actions that are solely targeted to attract voters and pacify some sections of the society can be classified as populist measures. Whereas, those which are  economically viable can be classified as ‘popular measures’.

By refusing to give in to the demand of farm loan waiver, the Government has sent a strong message that the budget may not be populist. But the question is, will it deliver on its promise?

We hope Prime Minister, Mr Modi and his team displays a masterstroke in the interest of the economy as whole.

Add Comments