Wish List for Union Budget 2017 – AIAI
January 25, 2017

Wish List for Union Budget 2017 – AIAI

Wish List for Union Budget 2017 – AIAI 

The year 2016 was an eventful year where Government had cleared long pending GST and Bankruptcy code. The calendar year ended with demonetisation – the big bang reform aimed to curb black money. However it has resulted in the loss of momentum for the economy in the short to medium term.

The sales of cars, two-wheelers and commercial vehicles have fallen by 18.7%, the biggest drop since 2000 as per the Society for Automobile Manufacturers. State Bank of India has accepted that bank credit off take has declined to a historic low. Similarly CMIE has reported that the average daily value of new investment proposals announced since November 8, 2016 has declined by 60%. The retail sales has witnessed nearly 30% slump.

In such a situation, Mr. Vijay Kalantri, All India Association of Industries said, “The preponement of Union Budget presents excellent opportunity for the Government and Hon’ble Finance Minister to make bold reforms to address and arrest job loss, revenue loss, receding GDP growth and boosting trade and industry that thereby accelerate the economic growth.”

AIAI would like to put forward its wish list for Budget 2017–

Direct tax incentives
Government should double the basic income tax exemption limit to Rs. 5 lakh per year. It should also lower the peak personal tax rate to 25% from the existing 30% along in addition to enhancing its limit to Rs. 20 lakhs. This will help to generate more disposable income in the hands of common man to increase consumption and would further stimulate demand.

The enhancement in the 80C limit will in turn help expand the mutual fund industry and capital markets, as there is a large pool of funds which needs to be incentivised, from the Pay Commission.

India is a traditional savings dominated country. The Government should also encourage bank deposits by reducing “lock-in” for tax rebates to one year (from five years) and raise the threshold for mandatory TDS on interest income to Rs 50,000 a year (from Rs 10,000 currently). This will particularly benefit the senior citizens.

Indirect taxes
AIAI is certain that the Government will implement the much awaited GST later this year. However Government should not use this delay to increase service tax even by a percentile point in its budget to cover the projected short fall resulting in delayed GST implementation. With lower demand due to demonetisation, any hike in excise and service tax will negatively impact demand.

Encourage financial savings
Government must bring in uniformity in post-tax returns of existing schemes like EPF, PPF, and NPS by moving towards uniform tax treatment. The financial savings must be encouraged and made attractive by increasing inflation adjusted post tax returns and introducing product innovations. This is critical to promote the benefits and growth in the financial savings.

Encourage digital economy
Demonetisation has encouraged use of alternate channels such as digital technology for financial transactions. Government has earlier promoted digital platforms by offering various incentives to retail consumers. Government must continue this by offering discounts and thereby promote cashless economy. The success of UPI – Unified Payment Interface and BMIM – Bharat Interface for Money has helped to increase the expansion of digital economy. However the Government must create a progressive and enabling regulatory and licensing framework to safeguard all stakeholders and ensure minimal cost and time-efficient transactions.

Stimulus package to boost trade and industry
Latest data suggests that since November 2016, foreign investors have pulled out Rs. 71,652 crore from the market. This indicate growing high concerns about the ‘lower growth’ of Indian economy as compared to other emerging economies. Corporate earnings are expected to come down sharply in Q3 due to high input costs, shrinking sales and lower margins. In this situation, Government must use the upcoming Budget to provide stimulus and structural reforms. Government must prioritise spending on infrastructure, education and health to maximize benefits at the micro level.

Government must rationalise current taxation system to lower average tax rates for corporates from 30% to 20% in an attempt to be revenue neutral. This should also include reducing MAT. Government must take additional efforts to improve tax-GDP ratio. Traditionally lower tax limit has always generated higher revenues for the Government.

Support to MSMEs
Government must prioritise finances to MSME sector under credit security scheme up to 2.0 crore without any collateral security towards their bill discounting, against stock and against government stock orders for execution. Today, banks have received nearly Rs. 4 – 5 lakh crore of money into banking system. Loans to MSMEs / medium scale sectors should be made available at 10%. MSMEs are the backbone of inclusive economic growth and substantially contribute to job creation. The access to cheaper loans will help MSMEs to sustain their businesses. These are necessary to revive that sluggish demand and improve the consumption and thereby help accelerate the economy. This would help to stimulate consumption demand and propel private investment post demonetisation.

MSMEs are the backbone of the Indian economy. However, the sector is characterized by it’s unorganise existence. In the era of digitization, the Government should initiate creation of a Centralized Portal and Repository database for updated bank account details of all MSMEs. Such a portal, with an unified linkage system, will increase transparency of MSME financial data, enable automating financial assessment real time, thereby reducing decision making time and leading to further reduction in interest costs by 1 per cent.

Infrastructure lending
Today, manyinfrastructure projects are stalled due to non-availability of funds. Government must support these infrastructure projects by facilitating long term infrastructure bonds at various levels. This will boost public-private partnership and will further boost employment.

Demonetisation has hurtled the GDP growth. Today, MSMEs and corporate sector is desperately looking forward to government’s definite direction to wither out this sudden economic slowdown.

With the strong fundamentals in place, AIAI believes that the Union budget presents a great opportunity to be the much needed catalyst to leapfrog the dwindling Indian economy.