Union Finance Minister Arun Jaitley pulled off a good balancing act in the Union Budget for 2017-18 and the first impression of it seems to have left financial markets euphoric. But is the Budget fineprint really as great? Can it be called a reformist Budget? Could he have done more?
Let's get it from the horse's mouth. Some of the top economists, tax consultants and market analysts do the hairsplitting of the Budget fineprint hereunder.
Sunil Singhania, CIO - Equity Investments, Reliance MF
The focus has been on capital expenditure and the finance minister clearly said that the private capital expenditure is taking some time. The need of the hour was government spending - the allocation is almost 24 per cent higher than last year in terms of government capital expenditure is good.
Capital spending should lead to a multiplier effect which is rightly talked about by the finance minister. There were hardly any changes and clarity on tax rates helped. I think it could not have been a better budget in the given circumstances.
It is indeed a pro-growth budget with so much of allocation of public funds towards investment and not just that I would say that it is pro-growth budget and at the same time the FM has maintained fiscal discipline in that sense directionally.
I think it takes all the boxes of focus on investment on rural, on digital, on youth, on skill development and at the same time maintaining the direction of fiscal discipline.
Deepak Parekh, Chairman, HDFC
The marginal increase in fiscal deficit acceptable till growth returns. I am not too concerned about 3.2% fiscal deficit target.
Jimeet Modi, CEO, SAMCO Securities
Budget is forward looking with simplistic orientation to invigorate the economy by focusing on ease of doing business, lower fiscal deficit targets thereby creating room for lower interest rate regime, increasing disposal income in the hands of middle class by lowering direct tax incidences, encouraging honesty by capping cash transactions either in the form of expanses or donations.
It is a step forward to transform the economy into meritocracy by trying to unshackle the past legacy of black money and political clutches.
The simplification of procedural hassles for the common man and at the same time giving them tax concessions seems sensible which is done to neutralize the effects of demonetisation. Agriculture credit push to the tune of Rs 10 Lakhs Crores is positive for the entire rural economy combined with increased coverage under Bima Phasal Yogna would further galvanize the rural purchasing power. Focus on affordable housing and infra status there upon would help reduce interest cost for all and greatly boost the housing for all mission.
There are fine prints which will adversely or positively affect some sector or the other, but on the whole this is a credible budget to curb the menace of black money and at the same time has made the life easy for honest men and women in the country. The budget is good for the country and the market.
Killol Pandya, Head - Fixed Income, Peerless Funds Management
"The budget seems to be well-balanced. The government appears to have done a reasonable job of managing growth requirements, social development, nation building and managing the fiscal deficit and inflation. From the domestic bond market perspective, the borrowing numbers seem to be manageable. We may consider the budget as mildly positive one."
MS Mani, Senior Director, Deloitte Haskins & Sells LLP
"The reaffirmation of the Governments focus on GST was very reassuring and it now appears that the country is all set to move to GST from 1st July. The Finance Minister listed several steps which the Govt has taken to enable GST from 1st July and also mentioned that an outreach programme with industry would be launched from 1st April 2017."
"The absence of any major changes in excise and service tax confirms that we are definitively moving to GST from 1st July.
"Businesses which had put GST preparation on the backburner will now need to undertake a crash course in getting GST ready as its introduction is imminent from 1st July.
"The emphasis on GST groundwork already done in the FM's speech including specific steps taken and proposed and the absence of any major changes in Excise and Service tax is a clear indication that we are going to see GST in India from 1st July 2017."
Radhika Rao, Economist, DBS Bank
The government outlined a workable and realistic budget for the next year, sticking to the fiscal consolidation path but reduced the pace of deficit reduction to 0.3% of GDP (from -3.5% in FY17 to -3.2% of GDP FY18) vs 0.5% expected. Bond borrowings have been kept in control, limiting any negative spillover on the debt markets. In terms of hits, rural development and infra received a strong push, with higher outlays towards the farm sector, village electrification, higher agricultural credit to farmers, rural housing schemes, MNEGRA allocations, irrigation schemes and crop insurance, amongst others. For urban sectors, housing will qualify as infra status. Consumption stimulus was provided by way for direct tax cuts - personal income tax rates cut for the low earners, but offset by surcharges on higher income brackets.
Misses included lower provisions towards banks’ recapitalisation, still high divestment/ dividends targets and only a selective cut in corporate tax rates.
On a broader note, the key takeaway from a combination of higher spending and limited revenues suggest a strong emphasis on improved compliance on revenue collections, widening the base and strict enforcement of regulations to meet budgeted tax projections (15.3% YoY in direct and 9% in indirect taxes).
In all, kneejerk exuberance is likely in the short-term (helped also by no change in the capital gains tax), with global drivers to return as an over-arching theme beyond the next couple of days.
Ranen Banerjee, Leader Public Finance and Economics, PwC
"I would call this a fiscally prudent reformist budget with realistic deficit target of 3.2%. The thrust is on ease of doing business, big push to rural infrastructure and highways and digital financial inclusion. Abolishing FIPB sends out a great message to investors. Corporate tax relief to SMEs with turnover of less than 50 crore to 25% would possibly also lead to better compliance. Bringing down the lowest slab personal income tax rate to 5% is likely to boost consumption."
Abnish Kumar Sudhanshu, Director & Research Head, Amrapali Aadya Trading & Investments
We rate the budget as 'No Bad news is good news'. Modi government budget focus remained more on the growth of rural India keeping the fiscal consolidation in place and much-needed boost to the stalled economic activities post demonetisation.
It was much-needed budget required for the market. Going ahead, we believe the stock market is likely to cheer Modi Budget from here on. We expect the companies having more focus on rural India to remain the radar like M&M finance, Coromandal International, Hero Moto etc.
Gaurav Dua, Head of Research, Sharekhan
The Union Budget aims to stimulate the economy by the healthy allocation for housing, agriculture & rural sector and infrastructure development. At the same time, it projects to limit fiscal deficit at 3.2% of GDP and net market borrowings at Rs3.48 trillion in 2017-18.
Rakesh Bharagava, Director, Taxmann
"The reduction in corporate tax rates for small companies will give a boost to the startup ecosystem. It will encourage unorganized partnership firms to incorporate a Company. The benefits shall be available to SME Companies who are generating turnover of up to ₹ 50 crores. Approx. 96% of companies will get this benefit of lower taxation."
Jimmy Patel, CEO-Quantum AMC
"This was, in my view, a tepid budget by all accounts. Neither any clutter breaking reform nor, thankfully, any major populist measure given the fact that state elections are around the corner, were to be seen.
The build-up to the taxation proposition was great but the final outcome fizzled out, thoughts of tax cuts across the board and simplification of processes have not been addressed, there has been some relief for people in the 2.5 lac to 5 lac tax bracket though. Small businesses were also given some relief.
As is the wont of the NDA, the budget has focused on the rural sector and a marginal push to infrastructure in terms of road expansion and railways has been given.
In terms of digital payments - the Aadhaar Pay In app and withdrawal of service charge on rail ticket booked through IRCTC etc. are small steps toward digital payments, a lot more could have been done here to make the economy even more digital, not much else was disclosed on this front.
"While the clean-up of political funding is also a good initiative in the budget, it will require tremendous political will to implement this satisfactorily. In this budget too there was no major relief for mutual funds and the advantages that investors could have by investing in them. Overall a tepid budget - neither great nor bad."
Atul Kumar, Head-Equity, Quantum AMC
"The focus of this budget is on the rural and agriculture sector. Affordable housing has also been given a boost. There were some expectations of tax cuts or some announcements simplifying the tax structure, but looks like we will have to wait for that to come. There were some changes, however - tax for small businesses was reduced to 25% from 30% and some relief to people from the lower income bracket.
Few steps were announced on generation and control of black money. Clean up of political funding is also a good initiative in the budget. These, and the focus on rural India are positive points from the long term perspective, if done in right earnest and implemented properly.
Overall, budget looks like a continuation of past budget of current NDA regime. There was nothing quite transformational not populist, which was a fear given the upcoming state elections.
Mustafa Nadeem, CEO, Epic Research
Budget has been given thumbs up by markets and corporate. It is budget for Gramin and lower middle class which forms majority of India. Their is lot to cheers about this budget with some disappointments but overall direction is clear and if implemented will give major boost to spending and shaping up of rural economy.
All this has been done keeping fiscal responsibility intact is a big boost for the markets. Some of the notable highlights like lowering tax rate to 5% for income upto ₹ 5 lacs will increase the tax net, also the reduction of tax by 5% for corporate with annual turnover of less than 50 crores is again a positive.
The thrust on rural economy by increasing allocation to MNREGA and increasing rural spending will reduce the demonetization impact for poor. The abolition of FIPB is a big plus for economy and clear signal for investors to invest and make in India.Not tinkering with LTCG is again a relief for market given the sign of changes in same from PM. The fiscal deficit target of 3.2% of GDP is very welcoming but is hard to maintain and may be extended at later stage.
Pratik P Jain, Partner and Leader Indirect Tax -PwC
"From indirect tax perspective, no major changes were made, which further reconfirms the Government's commitment to introduce GST at the earliest.
The fact that services tax rate has not gone up (as widely expected) will make the common man happy. There has also been an attempt to incentivise domestic manufacturing by further rationalising the duty structure, which the industry was looking forward to. Greater thrust on tax administration is also a welcome step, an area which does not often get the attention it deserves. Overall, the indirect tax proposals should please India Inc. Also it might well be the last budget relevant from an indirect tax perspective, as in GST regime, there would be limited room for annual changes in tax rates."
Pranay Bhatia, Partner - Direct Tax, BDO India
If the market reaction was the indicator, FPIs appear to be a happy lot. The much awaited relief from indirect transfer provision sees the light of the day. There is a proposal to provide a blanket exemption to category I and II FPIs from the indirect transfer provisions. There were expectations in relation to changes in the law to provide clarity on GAAR applicability to FPIs. It appears that, for now, the clarification provided through a recently issued Circular as regards inter-play of LOB provisions and GAAR shall be the only guide. This leaves some other issues around impact of selection of jurisdiction and availability of treaty benefits open to interpretation. Capital gains regime for investment in shares appears to remain untouched with no announcements in the speech. This is a welcome relief to continue providing impetus to investment inflows in Indian capital markets.
The industry had recommended that specific provisions like the threshold limit of holding of 5% and investment limit of 50% of assets and INR 100 Mn be increased. With specific carve out for FPIs, the amendment will not benefit other PE and VC investments in India. Therefore, indirect transfer provisions, in the proposed form, continue to apply to funds other than registered FPIs. This could severely impact inflow of foreign exchange and may also fail to boost the much wanted start-up initiatives. However, there is a proposal to exempt redemption of shares or interest outside India from indirect provisions where such transfer is taxable in India. This partially addresses the concerns of possible double taxation. The fine print of the proposed changes will throw more questions than answers for PE and VC funds to deal with.
Neil Parag Parikh, Chairman and CEO, PPFAS Mutual Fund
"For equity investors, this was a Budget which provided as much relief on what it did not announce on the Long Term Capital Gains Tax front, as on what it actually did. However, this was partly offset by the status quo on the corporate tax rate for listed companies. In a broader sense, the determined move towards digitisation should only help financial assets in the long-run."
Shanti Ekambaram, President - Consumer Banking, Kotak Mahindra Bank
There was a lot of anticipation and apprehension about Budget 2017. There was enough to satisfy those anticipating, and relief for those who were apprehensive. The big push to expenditure for farmers, rural sector, affordable housing and infrastructure will give a fillip to growth and employment. Putting more money in the hands of the common man through tax rate reduction, encouraging FDI, measures for education, skilling and employment of youth are all positive measures for economic growth over the next few years. A commitment to the path of fiscal prudence has been made, although fiscal deficit was pegged higher at 3.2% keeping in mind the need to increase public investments in the absence of private sector investments to ensure GDP growth. Reduction in corporate tax rate for MSMEs, measures to increase transparency by restricting cash transactions to ₹ 3 lakh and change in framework of political funding are welcome. The reduction in capital gains period for real estate is a positive move. A big thrust to digital transactions is a step in the right direction. Overall, it is a positive budget with focus on the right segments, with an aim to increase tax to GDP ratio and targeted expenditure to give growth and employment a fillip.
Sanjay Rishi - Regional President, American Express
"It is a welcome Budget for us, it lays strong emphasis on strengthening the digital payments ecosystem in the country. In my opinion, the initiatives announced today such as reduction of excise duty on manufacturing of payment devices and exemption of SAD on miniature PoS & m-PoS machines; roll out of 1 mn new PoS terminals by banks; and setting-up of Payment Regulatory Board in RBI to regulate electronic payments - will further boost India's digital economy".
Dinesh Thakkar, Chairman & Managing Director, Angel Broking
"This is an efficient and sensible budget and continues to follow the theme of maintaining fiscal discipline seen in the last two budgets. The focus continues to remain on improving the macros as government has not succumbed to the populist expectations. The fiscal deficit target of 3.2% for FY18 should further reinforce the lower interest rate bias and a positive outlook on the economy. There is also no negative announcement for the capital markets which should continue to attract foreign inflows. Affordable housing sector, with 100 percent deduction for profits upto 60 sq meters in non-metro cities, has got major boost and we believe this is likely to be positive for sectors like real estate, construction, cement, building materials, NBFCs, etc. The focus on agriculture and rural sector should help sectors like agrochemicals and fertilizers while lower income taxes should help in reviving the consumption demand. Overall we believe that this is a good budget.
The original article could be seen here.