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India to unveil momentous budget

Dubai - The uphill task New Delhi faces in reviving the growth of Asia's third largest economy

Unlike his earlier budgets, India's Finance Minister Arun Jaitley has to be more dexterous and pragmatic while presenting his fourth budget today by including some significant "feel-good" proposals to appease corporates and households, both grappling with the headwinds unleashed by an ill-timed demonetisation drive.
The uphill task New Delhi faces in reviving the growth of Asia's third largest economy, which was slowed by the disruptive decision to invalidate 86 per cent of India's currency in November, is yet another key challenge Jaitley has to tackle with in his 2017-18 budget.
As fiscal consolidation is perhaps the most pressing element in this year's budget, the first thing expected is a set of proposals to stimulate the economy so that it can regain the lost momentum following the slowdown. As the task is so challenging, most analysts expect the government to consider relaxing its fiscal deficit target for the year and give away some pacifiers at the risk of a possible rating downgrade to below investment grade warned of by global ratings agencies.
While government earlier had set a fiscal deficit target of three per cent of GDP for FY17-18, compared to 3.5 per cent last year, economists now expect that to widen to 3.3 per cent.
Indeed, Jaitley has to strike a balance between the need for stimulating growth and continuing fiscal discipline as India faces shrinking factory output, consumption and rural demand following the currency scrap.
Economists expect India's real GDP growth to slow to 6.5 per cent in the current fiscal on the back of demonetisation, while muted inflation may open room for additional rate cuts.
To rev up the growth, the budget is expected to increase public spending to offset the impact of a slower growth in the informal economy.
The budget, preponed by almost a month for the first time in eight decades, has to tackle yet another ticklish issue of observing a Supreme Court diktat that the central government be restrained from declaring "any relief, programme, financial budget until elections in five state are over as they would violate the Model Code of Conduct." Here Jaitley has to make a deft balancing act to make his proposals appealing to the public while abiding by the court ruling.
While businesses at large will be looking for tax breaks to help offset the damage they faced since November, general public, especially non resident Indians, will be hoping for liberal baggage allowances, or cuts in duties on gold jewellery or electronics goods as well other tax reduction as hinted out by Jaitley that "focus should be on lower tax rates."
NRIs also expect pragmatic schemes to help with their rehabilitation on their return and their active investment participation in infrastructure development projects.
James Mathew, General Secretary of the Indian Business and Professional Council, said a widely expected initiative is tax incentives for people who use digital payment options. "So a reduction in taxes and charges on cashless transactions for the next several years to ensure its appeal and make it a preferred mode of transactions is a possibility."
The corporates also expect a reduction in the headline tax rate in line with the commitment of the government to reach a headline rate of 25 per cent in four years, Mathew said.
"The general public is hoping for a change in the income tax slabs. Speculation is rife that the government is expected to revise the current minimum annual taxable income slab of 250,000 rupees to 400,000 rupees per annum," said Jalaluddin Kabeer, Chairman of Delta Group.
"Another likely populist proposal is to make the pension income for senior citizens completely tax free," said Kabeer.
Pankaj Mundra, Chairman of The Institute of Chartered Accountants of India -Dubai Chapter, said in the backdrop of demonetisation and new US president a lot of surprises are expected. "For global investors and MNCs, we expect the change of calendar from March to December end and the minimum income tax slab for individuals to start from 400,000 rupees, instead of 250,000."
Most budget analysts expect startups would be exempted from paying income tax for five-eight years, rather than three years at present to make the ecosystem more robust.
Goods and Services Tax, the much-awaited tax reform implementation, is yet another milestone people expect from this year's budget to kickoff.
While 'Make In India' campaign has encouraged major global smart phone manufacturers to set up operations in India, the government has to bolster the component ecosystem to further enhance manufacturing value chain in the country.
Modi's Standup India, Skill India and Startup India programmes are also set to grab spotlight in the budget. These initiatives are expected to see huge investment inflow and will help in pushing India's infrastructure goals ahead at a much faster pace especially for roads, highways, ports and railways.
Promise of assured electricity is expected in the budget and major investment in solar power may be on the cards given the fact the government has laid down his intent to expand India's solar power capacity to 100 GW by 2022.
- issacjohn@khaleejtimes.com