Budget should focus on reviving the dormant investment cycle and raising the revenue base as the present macroeconomic stability is primarily driven by collapse of global commodities prices led by oil, India Ratings said.
“The topmost priority of the government in the forthcoming Budget should be to revive investment and increase the revenue base,” ratings agency India Ratings said in a note.
Stressing on the need to revive investment, the report noted that though capital expenditure increased by 25.5 per cent in FY16 over FY15, as a percentage of GDP, it is still stuck at 1.7 per cent and needs to go up to 2 per cent.
On the need to increase revenue base, the note said, “Besides enhancing tax compliance and reducing tax disputes, the best way is to implement the direct tax code (DTC) and GST at the earliest.”
As the fate of DTC is not known, implementing GST appears to be the only way out for accelerating tax revenue, it said.
On taxation, it expects government to reduce corporate tax rate by 100 bps as part of its stated objective to reduce corporate tax rate to 25 per cent by FY20.
It also expects an increase in service tax rate to 16 per cent from the present 14 per cent to align it with the proposed GST rate, apart from a schedule for the removal of exemptions available to companies.
The report notes that the only possibility of meeting the 3.5 per cent fiscal deficit target is the likely windfall gain in non-tax revenue from spectrum sale, which is expected to bring in over Rs 64,000 crore.
But the report warned that fiscal slippage in FY16 is almost certain due to the lower than anticipated GDP growth.
The fiscal deficit is seen at 4.1 per cent as a percentage of GDP, though the absolute deficit will be close to the target of Rs 5.6 lakh crore.
It also called for the Budget to focus on commodity-driven sectors by providing protection measures, since these sectors are stressed due to the collapse in global demand and oversupply.
With two consecutive monsoon failures, the Budget has to focus on alleviating rural distress by allocating more funds to initiatives such as the soil health card scheme, agri-tech infra fund, technology driven protein revolution, price stabilisation fund, micro-irrigation and watershed development schemes.