The Budget has provided the much-needed income boost to both the rural and urban consumer, while sticking to a fiscal deficit target of 3.5 per cent. While this translates to lower borrowings, aiding some easing of interest rate expectations, the income boost is expected to help the domestic consumption story. Since there were hardly any expectations from the Budget, the stock market also reacted very positively.
The top beneficiaries of this Budget are oil and gas, fertilisers and pesticides, cement, autos and construction sectors.
Tax collection assumptions are very conservative at 11.2per cent growth but targets for non-tax receipts like spectrum fees and divestment are ambitious. Tax collections, including that from the amnesty scheme, may surprise on the upside and may cover shortfall arising from spectrum auctions and disinvestment targets, if any.
Considering OROP (one rank one pension) and the Seventh Pay Commission burden and a tighter fiscal target, the government has come up with prudent allocation of funds for expenditure. Non-Plan expenditure growth is capped at 9.2 per cent while Plan expenditure is expected to grow 15.2 per cent.
Central plan outlay is pegged to grow 21 per cent. Rural schemes, social welfare and transport would see an increase of 28 per cent in outlay.
The increase in service tax on account of imposition of the Krishi Kalyan tax by 0.5 per cent is expected to have a negative impact on the services sector and, in turn, impact the consumers. However, the income boost will more than compensate for the increase in service tax.
On specific changesa) Exemption from dividend distribution tax (DDT) made by a SPV (special purpose vehicle) to business trust is a huge positive for the business and investment trusts, as it will be able to free up capital for the corporates.
b) Proposal to levy an infrastructure cess of 1 per cent on small petrol, LPG, CNG cars, 2.5 per cent on diesel cars of certain capacity and 4per cent on other higher engine capacity vehicles and SUVs is a negative for the auto industry, but positive for the gas distribution companies as a higher cess on diesel cars will accelerate the conversion to cars running on natural gas.
c) Renegotiation of PPP contracts and early resolution of infra disputes; comprehensive bankruptcy code for financial firms to be tabled in Parliament in FY17; FDI of 49 per cent in insurance under the automatic route; sops for affordable housing, including tax deduction of additional interest of ₹50,000 for housing loans of ₹35 lakh and property value up to ₹50 lakh; increase in FDI for ARCs to 100 per cent and keeping the fiscal deficit at 3.5per cent of GDP in FY17 — all augur well for the beleaguered financial sector.
d) Digitigation of national land record under the ‘Digital India Initiative’ will be implemented from April 1 with an investment of ₹1,500 crore by way of expanding e-assessments to all assessees in seven mega cities in the coming years. ‘e-Sahyog’ is to be expanded to reduce compliance cost, especially for small taxpayers. This will not only benefit the IT companies but bring in a huge reform in the land holdings and land titles.
e) Fertiliser subsidy allocation of ₹70,000 crore, pilot project for fertiliser subsidy direct benefit transfer (DBT), reduction in excise duty on micronutrients from 12.5 per cent to 6 per cent and an increase in allocation for agriculture and irrigation — ₹47,900 crore versus ₹26000 crore in FY16 — augur well for the fertiliser and pesticide industry.
f) Increase in excise duty on cigarettes by 10 per cent is a negative for cigarette manufacturers which have been suffering from declining volumes over the past few years.
A levy of 1 per cent tax on jewellery might be marginally negative for jewellery companies.
g) Proposed reduction in the benefit of deduction for amount incurred on R&D from 200 per cent to 150 per cent with effect from April 2017 and 100 per cent wef April 2020 could marginally affect the pharma industry.
Net-net it was a pragmatic Budget and has addressed the single largest concern of growth in the economy.
The writer is Co-CEO, IDFC Securities