There has already been a lot of buzz regarding the Union Budget 2017 in light of quite a few issues, from the budget presentation being advanced by a month and the merger of the Railway Budget with the main Budget, to the effects of demonetisation and the upcoming GST implementation.
Demonetisation
The Indian economy, which had been on a stable growth trajectory, was suddenly shaken by the demonetisation announcement. The decision was a bold one, with several proposed positive outcomes, but nevertheless it has caused severe liquidity crunch in a majorly cash-based economy. Sectors such as FMCG, real estate, automobiles, consumer goods and the likes were heavily affected. Considering this, there are major expectations from the government to announce “feel-good” measures to stimulate the economy from its present state.
Tax reforms and GST
There is an urgent need to bring in a larger section of the population under the ambit of taxation as the tax to GDP ratio has been unacceptably low for our country. Hence, the government is likely to continue its crusade to increase the tax revenue.
The finance minister has reiterated the potential of lower tax rates in broadening the tax base (as has been observed in many countries) and hence, tax rates are also anticipated to fall. Additionally, to provide some respite to the slowing economy and consumer spending, an change in the slab of taxable income is also likely to be on the cards.
With the States and the Centre finally coming to an agreement on GST, the effects of its implementation have to be accounted for and the FM is expected to provide a roadmap for this.
Financial and digital inclusion
In line with the vision of moving towards a cashless (or at least “less-cash”) economy, the government is expected to announce incentives to promote cashless transactions. In addition to the discounts already announced, further measures are needed to spread the use of debit and credit cards, mobile wallets and UPI apps. Moreover, an increase in cashless transactions would also provide an impetus to the greater goal of financial and digital inclusion of the population.
Infrastructure and agriculture
The Government is also expected to step up the outlays on infrastructure to stimulate the economy out of the demonetisation sloth. The main focus is likely to continue being on roads and railways.
The slowing real estate sector, a major contributor to India’s GDP, is also expected to get a boost. A decrease in income tax rates, a relaxation in tax benefit limits on housing loans, and an increased focus on affordable housing might put this sector back on the growth trajectory.
Demonetisation also hit the rural economy hard, because of which the agricultural sector could not perform well in spite of a decent monsoon. Hence, the budget is expected to provide some relief to the rural sector through measures such as subsidies in agricultural interest and increased spending through schemes such as MGNREGA.
Moreover, all these measures — increased spending on infrastructure, housing and the rural sector — will prove crucial in relieving the banks of their financial woes.