28 Feb 2016 19:17 IST

Impact of an uncertain global economy

More clarity on the GST debate, public sector banking

It is that time of the year when everyone is looking forward to the Budget. There has been a radical shift in the process in the last two years. Unlike the UPA government, the NDA government has distanced itself from making vague promises, and the expectation of big ticket announcements and surprises has been avoided.

However, the global economy looks uncertain right now. The China slowdown is jittering the world economy, and looks far more serious than anticipated. Oil and commodity prices have substantially reduced, which is hurting commodity export economies. However, this is good news for India as it has significantly reduced our subsidy bills, inflation and improved our fiscal position. The US looks good, but Europe is still shaky. Fortunately, our macro-indicators look healthy with a growth rate projected at 7-7.5 per cent this year and WPI/CPI numbers look good. Manufacturing data is still a concern.

Clarity on GST

The GST is one of the promises that the Government is yet to deliver on. A unified taxation system is very critical and urgent. Though the GST seems unlikely in this Budget, more clarity on it is what the industry is looking for. The recommendations to lower capital gains tax and the corporate tax rate are also expected in this Budget.

Flagship initiatives

The Swachh Bharat, Make in India, Digital India, Smart Cities, and Start-up India initiatives have been widely publicised, and now is the time to make major investments and policy directions towards these schemes. Doing away with bottlenecks both on the financial side and the implementation side is critical for its success, and the Budget might provide specific directions into this. It will be keen to see how much money is allocated for these schemes. I would like to see how Arun Jaitley takes the Make in India scheme forward.

Banking is a concern

The NPA numbers of PSBslike SBI are alarming, with figures crossing ₹3.5 lakh crore in this fiscal year. The Government needs to come up with specific plans to deal with defaulters, recapitalisation, and provide greater guidance in managing these banks.

Common man’s expectations

With the Government is determined in its mission to simplify the taxation process, and even coming out with one-page forms for IT returns, the focus is back on the tax slabs and widening the tax base. An increase in the deduction of interest on housing loans to ₹3,00,000 would be a welcome move, especially with housing becoming increasingly expensive. The Government has been notorious in the last two years by not increasing tax slabs significantly, and instead playing around with HRA and 80C numbers. Therefore, a nominal increase in the tax slab is expected again this year. Simplified IT returns might help the Government increase the tax payers base as well.

Having said that, this Budget would be an opportunity to strengthen the Macro economy and implement large-scale reforms on the backdrop of the slowing world economy. Big ticket political announcements that put pressure on the economy would be avoided again this year, which is a welcome move, but social schemes that would boost the rural economy would still be a priority.