Budget Expectations: Fiscal Deficit Should Be Contained At 3.5%

The Union Budget 2016-17 is round the bend and challenges are plenty for Finance Minister Arun Jaitley to deliver on growth, social development agenda and fiscal consolidation. The last union budget indicated a comprehensive approach. However, many macros changed during the year and that have translated into complexities of structuring the Union budget for 2016-17. In this backdrop I am setting out some expectations from the budget and suggestions to it.

Fiscal Deficit
Fiscal deficit should be contained at 3.5 per cent as promised in the last budget. It will be a challenge to keep it at 3.5 per cent levels practically but the government will look at aggressive means around revenue side to keep it at 3.5 per cent. India can pull another year with a fiscal deficit of 3.7 per cent provided there will be an all-round GDP growth of 8-8.5 per cent.

Expenditure Side
" Increased public spending and adequate regulatory boost for infra and some critical schemes:
a. Investments in infrastructure: Higher allocations, Identify more PPP opportunities and incentivise 'off budget' investment proposals.
b. Skill India: This sector could be given an independent identity and funds could be allocated to it. Skilling through PPP could be explored and tax cuts may get proposed
c. Education: Larger allocation particularly for secondary education and making it affordable. Investments in higher education centres
d. Swach Bharat: Incentivise programmes that aim to improve the sanitary ecosystem of the country. This again could be done through PPP or by incentivising the private sector. This can be made a mandatory part (25 per cent) of the CSR spend that is already compulsory
e. Health: Increased allocations to about 3-4 per cent of GDP. Make health affordable. Incentivise expansions , encourage technology interventions and bring down per capita cost of healthcare in India
f. Make in India: Incentivise all companies that invest in import substitute led production. A 3-year tax holiday may be considered. Simplify investment procedures
g. Smart cities: Address this issue through schemes similar to JNNURM. Induce state participation
h. Tourism: Leverage incredible India and designate marquee destinations in India in a phased manner to improve its attractiveness for tourists. Start with one destination in each zone of the country.
" More allocations in the rural sector to - Farm, Rural roads etc. NAREGA will need more allocation
" Crop insurance

Revenue side
" While tax rationalisation is a critical aspect, the Government should push with its single minded agenda of GDP growth and not look at any alternate methods

a. Inverted duty structures need to be addressed in order to reduce input costs and make product competitive
b. Reduction in corporate tax rates
c. Reduce MAT burden

" Creation of more liquidity in the Indian financial system - Encourage private capital to come in and move freely. Remove any bottlenecks such as double taxation etc.

" Government should divest its stakes from large public sector banks and also from other large organisations like Air India etc. Disinvestments will be a big item in addressing fiscal deficit this year because tax revenues will be stressed.

Drive sector specific initiatives
a. Continue the minimum import price in steel industry and extend it for the full year
b. Industry status for real estate.

Personal Tax
a. Increase IT slab to Rs.3 Lakhs
b. Higher tax cuts on national pension scheme
c. Long Term capital gains tax issues should be addressed - reduced rates
d. Higher tax deduction for new home buyers.

Indirect Taxes
a. Expand the catchment for service tax. Bring in Accountants, Lawyers and Doctors who are not in the net yet.
b. Introduce a small health cess

Reforms
" Bankruptcy law should be passed quickly. The budget can set the ball rolling with enabling provisions. Creation of a healthy financial system by moving stressed assets into an SPV and dealing with it separately.
" Accelerate subsidy reforms. Identify more sectors of subsidy where direct cash transfer is done
" Labour law reforms