Budget Shifts Strategy From India Inc To Rural India

In a strategy shift, the Union Budget 2016 has moved the focus away from India Inc to rural India and in the process failed to enthuse the markets adequately or addressing infrastructure growth and issues of lower corporate profitability including kick-starting the capital investment cycle.

By far, measures in one of the economies biggest growth engines, the corporate sector, have been largely tempered. The tax rate for small companies up to Rs 5 crore turnover brought has been brought down to 29 per cent plus surcharge and cess. Start ups will be taxed at 25 per cent in the manufacturing sector and will not be able to avail any exemptions.

Also proposed is a high level committee to look at new retrospective cases and a one-time window for resolving past retrospective tax cases by paying tax.

Some of the luxury goods and services have been taxed by this Budget. Jaitely has announced a 1 per cent service charge on purchase of luxury cars over Rs 10 lakh, and in-cash purchases of goods and services over Rs 2 lakh. This will impact the high-end market in the coming years.

Once again excise duty on tobacco products like cigarettes have been raised.

But probably more significant is the fact that the Budget has stuck to the fiscal prudence path. As against an expectation of a slight let up in fiscal deficit numbers, Jaitley announced a fiscal deficit target of 3.5 per cent and for the fiscal year 2016, the fiscal deficit target has been met at 3.9 per cent.

This is a bright note in the budget, which has been keeping to its targets, set at 3.9 per cent in fiscal year 2016, 3.5 per cent in 2016-17 and 3 per cent by 2017-18.

Jaitely also said that there have been three lakh litigations pending with the appellate authority and has proposed a new scheme to reduce litigation eligible for both direct and indirect tax issues.

Besides, the finance minister has also reduced the penalty rates from 50 per cent to 200 per cent in specified circumstances. The Finance Minister has also rationalised the TDS provisions.

India Inc was expecting additional sops to counter the slowdown in the economy. However, higher taxes on luxury items could impact revenues of some high-street companies. But those that operate in rural areas, such as FMCG and finance companies, could benefit out of the additional allocations to the rural economy.

Meanwhile stock markets have been on a roller-coaster ride as the Sensex plunged during budget presentation briefly by around 600 points. The Sensex has already moved during the day by 852 points marking a volatile budget day, as usual. Markets are currently lower by 118 points on the Sensex.