This financial year is about to end on a heavy note with the ban on high value currency notes, leading to chaos and cash crunch across the country. The year 2016 has seen two major economic decisions taken by the government, one being the Goods and Services Tax and the second being the demonetisation move announced on November 8. While people are still uncertain about the impact of both these decisions, it is the budget of 2017 that is most awaited in determining the government’s way of dealing with the current situation of chaos and expectations in the country.
Apart from the expectations from the government to address the issues raised by demonetisation in the upcoming budget, there are two major changes which the Union Budget 2017 will witness:
- Merger of the Railway budget with the Union budget
- Change of date of announcement from the end of February to February 1.
Here are some of the major changes and expectations from budget 2017:
Departing from the colonial era tradition
In November 2016, Prime Minister Narendra Modi announced a shift in date of budget. In 2017 therefore, the budget would be presented on February 1. The government would get more time to efficiently implement financial decisions by April 1 without any delay.
Merger of Railway budget with Union budget
Marking a dramatic move away from the 92-year-old practice of presenting a separate Railway budget ahead of the Union budget, the railway and Union budget will be presented together.
Expected tax changes
Ever since the planning of the 2016 Union budget, expectations have been high regarding changes in the existing tax structure. The 2016 budget was expected to raise the tax exemption bar from the current level of Rs. 2.5 lakhs to 3 lakhs per annum. Since, the change could not be carried out in the existing budget; it is expected to be announced in 2017. Further, with the grievances and pain inflicted upon the common man with the note ban move, the expectation of a raise in tax exemption rate is ripe.
Moreover, we might also see a reduction in tax rates that is currently at 10 per cent for incomes above Rs. 2.5 lakhs, 20 per cent for those earning above Rs 5 lakh and 30 per cent for those earning above Rs 10 lakh.
Welfare benefit measures
With politics surrounding demonetisation, being extremely critical to the government, particularly pointing at the difficulties faced by the poor, the ruling party is in an urgent need to devise policies that benefit the poor. This is already evident from the Pradhan Mantri Garib Kalyan Yojana that was announced by Prime Minister Narendra Modi on November 29. As part of the scheme, those with large amounts of unaccounted wealth, can deposit the same with a penalty of 50 percent on it as opposed to tax rate of 85 percent for those who do not opt for the scheme.
Keeping in mind the government’s need to please the poor, the 2017 budget might see a number of welfare measures and pro-poor schemes which could see a surge in social spending expenditures.
Service tax on payments made through debit and credit cards upto Rs. 2000 have been removed. More recently, Finance Minister, Arun Jaitley announced a list of measures as incentives for digital payments which include cheaper petrol and diesel when paid for electronically, discounts on railway tickets and highway tolls.
Given the trend of incentivising cashless transactions, we might expect a number of sops encouraging e-payments in the 2017 budget.
The government is also likely to push for more rural expenditure in the current budget, building on from the previous budget and since good monsoons in 2016 has given a fillip to the ailing sector. The middle class too will be benefitted by way of schemes related to housing for all, rebates on construction of houses, lower interest rates, rationalisation of current tax structure, etc. The government would also spend generously on social infrastructure needs of the country, given the windfall from demonetisation exercise. The capex spending on railways and defence would continue in this budget too.
Overall, the budget is expected to be a mixed bag and the government will try to tinker with all the sectors of the economy and, at the same time, giving out a definite picture on the economic policies that the government proposes to pursue in times to come.
Following are the sectors which according to us will likely to be in focus before the FM presents his Union Budget on Feb 1, 2017 : Affordable housing plays, cement, NBFCs, banks, metals, automobiles, cashless player's rural themes and, lastly, the infrastructure sector.
This article has been authored by Achin Goel, Head, Wealth Management & Financial Planning, Bonanza Portfolio Ltd