Union Budget 2017 – Mr. Sanjay Kumar, CIO PNB MetLife, presents key takeaways from the budget
Sanjay Kumar, CIO PNB MetLife 02-02-2017 03:43:49 PM
The Union Budget 2017 is a judicious mix of higher public spending and fiscal prudence making this a balanced and realistic budget. The government has stuck to the path of fiscal consolidation, targeting fiscal deficit at 3.2% of GDP in FY18 vs. 3.5% in FY17, broadly in-line with market expectations. This has been achieved without compromising on public infrastructure spending. Further, the government is committed to achieving 3% fiscal deficit in FY19 as per the recommendations of Fiscal Responsibility and Budget Management (FRBM) committee. Read More
Here are some key takeaways:
Sustained focus on infrastructure spending
Amid weak private sector investment, the government remains committed to higher infrastructure spending. The total spending on transport infrastructure (roads, railways and airports) is pegged at 1.5% of GDP in FY18 and on overall infrastructure at 2.5% of GDP. This bodes well for job creation and is likely to provide a spur to economic growth.
Boost to affordable housing
The government has provided a boost to affordable housing by increasing allocation to this sector. It has also granted infrastructure status to low cost housing, thereby improving its access to credit.
Increased spending on rural and agriculture sector
The government has announced higher spending on rural sector, particularly in areas like employment, roads, housing, power and skill development. It has also taken a slew of steps to boost agriculture sector which includes enhanced credit to farmers, increase in coverage of crop insurance scheme and higher allocation to irrigation. The total allocation to rural, agriculture and allied sector is pegged to grow by 24% in FY18.
Income tax relief to small businesses
As expected, the government has provided much-needed comfort to small and medium enterprises (SMEs) with turnover up to Rs 500 mn by reducing the income tax rate from 30% to 25%. This is expected to benefit 96% of Indian companies.
Wealth redistribution to benefit consumption
The personal income tax rate has been reduced from 10% to 5% for income between Rs 250,000 to Rs 500,000. The relaxation in income tax rate is positive for consumption. Additionally, the government has levied a surcharge of 10% on people with annual income between Rs 5 mn to Rs 10 mn.
Promoting digitisation remains a priority
The government remains focussed on transforming India into a cashless economy by incentivising digital payments and banning cash transactions above Rs 3 lakh. Further, the government has imposed a limit of Rs 2,000 on cash donations to political parties and charitable trusts. Increased thrust towards digitisation is likely to result in formalisation of the economy and provide a boost to financial savings.
Budget bodes well for economy and markets
The budget strikes a right balance between economic growth, rural development and fiscal prudence. The government’s decision to adhere to fiscal consolidation, despite the near-term negative impact of demonetisation and upcoming state elections, is positive for economy and markets.