Indian
Federal Budget 2016-17 is clearly focused on giving thrust to the rural
economy. The Federal Government has been maintaining fiscal prudence by way of
reducing budgeted fiscal deficit from 3.9% (2015-16) to 3.5% (2016-17).
Recapitalization of public sector banks
to the tune of INR 25000 crore equivalent to USD 3.73 billion will strengthen
public sector banks. The measures taken for 100 Foreign Direct Investments
(FDI) in Assets Reconstruction Companies (ARCs) through automatic route will
improve the efficiency of banking sector. Reserve Bank of India (RBI) is taking
a lot of steps for reforming banking sector so that fund flow and credit cycles
improve. (for details visit rbi.org)
The
backbone of Indian economy is still Rural India dependent on agriculture and
small industries. The major share of budget allocation in this sector, which is
a welcome step to strengthen Indian economy.
The
domestic financial market has received a boost from the much-awaited Federal
Budget. The short term outlook has turned positive for the rupee. Significant
short-term supports are 68 and 68.25. The threat of falling rupee has now
eased.
The Federal Budget 2016 has made
a series of policy initiatives and schemes that aim at encouraging startups and
existing Micro, Small and Medium Scale Enterprises (“MSME”). They key objective
of such schemes were to eliminate the common challenges startups come across,
and ensure that MSMEs in the country get a fillip.Some of the key proposals/schemes are
highlighted below:
Ø Tax deduction @ 100% of Profits for
the 3 of first 5 years of Profits Any start
Ø Reduction in Corporate Tax in case of
New manufacturing companies incorporated on or after March 1, 2016 have been
provided an option to adopt a reduced corporate tax of 25% plus surcharge and
cess. In absolute terms, 27.55% (where the income exceeds Rs 1 crore but does
not exceed Rs 10 crore) or 28.84% (where income exceeds Rs 10 crore) provided
such companies do not claim profit-linked or investment-linked deduction or do
not avail of investment allowance and accelerated depreciation. This change is
envisioned to provide the much needed boost to the manufacturing sector and the
'Make in India' campaign of the government, considering the capital-incentive
nature of the manufacturing industries.
Ø Exemption
of Long Term Capital Gains on investment into eligible start-up
Ø Extension
of tax holiday benefit for SEZs commencing activity before Mar 31, 2020
Thus
Indian Government is focusing on manifold growth like agriculture, industrial
(Make in India and Start Ups), financial and money market. Now Indian economy
is fastest growing economy in the world with more than 7% growth rate in GDP.
In coming years, it may grow at much faster pace if these initiatives are
successfully implemented. I say it is a progressive budget for all sectors.