Thursday, March 3, 2016

A Progressive Budget of Government of India: Budget-2016


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.

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