View from India: Great expectations for Union Budget
India’s Finance Minister Arun Jaitley will present the Union Budget for 2018-19 in Parliament on February 1. This will be the last full budget keeping in mind the 2019 General Election. Naturally, fingers are crossed and everyone from the common man to the industrialist is waiting with certain expectations and some amount of anxiety.
Ahead of the Union Budget, Prime Minister Narendra Modi issued a statement indicating that the budget session is very important. The entire global community is very optimistic about the Indian economy. It comes at a time when the world is looking at us, be it the Global Credit rating agencies, World Bank, IMF which have been very positive in their opinion about the growth of India and the road ahead. This budget will provide a new energy to the fast-growing economy of the country. It will be fulfilling the hopes and aspirations of the common man, Modi said.
The 2018 budget will add new vigour to India’s development and will fulfill the aspirations of people, Modi claimed, striking an optimistic note: “We also need to see how the villagers, poor, farmers and laborers are benefited maximum from the budget. Let’s have a detailed discussion, come out with positive suggestions and make a road map to march ahead.”
That’s very nice to hear, but in practical terms, we need a reality check and take stock of the situation. Here’s a wish list of what one wants from the forthcoming budget.
Even at the outset, accessible healthcare, good governance, women empowerment and farmer friendly reforms are some of the common concern areas and everyone wishes that every Union Budget will open out more benefits to all including those representing the bottom of the pyramid. After all, these are some of the key concerns that determine the success of the Indian economy.
However, the 2018 budget seems to be different from previous budgets because of the implementation of Goods and Services Tax (GST) in July 2017 and its impact across sectors as seen in the current fiscal 2017-2018.
“The online digital payment and the travel and expense (T&E) industry have undergone a path-breaking transformation in India with the implementation of GST. The trend shows, that more than 18-20 per cent of the company spend is being taxed, be it airlines booking, hotel or on ground transportation. However, few corporates are reclaiming this within the given timeframe,” said Neeraj Dotel, managing director, India & SAARC, SAP Concur Technologies, adding, “We find GST to positively impact the T&E industry, since with expense automation to the cloud, the three-way process - supply chain, invoicing and tax-filing - can be simplified. The accounts payable process efficiency is achieved, matching receipts and invoices to ease quicker GST filing, while complying with the mandated 30-day window for Input Tax Credit (ITC).”
GST is an indirect tax and that more or less takes care of various indirect Cess-related taxes. Cess incidentally is a tax levied upon the tax by the Government of India (GoI). So one hopes that the indirect taxes are taken care of and it would probably mean that we can expect some announcement only towards direct taxes. The tax structure is majorly expected to undergo a change after the budget announcement, mainly in the direct tax structure including income tax because of the effort to make direct taxes contemporary so as to match with the current requirements.
“There is a possibility for the recapitalisation of public sector banks; the government is expected to raise about 70,000 rupees within the first quarter of the year. With regards to the banks, one can definitely expect higher incentives and better budget allocation to enhance the credit flow to MSMEs,” said Ankit Agarwal, MD at Alankit Limited. “There can also be incentives for financing of the long-term projects in roads and railways. Most probably reduction in the rate of corporate income tax, down to 25 per cent is expected and will be taken positively by technology companies falling in the lower tax brackets. Looking at the SME sector, we believe certain proposals in the 2018 budget are likely to provide several financing incentives to the enterprises seeking to develop SMEs and other markets. All sectors’ functioning including the SMEs will also come under the GST framework.”
The PM had made an announcement on December 31 2016 that the emphasis will be on housing for the poor. In fact, he has envisioned a country comprising housing for all by 2022. If we were to go by this maxim, then the GST rates for affordable housing needs to be lowered. As Sameer Nayar, founder and CEO at BuildSupply put it, “Significantly increase the deduction for housing loans both during and after the construction period. In the developed markets the entire interest component is deductible. Bring real estate under GST comprehensively and let the market forces determine price benefits instead of thinking of anti-profiteering measures, which never really work. Expand the definition of affordable housing to include a larger section of society. The current parameters are too restrictive and exclude a large percentage of the population that is looking for a simple roof over their heads.”
Moving beyond GST, it is essential to look at Bitcoin which is considered digital gold. While a lot has been written about cryptocurrencies and the euphoria it has generated, unless it’s regulated and legalised, it cannot become mainstream currency in India. Then it’s also important for the government to address the tax structure required for bitcoin transactions.
It is anticipated that the forthcoming budget needs to align itself in sync with digital transactions. The need of the hour is a set of friendly measures to promote the digital economy and this needs to be backed by more private public partnerships, as newer skill sets need to be developed for newer avenues.
“Ever since our PM announced the ‘Make in India’ and ‘Digital India’ initiative, there has been a lot of positive sentiment in the industry. But there is a need to develop local component ecosystem to make India the next electronics manufacturing hub for the world. Policies like Phased Manufacturing Programme (like phones) should be brought into PC manufacturing also by incentivising local-value addition,” explained Rahul Agarwal, CEO & MD, Lenovo India.
The Union Budget can be the catalyst to significantly increase PC penetration in India. “As per a MAIT-KPMG report, households equipped with PC are just 10 per cent in India versus more than 45 per cent of countries such as Brazil, Malaysia, Turkey and 35 per cent of China. Budget can address this issue by starting with policies to promote usage of IT in education and skills sector. Secondly, Government itself can go for overhaul of legacy IT infrastructure, thereby conserving energy and becoming more efficient,” Agarwal said.
It’s a known fact that the banks have lowered the interest rates for savings and deposits. It’s also an acknowledged fact that many senior citizens rely on bank interest for their sustenance. Hence it is hoped that the Budget puts forth some friendly schemes for senior citizens, along with healthcare measures.
“Healthcare expenditure is a major cost for most Indians today as almost 62 per cent of the healthcare spending is currently out of pocket. Financial pressure on individuals from such expenditure is constantly increasing given the high rate of medical inflation in India (12-15 per cent). We expect the budget to be a ‘healthy’ one for all Indians and look forward to the government increasing its spending on public health cover as well as incentivising health insurance purchase,” added Ashish Mehrotra, MD & CEO, Max Bupa Health Insurance.
Incentives could be in the form of a lower GST slab for health insurance premiums paid from the existing 18 per cent to 5 per cent and higher tax benefits under Section 80D. “Tax benefits will help boost penetration of health insurance as well as help nurture a culture of preventive healthcare in India. For specialised health insurance companies, a period of carry forward of business loss and depreciation should be extended to at least 12 years,” reasoned Mehrotra.
Well, a lot is expected from the upcoming Union Budget 2018. “We look for Tax incentives to encourage expenditure on R&D along with easy access to working capital funding from banks and financial institutions at competitive rates for companies fulfilling Make in India initiative. An extension of sunset clause for section 35 (2AB) to encourage investment in R&D which will help in reduction in foreign outflow on technical know-how and also in generating Forex through the supply of Indian products, thereby resulting in the reduction of imported goods and increase in employment,” highlighted Samay Kohli, group CEO, GreyOrange, a global firm headquartered in Singapore, that designs, develops and deploys advanced robotics systems for automation of supply chains across e-commerce, retail and FMCG in India and abroad.
This year is definitely going to be crucial for sectors impacted by GST. We will have to wait and watch.