New Delhi: With the Centre losing power to tinker with all indirect taxes except for customs duty after the roll-out of Goods and Services Tax (GST), India Inc is not expecting any surprises from this year’s Union Budget. However, what industry captains are looking forward to is how the Modi government prioritises its expenditure and also if it will finally follow up on its long-pending promise to rationalise corporate tax rates.
Financial experts are waiting for clarity on implementation of Rs 2.11 lakh crore-recapitalisation plan for bad loan-hit public sector banks, especially the equity component, which they think may be provided in the upcoming Budget. In addition, the Budget might also tell if the government will be able to stay the course on fiscal consolidation roadmap and how it is going to fund the deficit.
Analysts say that the Gujarat electoral verdict has brought the spotlight on agrarian distress. With the general elections round the corner, the government might step up agriculture and rural spending. Besides this, the Budget might also extend more sops to small businesses, a sector that is critical to generating employment but has been laid low by the GST woes. The Budget is also likely to keep focus on infrastructure spending to support economic growth, analysts added.
Former finance secretary Ashok Lavasa said that the forthcoming Budget might focus on rural development and the micro and small and medium enterprises (MSME) sector, with thrust on employment generation. “Time-bound schemes for the development of rural infrastructure like road, housing, electrification, irrigation and BharatNet might get higher allocations,” Lavasa told The Wire.
Devendra Pant, chief economist, India Ratings and Research, too felt that the rural sector may get a leg-up in the coming Budget. Expenditure will be repriortised as the Budget may give more importance to the rural sector, said Pant.
D.K. Joshi, chief economist at Crisil, a rating agency, said that not only revenue but how the government spends its money is also important. He, however, added that the government will have to look at tax collections after shortfalls in GST revenue in October and November.
Abheek Barua, chief economist, HDFC Bank, said that infrastructure, rural and financial sectors are likely to get attention in terms of priority. On the revenue side, it would be interesting to see how much money the Budget targets to raise in 2018-19 via disinvestment, Barua said. He also hoped that the Budget would provide clarity on bank recapitalisation – whether public sector banks will raise equity from local or international market or how they use the exchange-traded fund (ETF) route to mop up resources. “There may not be many takers for equity in weak banks and so the government might have to do some sort of repackaging – clubbing weaker banks with stronger one to attract ETF investors,” Barua told The Wire.
Barua said that weaker banks may be asked to reduce the number of branches and ATMs as part of operational restructuring before they hit the market. He said the government has recently hiked import duty on certain electronic products including smartphones and it may rejig duty for some other products in the Budget as well.
Fiscal deficit worries
The government has said it will borrow Rs 50,000 crore more over this year’s Budget estimate amid fears that tax collections could fall short of the target due to disruption caused by GST. In this context, Barua said that the Budget should also provide clarity on whether the government will be able to meet the fiscal deficit target of 3.2% for this year and if not, how much slippage is expected.
Sujan Hazra, executive director, institutional securities, Anand Rathi Securities, said that the Budget may spell out how the government will fund its fiscal deficit.
While presenting the first full Budget of the NDA government in 2015, finance minister Arun Jaitley had promised to bring down corporate tax rate to 25% from 33% ( 30% base rate and 3% cess) “I, therefore, propose to reduce the rate of corporate tax from 30% to 25% over the next four years,” Jaitley had said while presenting the Budget on February 28, 2015.
He argued that higher tax rate made domestic industry uncompetitive and too many exemptions led to pressure groups, litigation and loss of revenue. Pressure has grown on Jaitley to make good on the promise after the US cut its corporate tax rate from 35% to 20% recently. Analysts said investors will find the US a more attractive destination after the tax cut, forcing other countries to follow suit.
The government had cut corporate tax rate to 29% in the 2015 Budget for companies with total turnover of up to Rs 5 crore and to 25% for newly incorporated domestic firms in the 2016 Budget. The government offered tax sops for MSMEs and start-ups in the 2017 Budget. But the original promise still remains unfulfilled.
Industry associations have reminded Jaitley of the pending promise during pre-budget consultations. The industry hopes that Jaitley may well deliver on his promise in the year’s Budget.
Rahul Garg, senior tax consultant, PwC, who is also chairman of Assocham’s national committee on direct taxes, said the industry hopes the finance minister will act on his promise to bring down the corporate tax rate to 25%. Garg said the industry also expects the finance ministry to eliminate the cascading impact of dividend distribution tax. He also said that the industry hopes for accelerated reduction on account of investment allowance.
Pant said that the finance minister can simplify corporate tax rules by reducing the number of slabs and getting rid of exemptions. That would help bring down tax compliance costs for corporate, he added.