No big bang, but reforms to stay on course

The Union Budget has no reckless populist measures, according to Rupa Chanda, Professor of Economics at IIM Bangalore.

At the ‘CII Karnataka- Pricewaterhouse Coopers (PwC) post-budget analysis meet,’ Chanda said, “Instead the Union Finance Minister did a good balancing act between infrastructure needs and fiscal consolidation requirements, sensible deviation from earlier FD target.”

The budget also did not see any big bang reforms but gave out signals that overall direction of reforms (fiscal and structural) will be sustained.

“Immediate emphasis on growth through supply-inducing measures was achieved and also gave major fillip for industry and manufacturing,” she said.

Public investment along with enabling tax policy is seen as the key to restarting the investment cycle and creating employment and growth. “The budget also saw government systematically trying to claw the fiscal space back and create the environment for investors to come back. Attempts to woo a broader class of investors through various financing mechanisms and institutional setups were also attempted,” she explained.

The Finance Minister also banked on a multiplier effect through supply-side dynamics of direct public investment spend and crowding in of private investment spending and related income and employment creation.

The budget also saw synergies and alignment across various aspects of policy to complement growth focus. GST, debt markets, creating new institutions, unlocking capacity, incentivizing savings and productive use of assets, Make in India.

Kaushik Mukerjee, Executive Director, PwC, in his presentation on direct taxes said investment-friendly measures such as General Anti-Avoidance Rules (GAAR) has been deferred by two years. The deferral and grandfathering would bring in certainty and remove the deterrence to investments for the next two years.

He said clarity on cost of acquisition is required. The amendments are prospective only but given the controversies created by the retrospective amendments on this issue in the past, the beneficial provisions should be retroactive.

Pramod Banthia Executive Director, PwC, said the budget has taken a major step towards certainty in tax legislation by promising the implementation of GST from April 1. However, the present design of GST does not favour manufacturing, as it brings trading at par with manufacturing from an indirect tax perspective.

This needs immediate attention, as GST being the largest tax reform taken up by the government, should incentivise manufacturing in India and facilitate ‘ease of doing businesses instead of being a dampener like the FTAs that India signed, Banthia said.

Earlier, Sandeep K Maini, Chairman, CII Karnataka, said the budget lays strong emphasis on ease of doing business, adequate investment in infrastructure and schemes to foster inclusivity. The reduction of corporate tax rate over four years will make Indian companies competitive and is a big confidence booster to the industry.