Emphasis is on process than on policy change

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The matter of consolidation in public sector banking will be referred to the newly constituted banks board bureau and one could expect some activity here

The most important element of the Budget is the promise to keep the fiscal deficit at the 3.5 per cent level. The FII and foreign investor segment would be very pleased to note this. Since the government has kept its promise of fiscal consolidation for the past two years, this promise may be viewed as a serious attempt. This could improve the sovereign rating and investment flows. The Budgeted revenue and additional streams of inflows need to be examined once more detail is available. The Budget speech did not make comparisons with the allocations made in the previous year, nor did it give an indication of percentage change from last year.

Several issues in the finance sector have been addressed positively. Though there hasn’t been a larger allocation for capitalisation of public sector banking, there is a good effort to make asset reconstruction for the banking system more effective. The allocation for capitalisation of public sector banking when compared to the size of the NPAs in the system and with the need for the sector to provide for the entire amount by the end of 2016-17 looks meager. The matter of consolidation in public sector banking will be referred to the newly constituted banks board bureau and one could expect some activity here. There isn’t any radical change on taxation front. To banking sector and insurance sector, the hope for a larger exemption amount from individual taxation has been denied. On the housing front, there are a few incentives for those who have to rent a house and those who wish to own a new one.

The announcement of a fresh amnesty scheme for tax avoiders can be viewed both ways. It could encourage assessees to disclose their incomes and pay tax at a reduced rate of 45 per cent without any further interest or penalty. It, however, also encourages non-tax payment as a behaviour.

On corporate taxation front, there are some disappointments. The introduction of dividend distribution tax to the recipient with a total earning of over Rs 10 lakh is one such disappointment. Then again, t­he hope of corporate rate structure revision towards promised 25 per cent has not materialised. The emphasis is larger on process rather than on policy change. On the taxation cases under dispute, there is now an introduction of voluntary withdrawal and the provisions of the present GAAR may within a year expire. On the monetisation of gold, there are some interesting announcements they include exemption of capital gains as well as taxation on interest income and also the transferability of the bonds. These measures reduce the imports and will channelise funds into the infrastructure sector.


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