Highlighting the growth pillars of Indian economy

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The Indian economy is growing at a rapid pace despite the global slowdown. The finance minister has clearly highlighted the growth pillars of the Indian economy in agriculture, rural, social sector, skills, ease of doing business, tax and compliance reforms.

The government impetus on 'make in India' by providing tax and duty benefits is a welcome step and will go a long way in strengthening manufacturing capabilities in this country. Another important milestone has been the use of technology to increase accountability of the government, authorities and courts. It is a welcome step and will provide the right fillip to fast track procedures that will become the country’s growth engine.

Budget 2016-17 provides for an incremental move in the backdrop of global uncertainty. Maintaining a fiscal deficit of 3.5 per cent is a very credible step for financial markets, robust outlays for infrastructure, agriculture, rural and socio economic schemes. However, one can argue that more could be provided for recapitalisation of banks.

The focus on rural/social sector spending and roads/highways are along expected lines with a total allocation of Rs 2,18,000 crore, which includes railways. As far as infrastructure is concerned, enhanced allocation in road and highways sector by around 22 per cent is definitely a positive for this sector.

However, the role of private sector investment would be key to achieve the target of 10,000 km of national highways construction during FY 2016-17. In the aviation sector, the delay in finalising the draft aviation policy well in time for tax benefits to be captured in the Budget has hurt the aviation sector. Far reaching reforms proposed for regional connectivity, MRO, 'infrastructure' status for aviation sub-sectors find zero or passing mention. Aviation continues to suffer from the 'elitism' tag and struggles for attention and a sense of urgency from policy makers.

In the oil and gas sector, the vision for growth of Indian oil and gas industry is being created by incentivising gas production from deepwater, ultra deepwater and high pressure high temperature areas and offering calibrated marketing freedom for new discoveries, which are yet to commence commercial production. An appropriate implementation of the proposal to incentivise deepwater, ultra deepwater areas is expected to help in improving self-sufficiency through enhanced domestic production, besides bringing in foreign investment and state-of-the-art technologies required for exploitation of these areas.

However, the proposal to discontinue tax holiday on commercial production of mineral oil for blocks starting production on or after 1.4.2017 could prove to be a disincentive. In the education sector, inclusion of education, skills and job creation as one of the seven pillars of the Budget proposals demonstrates the axial role the sector plays for the country.

The proposals to setup world-class institutions and establishment of the higher education financing agency to fund infrastructure in top institutions, could go a long way in developing India as an education hub. The proposal to create a digital depository for education certifications could encourage transparency.

On the tax front, no change in capital gains tax regime for listed stocks is a positive for the stock exchange, but an additional 10 per cent on dividends in excess of 10 lakh and increase in STT on options, are a dampener for the markets. With no change in individual slabs, POEM deferral, GARR confirmation, action point on BEPS master file and country by country report, road map to reduction to lower tax rates and phase out of exemptions, are on expected lines.

Further, many provisions to build confidence with the tax payers with a view to reduce litigations and commitment to no retrospective amendment in the backdrop of the prevailing global scenario, provides for pragmatic balancing act. On the indirect tax front, it is welcome that duty drawback schemes will be widened, to give impetus to sagging exports, but the emphasis shall also be on fine-tuning existing schemes and promote transparency.

Service tax rate will increase and the levy of service tax on spectrum fees will increase the cost of providing telecom services and will hit telecom companies and the quality of service. While no firm commitment on GST timelines was made, the industry expectation was dampened as they were looking forward for some road map in aligning the existing central indirect tax regime with the proposed GST framework.

In line with the `make In India’ initiative, changes have been made in customs and excise duty rates on certain inputs to reduce costs and improve competitiveness of certain domestic industries like information technology hardware, capital goods, defence production and others.

On the flip side, instead of abolishing `swatch Bharat’ cess as a precursor to GST, an additional new cess by the name krishi kalyan cess is proposed to be levied @ 0.5 per cent on all taxable services (whose credit would be admissible for payment of output cess), taking gross service tax to 15 per cent from 1 June 2016 onwards.

(The writers are partner and head, management consulting practice and associate director, indirect tax, KPMG India)


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