Budget 2016: 10 things to know

 

The Union Budget is one of the most important events in the world of business and finance. It has a resounding impact on everyone – individuals, economy, markets, investors and even companies.

Here is a look at the 10 most important announcements in the recent Budget for the fiscal year 2016-17:

1)      Fiscal Deficit: The financial markets track the government’s fiscal deficit close. This is the amount by which the government borrows from the market. Last year, the Budget set a target of 3.9% for the current fiscal year and 3.5% for FY17. Most analysts and investors were worried that the government may overshoot this target. The Budget, however, reiterated that target would be achieved. Not just fiscal deficit, the finance minister also announced an improvement in the Revenue deficit to 2.5% of the GDP in the current fiscal from 2.8% in the previous year. Revenue deficit is when the revenue falls short of estimates. A contraction in the deficit suggests that the government’s revenue was closer to the estimate.

2)      Government finances: How the government plans to earn and spend its money is equally important. It also gives an idea whether the fiscal deficit target is realistically achievable. The government proposed a 15.3% increase in Plan expenditure of Rs 5.5 lakh crore. This is the expenditure on productive spending like infrastructure growth. The Budget estimates to spend an overall Rs 19.78 lakh crore in 2016-17, 10.8% higher than last year’s Rs 17.85 lakh crore. It aims to earn revenue of Rs 13.77 lakh crore. This is a 14.17% increase over last year’s revenue of Rs 12.06 lakh crore.

3)      Capital expenditure and infrastructure: Investments in railways and roads help fuel growth over the long term. This is called Capital Expenditure. The Budget announced an expenditure of Rs 2.21 lakh crore on infrastructure development. Of this, Rs 2.18 lakh crore would be on building roads and railways in 2016-17. The government aims to build 10,000 km of National Highways and upgrade 50,000 km of state highways in the coming fiscal. The numbers state the government’s focus on infrastructure. This is essential for any improvement in the economy.

4)      Agriculture spending: The biggest focus this year was on agriculture and the welfare of farmers. This was widely expected considering that the sector was beleaguered by two consecutive droughts. The government aims to double farmers’ incomes by 2020. The Budget announced three key measures to boost growth. Two of these are about farming – ensuring the fertility of the soil and increasing the coverage of farms that can be irrigated. The Budget estimates that around 28 lakh hectares will be brought under the new farm irrigation plan. The FM also proposed to spend Rs 86,500 crore on irrigation projects in 5 years. Lastly, the Budget spoke about crop insurance for farmers to safeguard them from losses. Considering how vital agricultural productivity is to economic growth and inflation in India, these announcements can be considered a welcome measure.

5)      Rural development: It’s not just farmers that the Budget targeted, but all of Rural India. The government aims to achieve inclusive growth. For this, it is important the Rural India has access to electricity, transportation as well as technology. The Budget targets all these three aspects. For rural development as a whole, the Budget allocated Rs 87,765 crore for 2016-17. This includes the whopping Rs 38,500 crore for MNREGA. This money will be used to electrify villages, the target for which is May 2018. It will also be used to improve transportation by building roads and railways and for digital literacy. The FM also allocated Rs 9,000 crore for the Swatch Bharat Abhiyaan for rural hygiene.

6)      Subsidies: The Budget was expected to cut its Subsidy bill this year. Instead, the government announced an additional Rs 2,000 crore to ensure LPG for Below-Poverty Line (BPL) families. This will be done through the Aadhar system. In addition, the government also announced extending the Direct Tax Benefits programme to fertiliser subsidy. In the past, it has helped saved Rs 14,672 crore of LPG subsidy. An extension to fertiliser subsidy too could help plug further leakages.

7)      Social Sector: There has been a lot of the social sector too in this year’s Budget. Health, education and skill development were the keywords. The Budget allocated Rs 1.51 lakh crore for the social sector. This is to fund multiple schemes like the New health protection scheme, National Dialysis Services Programme, the Stand Up India Scheme, the Sarva Shiksha Abhiyan and the setting up of a digital depository to save your school and college certificates online. Job creation was also a key topic of coverage in this year’s Budget.

8)      Banking and finance: Markets are keenly interested in the government’s plan to recapitalise the ailing public-sector banks. The Budget proposed to infuse Rs 25,000 crore in PSU banks this year. This, however, is part of the already-announced Indradhanush Scheme. So the Budget did not set aside any extra funds for the banks. Apart from this, the Budget spoke about reforms in the FDI policy in the areas of insurance, pension, asset reconstruction companies and stock exchanges. It also spoke about setting up a wide ATM network across the country as well as a detailed Bankruptcy code.

9)      Tax reforms: The Budget did not announce any big changes in the tax structure. There were three key changes in direct taxes – increase in tax rebate by Rs 3,000 to Rs 5,000; higher housing rent exemption of Rs 60,000, up from Rs 24,000 earlier, and a change in Corporate Tax while phasing out corporate exemptions.  To make up for the loss of tax revenue through these proposals, the Budget increased taxes on luxury goods like cars and jewellery. It also announced a 10% tax on dividend income of over Rs 10 lakh. The FM also announced a 0.5% cess on all taxable goods and services. This money would be used for agricultural and rural development.

10)  Housing sector: Affordable housing was another key focus point this Budget. It proposed a 100% tax deduction for all housing projects that built smaller flats sized 30-60 square metres. These projects will also be exempt from Service Tax in the coming year. The FM also announced a tax deduction on an extra Rs 50,000 for those who opt for loans Rs 35 lakh in 2016-17. This is only for first-time buyers who buy houses worth less than Rs 50 lakh. The Budget also announced tax incentives on dividends distributed by Real Estate Investment Trusts (REITs).

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