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NIPFP Library and Information Centre

National Institute of Public Finance and Policy New Delhi

Library and Information Centre of NIPFP gets roughly 13 newspapers among these 5 business newspapers are scanned and its clipping are selected & indexed in WINISIS software. Special care is taken to ensure that no important news event is left out of this selection. The arrangement of the clippings has been done with bibliography of authors-wise alphabetical index. This bulletin has the edited full text and it has been arranged serial number wise.

Dr. Mohd. Asif Khan

C O N T E N T S

Bibliography of Newspaper Article 1-9

Bibliography Author Index 10

Full Text Author Index 10

Edited Full Text (Serial No. Wise) 11

Bibliography of Newspaper Articles ______

PRE BUDGET

1. Acharya,Shankar. Budget 2016 - Stick to basics: In a fragile global economic context, the Budget should err on the side of prudence. Business Standard, Feb 11, 2016, p.11.

Global economy; Goods and Services Tax(GST); Employment and labour

2. Balaji,R.; Kumar,V. Sanjeev. Rationalisation of subsidies is key: Pricing policies, labour issues among other concerns of farm and fertiliser sectors. Financial Express, Feb 23, 2016, p.6.

Agriculture; Fertiliser; Subsidy

3. Banerjee,Chandrajit. Budget 2016-17 should step up capital expenditure, implement tax reforms: The upcoming Budget should step up capital expenditure and implement tax reforms. Financial Express, Feb 2, 2016, p.9.

Investment and savings; Infrastructure development; Rural development; Corporate tax

4. Banerjee,Sushim. In India, finished steel consumption, which has been estimated at 81 MT in 2015, is envisaged to grow to 114 MT in 2020 and to 155 MT in 2025. Financial Express, Feb 2, 2016, p.14.

Steel industry; Foreign direct investment

5. Bhagwati,Jaimini. Jump-start investment: Budget should raise revenues reduce spending to increase capital expenditure, without compromising fiscal deficit target excessively. Business Standard, Feb 17, 2016, p.1,2.

Agriculture

6. Bhattacharya,Arundhati. Monetary policy in wait-and-watch mode: WIth an enhanced LCR and lagging deposit growth, RBI has to proactively manage the liquidity deficit in the system. Financial Express, Feb 3, 2016, p.8.

Monetary policy; Foreign direct investment

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7. Birla,Sidharth. Do it right, right now: The time for discussing ideas is long gone. It's time for the Centre to deliver on them. Business Line, Feb 10, 2016, p.8.

Prices; Oil and natural gas; Tax law; Investment and savings

8. Boost to make in India, rationalisation of taxes high on budget agenda: Adhia. Economic Times, , Feb 18, 2016, p.19.

Taxation; Make-in-India; Gross domestic product

9. Budget 2016 expected to address education infra, quality: The Indian education sector with its sheer size and potential for social impact is difficult to ignore for our finance minister. Yet, the sector has not been able to garner adequate interest or funds from the government since Independence. Financial Express, Feb 17, 2016, p.19.

Infrastructure development; Education

10. Budget 2016 to focus on farmers, jobs, poverty eradication - The upcoming Budget will be citizen-centric with a focus on farm sector, job creation and eradication of poverty, Minister of State for Finance Jayant Sinha said today. Financial Express, Feb 21, 2016, p.3.

Agriculture; Poverty; Employment and labour

11. Budget to bet on spurring growth: Global economy and market movements are far more unpredictable today. Hindu, Feb 23, 2016, p.15.

Fiscal deficit; Economic growth; World economy

12. Centre, states should work in unison to boost growth. Financial Express, Feb 7, 2016, p.3.

Economic growth; Poverty; Infrastructure development

13 Chakraborty,Pinaki. Can Higher fiscal deficit revive investment demand. Mint, Feb 24, 2016, p.6.

National income; Investment and savings; 7 th Pay Commission

14 Chatterjee,Purvita. Pinning all hopes on GST: FMCG firms expect to pass on the money they save through the tax to consumers. Business Line, Feb 15, 2016, p.18.

Goods and Services Tax(GST)

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15. Crisil puts budget focus on agriculture. Financial Express, Feb 17, 2016, p.1,2.

Agriculture

16. Crop, agricultural must be equally strong. Economic Times, Feb 1, 2016, p.15.

Economic policy; Taxation; Goods and Services Tax(GST)

17. Deloitte survey: CFOs pitch for more capex in Budget - Majority also okay with some deferring of fiscal consolidation schedule. Business Standard, Feb 20, 2016, p.6.

7th Pay Commission; Infrastructure development

18. Dhoot,Vikas. Experts want body to oversee budget: States have constraints in managing their finances as RBI controls their deficit. Hindu, Feb 21, 2016, p.15.

14th Finance Commission Recommendation; Fiscal Responsibility and Budget Management Act(FRBM)

19. Dhoot,Vikas. Union budget may boost take-home salaries: In the formal sector, 24 per cent of the employee's salary is deducted toward the Provident Fund account. Hindu, Feb 12, 2016, p.16.

Employment and labour; Investment and savings; Employees Provident Fund(EPF)

20. Dimri,Rajeev. Revamping the indirect tax regime: Doing away with multiple tax rates, phasing out of various exemptions, and changing credit rules and regulations can set a foundation for the proposed GST regime. Financial Express, Feb 23, 2016, p.9.

Indirect tax; Goods and Services Tax(GST); Foreign direct investment

21. Ghosh,Jaydeep; Nair,Priya. Departure time gets a new meaning in aviation: Stressful work schedules and limited growth opportunities are taking a toll on a large number of senior professionals in airlines. Business Standard, Feb 22, 2016, p.11.

Income tax

22. Global bright spot: Moody's, OECD see `robust' growth for India in 2016-17 – Economic outlook will be determined by domestic factors; large services exports are a plus point . Business Line, Feb 19, 2016, p.1,7.

Economic outlook; Export; Economic growth; Budget 3

23. Gupta,Anand P. What Budget 2016-17 should focus on: Deficit is not necessarily a bad thing. What matters is that the money is used efficiently. Business Standard, Feb 3, 2016 , p.10.

Export; Fiscal deficit; Public goods and services

24. Gurumurthi,Sitharam. Finance panel casts shadow on Budget. Business Line, Feb 4, 2016 , p.9.

Centre stae financial relation; 14th Finance Commission

25. Joshi,P.K.; Roy,Devesh. Controlling the pulse of pulses: While long-term solution will rely on increasing production, an outlay of a mere Rs 700 crore in the Union Budget can start restructuring the pulses sector. Financial Express, Feb 20, 2016, p.9.

Production; Pluses; Subsidy

26. Khattar,Gautam. Will GST see the light of day next fiscal?: In the Budget session of Parliament, the government could finally take steps towards the biggest transformation in the history of indirect taxation of India. Financial Express, Feb 16, 2016, p.9.

Indirect taxation; Goods and Services Tax(GST)

27. Lahiri,Ashok. Macro-developments Budget challenges: It is best to stick to the announced fiscal targets, since frequently moving them risks losing credibility. Business Standard, Feb 3, 2016, p.11.

Economic growth; Fiscal Responsibility and Budget Management Act(FRBMA)

28. Macroeconomic stability the key: Any further rate cuts will depend on the budget. Economic Times, Feb 3, 2016, p.24.

Monetary policy; Interest rate; Inflation

29. Mantri,Sanjeev. Budget ideas: Critical impetus needed to increase reach - The Budget will be presented against the backdrop of a challenging macro environment. Financial Express, Feb 19, 2016, p.15.

Insurance Amendment Bill 2015; Health insurance

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30. Mazumdar-Shaw,Kiran. Pharma and biotech sector must get its due in Budget. Hindu, Feb 5, 2016, p.15.

Pharma industry; Global economy; Small economic zones

31. Mazumder,Sumit. Budget can reset growth: The Centre must carefully calibrate a range of policy and tax measures. Business Line, Feb 8, 2016, p.16.

Taxation; Make-in-India; Fiscal deficit

32. Mehta,Eric; Pai,P. Reducing TP tax disputes is a must. Financial Express, Feb 23, 2016, p.9.

Transfer pricing; Make-in-India

33. Mehta,Vikram S. Looking forward to a big bang Budget: The global economy is in trouble, but India is attracting positive comment. The finance minister must make the most of the moment. Financial Express, Feb 2, 2016, p.9.

Global economy; Industrial development

34. Mishra,Gitanjali. Budget 2016 must encourage digital payments: Policymakers must wean consumers and merchants away from cash if payments banks are to succeed. Financial Express, Feb 22, 2016, p.6.

Economic policy; Banks and banking; Jan Dhan Yojana

35. Muralidharan,R. A budget may simplify the indirect tax system. Financial Express, Feb 4, 2016, p.9.

Indirect taxes; Goods and Services Tax(GST)

36. NITI aayog to Finance Ministry: Stay on fiscal consolidation road map. Business Standard, Feb 2, 2016, p.5.

Fiscal deficit; NITI Aayog; Monetary policy; International Monetary Fund(IMF)

37. Oberoi,Viresh. Conducive start-up regime needed: The government's role in making the journey smoother for start-ups begins with providing basic infrastructure. Electricity, ports, roads as also last-mile connectivity are the pillars on which entrepreneurs will build their business and value proposition. Financial Express, Feb 18, 2016, p.9.

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Infrastructure development; Electricity and power

38. Prasad,R. More economic surplus for citizens: The Budget day arrives shortly. The issues facing the country are manifold-a shortage of demand in the market, sharp fall in the domestic savings rate and the bad financial position of the public sector banks. Financial Express, Feb 16, 2016, p.9.

Education; Health; Tax rate

39. Rajan puts the ball in Jaitley's court: Says monetary policy can achieve 'only so much' for growth. Business Standard, Feb 3, 2016, p.1,6.

Monetary policy; Interest rate

40. Rao,M.Govinda. Budget FY17: A tightrope walk - Innovative revenue generation measures must for maintaining fiscal deficit targets. Financial Express, Feb 2, 2016, p.8.

Fiscal deficit; Economic policy; Subsidy; Gross Domestic Product(GDP)

41. Rao,M.Govinda. Fine balance on the budget. Hindu, Feb 23, 2016, p.10.

Investment and savings; One Rank One Pension(OROP); Gross domestic product

42. Ray,Surya Sarthi. Budget session: Key labour reform proposals unlikely to be passed– The principal labour reform proposals are aimed at ensuring ease of doing business by merging 44 extant Acts into four codes. Financial Express, Feb 19, 2016, p.2.

Employment and labour; New pension system; Employees Provident Fund(EPF)

43. Roychoudhury,Arup. Final decision on fiscal deficit target for FY17 likely this week. Business Standard, Feb 8, 2016, p.10.

Fiscal deficit; Gross domestic product

44. Roy,Rathin. Anatomy of the revenue deficit. Business Standard, Feb 5, 2016, p.11.

Fiscal Responsibility and Budget Management Act(FRBMA); Revenue deficit

45. Roy,Vijay C. FM likely to announce 4 major ports in Budget: These ports would be at 6

Maharashtra's Dahanu Dugarajapatnam, Tamil Nadu's Colachel and West Bengal's Sagar. Business Standard, Feb 1, 2016, p.7.

Port and ship industry

46. Sabnavis,Madan. Don't expect much from the Union Budget: We have to revive the Keynesian animal spirits to brighten our own prospects-the Budget will be an enabler. Financial Express, Feb 15, 2016, p.7.

Keynesian animal spirits; Economic growth

47. Saha,Manojit. With an eye on budget, Rajan holds interest rates. Hindu, Feb 3, 2016, p.17.

Monetary policy; Interest rates

48. Sahu,Prasanta. Budget 2016 to draw up PSU sale map: With its disinvestment target set to be missed for the seventh year in a row, the government will likely revisit the strategic sale route for transfer of ownership and control in PSUs and unveil a clear-cut policy in this regard in the coming Budget, according to informed sources. Financial Express, Feb 11, 2016, p.1,2.

Public sector undertakings

49. Saikia,Sidhartha P. Income tax exemption threshold to be raised to Rs 3 lakh from Rs 2.5 lakh: Budget 2016 countdown - Individual taxpayers could get some relief as finance minister Arun Jaitley is likely to raise the minimum income threshold for paying personal income tax for those below 60 years of age to Rs 3 lakh a year from Rs 2.5 lakh at present, multiple sources. Financial Express, Feb 18, 2016, p.2.

Income tax; Investment and savings

50. Shah,Ajay. Call to arms for reforms: The non-oil, non-finance sector of the economy is under severe stress. Business Standard, Feb 22, 2016, p.9.

Investment and savings; Export; Economic growth

51. Sharma,Mihir S. Mr Jaitley's big chance: Structural changes to government finances could be focus of the Union Budget. Business Standard, Feb 15, 2016, p.9.

Corporate income tax; Investment and savings; Goods and Services Tax(GST)

52. Shukla,Ajai. Budgeting for a new security: Defence budget will likely show there is no 7

new direction to planning for India's security. Business Standard, Feb 2, 2016, p.11.

Defence budget; National security

53. Shukla,Ajai. Defence budget must reflect reality: Unimaginative increments, persistent refusal of funds have turned the Army into an underfed child scared to ask for a full meal. Business Standard, Feb 16, 2016, p.11.

Defence budget 2016-17

54. Sikarwar,Deepshikha. Working 24*7 Modi puts stamp on Budget. Economic Times, Feb 20, 2016, p.1,11.

Economic policy; Global economy

55. Sood,Jyotika. NHAI wants adequate funding support from Union budget: The road ministry has decided that all two-lane highways on which more than 10,000 passenger cars ply every day would be eligible for four-laning. Mint, Feb 8, 2016, p.8.

Nationmal Highway Authority of India(NHAI)

56. Srivatsan,Arvind; Ranjan,Rajat. Roadmap for long-term stability: Budget 2016 - FM has to ensure India continues to attract long-term growth capital. Financial Express, Feb 17, 2016, p.9.

Taxation; Food security; Pension

57. States demand more money from Centre ahead of Budget: We should work in unison to boost growth. Business Standard, Feb 7, 2016, p.1,4.

Economic growth; Centre state financial relation; 14th Finance Commission

58. Surabhi. Budget FY16 report-card: Jaitley scores in pushing schemes. Business Line, Feb 23, 2016, p.1.

Goods and Services Tax(GST)

59. Surabhi. Farm and farmers must get top priority in Budget: Twitterati. Business Line, Feb 19, 2016, p.7.

Agricultural development; Make-in-India; Micro Units Development and Refinance Agency(MUDRA) 8

60. Surabhi; Mishra,Richa. Budget may leave corporate tax rate: Service tax could be hiked to 16 per cent in preparation for GST rollout. Business Line, Feb 16, 2016, p.7.

Service tax; Goods and Services Tax(GST); Corporate tax

61. Verma,Meenakshi Ambwani. Looking to Make-in-India excise duty cut is a key demand of the sector. Business Line, Feb 16, 2016, p.6.

Excise duty; Make-in-India

62. Zobalia,Hemal. Budget must boost Infra sector: Budget 2016 - Power will be one area that will be key to lifting infra as a whole. Financial Express, Feb 16, 2016, p.9.

Infrastructure development; Corporate tax; Bond Guarantee Fund of India(BGFI); Base Erosion and Profit Shifting(BEPS)

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Author Index Acharya,Shankar 1 Nair,Priya 21 Balaji,R. 2 Oberoi,Viresh 37 Banerjee,Chandrajit 3 Pai,P. 32 Banerjee,Sushim 4 Prasad,R. 38 Bhagwati,Jaimini 5 Ranjan,Rajat 56 Bhattacharya,Arundhati 6 Rao,M.Govinda 40,41 Birla,Sidharth 7 Ray,Surya Sarthi 42 Chakraborty, Pinaki 13 Roychoudhury,Arup 43 Chatterjee,Purvita 14 Roy,Devesh 25 Dhoot,Vikas 18, 19 Roy,Rathin 44 Dimri,Rajeev 20 Roy,Vijay C. 45 Ghosh,Jaydeep 21 Sabnavis,Madan 46 Gupta,Anand P. 23 Saha,Manojit 47 Gurumurthi,Sitharam 24 Sahu,Prasanta 48 Joshi,P.K. 25 Saikia,Sidhartha P. 49 Khattar,Gautam 26 Shah,Ajay 50 Kumar,V. Sanjeev 2 Sharma,Mihir S. 51 Lahiri,Ashok 27 Shukla,Ajai 52,53 Mantri,Sanjeev 29 Sikarwar,Deepshikha 54 Mazumdar-Shaw,Kiran 30 Sood,Jyotika 55 Mazumder,Sumit 31 Srivatsan,Arvind 56 Mehta,Eric 32 Surabhi 58, 59, 60 Mehta,Vikram S. 33 Verma,Meenakshi Ambwani 61 Mishra,Gitanjali 34 Zobalia,Hemal 62 Mishra,Richa 60 Muralidharan,R. 35 Edited Full Text Author Index

Acharya,Shankar 11 Nair,Priya 36 Balaji,R. 12 Oberoi,Viresh 61 Banerjee,Chandrajit 14 Pai,P. 54 Banerjee,Sushim 15 Prasad,R. 62 Bhagwati,Jaimini 16 Ranjan,Rajat 90 Bhattacharya,Arundhati 18 Rao,M.Govinda 65 Birla,Sidharth 20 Ray,Surya Sarthi 69 Chakraborty, Pinaki 26 Roychoudhury,Arup 70 Chatterjee,Purvita 28 Roy,Devesh 43 Dhoot,Vikas 32 Roy,Rathin 71 Dimri,Rajeev 34 Roy,Vijay C. 73 Ghosh,Jaydeep 36 Sabnavis,Madan 74 Gupta,Anand P. 40 Saha,Manojit 76 Gurumurthi,Sitharam 41 Sahu,Prasanta 77 Joshi,P.K. 43 Saikia,Sidhartha P. 78 Khattar,Gautam 45 Shah,Ajay 79 Kumar,V. Sanjeev 12 Sharma,Mihir S. 81 Lahiri,Ashok 47 Shukla,Ajai 83 Mantri,Sanjeev 49 Sikarwar,Deepshikha 86 Mazumdar-Shaw,Kiran 50 Sood,Jyotika 88 Mazumder,Sumit 52 Srivatsan,Arvind 89 Mehta,Eric 54 Surabhi 92 Mehta,Vikram S. 55 Verma,Meenakshi Ambwani 94 Mishra,Gitanjali 57 Zobalia,Hemal 95 Mishra,Richa 93 Muralidharan,R. 58

Budget 2016 - Stick to basics expectation of larger state fiscal deficits from the UDAY (Ujwal Discom Assurance Shankar Acharya/Feb. 10, 2016 Yojana) programme and low nominal GDP

growth complicating debt dynamics. In a fragile global economic context, the Budget should err on the side of prudence • Provided this moderate fiscal consolidation By now, the finance minister has been (of 0.4 per cent of GDP) is targeted, the inundated by advice, from within the finance ministry should negotiate a 0.25 per government and outside. The counsel ranges cent reduction in the repo rate with the from spending more to stimulate the Reserve Bank of India, to be implemented economy to announcing major economic concurrently with the Budget. This will reforms. In truth, he should bear in mind visibly improve the fiscal-monetary mix and four over-arching considerations. boost investor confidence through demonstrated coordination between the First, the Budget is only one component of government and central bank. economic policy at his command; most of economic policy is conducted throughout • Deliver on the previous Budget's promise of the year and outside the Budget. For reducing the company tax rate while making example, the successful legislative and matching cuts in tax exemptions. A one or administrative implementation of the Goods two percentage point reduction in the and Services Tax (GST) is likely to be much corporate tax rate could be done, but if and more important than anything in this only if the matching exemption withdrawals Budget. Second, there is much merit in can be executed. delivering on past Budget initiatives, such as the bankruptcy bill or the promise of • In preparation for the long-sought GST, corporate tax reform. Third, a Budget is increase the services tax rate by one or two more likely to be good for the economy if it per cent, since the general GST rate will sticks to basics: Moderate fiscal have to take account of the current non- consolidation, sensible tax proposals and taxation of services by states. judicious expenditure programming. Finally, and perhaps most importantly, in a fragile • Announce a phased launch of a direct cash global economic context, the Budget should transfer (to farmers) approach to fertiliser err on the side of prudence. That said, here subsidies. The current plant-based system is a suggested list of "do's" and "don'ts". suffers from major leakages (including smuggling to neighbouring countries) and Some 'do's' has discouraged any fresh domestic fertiliser • It's best to take the finger off the "pause capacity creation for nearly 30 years. button" on fiscal consolidation and target 3.5 per cent of GDP (gross domestic product) • Announce implementation of some of the for the fiscal deficit for financial year 2017. recommendations of the Parthasarathi Well-known reasons include: Sustaining Shome Committee report on tax domestic and international policy credibility, administration and the more recent Easwar the continuing (and enabling) windfall of Committee report on income taxes. low oil prices, the still high rates on benchmark 10-year government bonds, the Some 'don'ts'

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• The government has recently succumbed to on the grounds of stability, predictability steel industry lobbies and announced a set of and massive administrative ease, it would be "temporary" minimum import prices for best to resist another flip…lest it become a some basic steel products, which were being flop. "dumped" by Chinese producers. While this will undoubtedly be beneficial for domestic • As with every Budget there will be hopes producers, it will inevitably raise costs for a and expectations for an increase in the range of domestic steel-using industries and income tax exemption limit from the current render them less competitive for both Rs 2.5 lakh. In a year of low inflation and exporting and import-substitution. Quite serious fiscal pressure (from the Seventh likely, they in turn, will seek protection Pay Commission award) there is little ….and so on. This is the slippery slope back justification for such an increase. to the protection-ridden, high-cost economy of the 1970s and 1980s, not the highway to • Above all, the Budget should eschew 'Make in India'. It is imperative that the adventurism in taxation. The retrospective Budget (and off-Budget government tax amendments of 2012 are still taking their policies) resist further pressures for tariff toll on business confidence in India. Nor did and non-tariff measures to protect specific the earlier experimentation with financial industries from import competition. transactions taxes (such as on cash withdrawals) and fringe benefit tax lead to • While several of the Easwar Committee anything but complexity, confusion and recommendations merit support, the one avoidable economic pain (with little revenue suggesting a halving of the tax-deducted at gain). source (TDS) rate for individuals to five per All this sounds pretty mundane and perhaps cent does not. The current 10 per cent rate even boring. Where is the clash of cymbals, (the entry rate for income tax slabs) is low which might energise the party faithful and enough. Further reduction will simply rekindle animal spirits? Well, sticking to disrupt the smooth inflow of tax revenues basics does tend to leave out the drama. But, throughout the year and complicate the it might just make for a better Budget at this management of government finances. point in India's economic and political trajectory. Put another way, just as the • Every Budget announces some fresh excise Hippocratic Oath enjoins medical tax exemptions and concessions. Surely, practitioners to "do no harm", so with with the transition to a full-fledged GST budget-making. A finance minister who likely within the year, the time is ripe to pays due heed to that principle, may also reverse the tide and severely prune the end up doing a power of good! existing range of product and end-use ***** specific exemptions and concessional rates.

• Rumours are rife that the current system of Rationalisation of subsidies is key dividend taxation (at the level of the company rather than in the hands of nd shareholders) may be tinkered with once R.Balaji V & Sajeev Kumar / 22 Feb, 2016 again. In the past 20 years, we have flipped and flopped on this at least twice, but not, The Centre has to address serious issues in fortunately, in the last dozen years. Purely the farm, fertiliser and plantation sectors to

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enhance the sustainability of the primary canals should be part of the Budget to ensure sector, say industry representatives. an increase in irrigated areas every year.

Imbalanced application of fertilisers, delays Plantation sector and leakage in subsidy payment to farmers The Association of Planters of Kerala has and the low percentage of assured irrigation sought amendments in the Plantation Labour in cultivated areas are serious concerns, Act, which mandates the provision of according to A Vellayan, Executive housing, sanitation and medical care Chairman, Murugappa Group. facilities to workers. But existing government schemes can be extended to Urea price has to go up at least 15 per cent address these needs in the plantation sector as it is highly subsidised and is at one-fourth also, the association said. the world price. This leads to excessive use of urea and imbalanced fertiliser application. George Valy of the Indian Rubber Dealers Prices have to be increased gradually over Federation has urged the Centre to enhance the next four years and subsidy levels the replanting subsidy to
1 lakh per reduced. hectare from the present
20,000.

The subsidy now being routed through the Farmers have given up tapping rubber fertiliser companies can be paid to farmers because of aged trees and dwindling prices. directly. The industry is an ideal subject for A strategic reserve of 1 lakh tonne of rubber direct transfer of subsidy which will not has to be created, as it is a major industrial only stop leakage but also avoid unnecessary raw material, he said. paper work. C Vinayaraghavan, President of the The procedure to reclaim subsidy and freight Association of Planters of Kerala, said low in the phosphatic sector is cumbersome. A international prices, unbridled imports and a weighted average freight can be applied and gap in production-consumption have merged into the subsidy for one-stage impacted natural rubber prices. disbursement, said Vellayan. A temporary ban on imports is needed till a Single superphosphate (SSP) is the safeguard duty is levied. appropriate fertiliser for small and marginal farmers but the subsidy is not conducive to Value-added products the promotion of SSP usage. At least 3 Gulshan John, Chairman of the All India million tonnes of SSP can be used in Spices Exporters Forum, said programmes addition to the current levels. to promote value-added tea, coffee and spices are needed. This will bring down imports of diammonium phosphate by at least 2 million The forum demanded a 5 per cent increase tonnes annually, he said. in incentives for value-added spice exports, which is now treated on par with raw spice. A majority of farmland is rain-fed or monsoon dependent, as irrigated land is just Sasi Varma, Executive Director and 20-25 per cent of the cultivated area. Secretary, Cashew Export Promotion Investment in linking rivers and building Council of India, called for incentives to

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enhance productivity and area of production. be supported not only through higher Domestic production is stagnating at 7 to 7.5 spending on rural infrastructure such as lakh tonnes and India has to depend on roads and irrigation, but also through imports, he added. measures to enhance rural purchasing power. Rural inflation has been consistently The export incentive of 2 per cent under the higher than urban inflation and measures are Merchandise Exports from India Scheme needed to mitigate the impact on rural should be hiked to 5 per cent and market incomes. development assistance provided, he said. The Budget should announce some bold ***** steps to address the problem of non- performing assets (NPAs) in the banking system. As of September 2015, NPAs constituted over 5% of banks’ total Budget 2016-17 should step up capital advances. The government should consider expenditure, implement tax reforms the creation of a National Asset Management Company (NAMCO) which Chandrajit Banerjee / Feb 2, 2016 would take NPAs off the banks’ balance sheet and also focus on rehabilitation, The finance minister has announced the recapitalisation and refinancing of banks. government’s intention to implement critical This would release capital, provide banks tax reforms in both direct and indirect taxes. with lendable resources and restore their health. Even as the Indian economy is expected to be the world’s fastest growing, it is apparent Higher spending by the government in that demand conditions remain subdued and productive areas should not compromise its the appetite for investments is below par. plan for fiscal consolidation. Any extra The upcoming Union Budget must, spending needs to be compensated by therefore, focus on measures to stimulate measures to reduce the subsidy outgo, step domestic demand, given that exports are up PSU disinvestment and expand the tax likely to remain on a declining trend. The base. The Pay Commission pay-outs can be Confederation of Indian Industry (CII) has staggered, so that the entire burden is not recommended that capital expenditure on incurred in one year. There is a need to shift key projects in sectors such as roads, from cash-based to accrual-based budgeting, railways, irrigation and power be increased as it leads to better outcomes. The ministries substantially, either through higher should prioritise their work, so that they are budgetary allocation or through utilisation of able to spend the amount allocated to them PSUs’ surplus funds. in the Budget estimate.

Public spending has the potential to ‘crowd The finance minister has announced the in’ private investments at a time when government’s intention to implement critical private investors remain risk-averse. tax reforms in both direct and indirect taxes. Particular attention should be paid towards The reduction in the corporate tax rate, measures for stimulating rural demand, together with rationalisation of incentives, which has been adversely impacted by two has the potential to transform the investment consecutive droughts. Rural demand has to climate in India. The government should

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announce year-wise roadmap for reduction of corporate tax rate from 30% to 25%, The year 2015 may be specially remembered along with the withdrawal of incentives in a as a year of slowdown for the global calibrated manner. The phase-out of economy, which grew by only 3.1% incentives should be prospective, so that any according to the latest IMF estimates. We investments made on the basis of these have also witnessed a steep decline in prices incentives should not be affected. of oil, metals and other commodities including foodgrains and services. Hardly On indirect taxes, the implementation of any sector could cash in on the declining GST will be a game-changing reform, which prices of raw materials, as inventories of will subsume all indirect taxes currently finished products went up due to a fall in levied by the Centre, states and local bodies, demand. Surplus capacities put an additional and eliminate cascading of taxes. Industry downward pressure on market prices. The had been looking forward to its only silver lining in such a depressing implementation from April 1, 2016, but has scenario, dubbed by a few as gradually been disappointed by the non-passage of the approaching stagflation, was the growth Constitutional Amendment by the Rajya projections in some of the emerging Sabha in the winter session of Parliament. economies led by India. FY16 may clock a The Budget should announce a revised GDP growth of 7.3% or more for the roadmap for the implementation of GST as country , now that growth in the previous well as reasonable tax rates. We hope that year (FY15) has been revised downwards. all political parties will support the Constitutional Amendment Bill in the The Chinese economy that almost Budget session, as the major concerns of the singlehandedly contributed to global growth Opposition are now being taken into in the past three years has started slowing account. down due to subdued domestic demand, as a fallout of a deliberate shift to consumption, The Budget presentation by the finance away from investment. The thrust on light minister has become an occasion that is engineering, value-added metal, high-tech widely followed across the world for industries and IT-based service sectors and indications of the government’s policy moving away from heavy engineering and direction. The policy announcements made gigantic structures are diminishing Chinese by the finance minister in the last two demand for most of the raw materials and Budgets have brought in new ideas in creating stiff competition for many finished several areas of economic policy. Industry is commodities, as exports from China at most looking forward to more measures in the competitive prices would seem to be the upcoming Budget that will facilitate viable outlet for surplus capacities in these investments and unlock India’s economic items.It is interesting to see how the Chinese potential. steel industry is planning to cope with the ***** crisis of poor demand, massive surplus capacity, declining prices and negative profitability. Steel industry awaits investment growth push in Budget 2016 This is important, as Chinese strategy would have a huge impact on the global steel Sushim Banerjee / Feb 2, 2016 industry, the raw material scenario and

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trade. From the reports of Posco Research in 2015 to 780 MT by 2020 and 750 MT by Institute and World Steel Association, it is 2025. The estimates by WSD has put it at seen that China has already eliminated more 775 MT in 2016 and 735 MT by 2020. The than 90-MT capacity in steel in 2010-14 and finished steel consumption in China at 675 is planning to cut down an additional 100- MT in 2015 is slated to come down to 643 150-MT capacities in the next five-seven MT in 2020 and to 624 MT in 2025. For years. The axe would mostly be on small India, finished steel consumption which has and medium enterprises, thriving on credits been estimated at 81 MT in 2015 is from provincial banks and other units envisaged to grow to 114 MT in 2020 and to violating pollution norms. The surplus 155 MT in 2025, at an average compound employees would be redeployed in other growth of 6.7% during the period, which is emerging sectors with requisite skill-based the highest among major steel-producing training. countries.

The mergers and acquisitions process in the The projected consumption would ride the steel industry would be strengthened. China growth in the construction sector at an ended last year with 110 MT of exports and average rate of 7.6% and automobile at the maximum thrust on exports would 7.5%. The future of Indian steel is therefore continue for the next two-three years. The crucially dependent on investment in abolition of export rebate on boron-coated infrastructure building and in manufacturing steel has been strategically combated by sector. The budgetary announcements by having export rebates on chromium-added February-end are eagerly awaited to steel. As China is seized with a spate of anti facilitate such an enabling environment. dumping and countervailing duty impositions from the US, Mexico, Canada, the EU, Turkey, Indonesia, Vietnam and ***** other countries, it is likely to focus on export destinations in South Africa, West Asia, Jump-start investment South America and the ASEAN markets. The predominance of the BF-BOF process Jaimini Bhagwati /February 17, 2016 in steel making over the last few decades would lead to high domestic availability of obsolete steel scrap, and with the cutting Budget should raise revenues & reduce down of production, the same would result spending to increase capital expenditure, in expanding the EAF route for catering to without compromising fiscal deficit target special steel and value-added steel demand. excessively The prices of iron ore and coking coal are projected to hover below $50/t for China It is that time of the year. Newspapers and and around $80/t for Australia, respectively. television channels are in a competitive The startling fact is that GDP elasticity of frenzy making pronouncements on the steel in China has progressively come down Union government's Budget, to be presented from 3.57 in 2000 to 0.35 in 2014, and with to Parliament on February 29. The frantic the diminishing share of FAI in GDP, the voices cannot be muted and one remedy is to elasticity is likely to go down further. join the circus. This article preaches the Crude steel production in China has been basics which tend to get obscured, as projected by POSCO to drop from 803 MT Macbeth puts it, in all that "sound and fury".

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Although India's GDP grew by 7.3 per cent should not have been allowed to rise above in the last quarter of the calendar year 2015, three per cent of GDP in 2009-10. It could the index of industrial production (IIP) fell be argued that the government had no option by 1.3 per cent in December 2015. Again, but to raise expenditure after the sharp while the trade deficit has shrunk, exports slowdown of the global economy post 2008. were down for the 14th straight month in However, why has government not done January 2016. And, Indian equity indices are more to raise revenues, which in 2014-15 lower by about 20 per cent in the past one were at about the same level as 34 years ago year. In this environment of uncertainty for in 1980-81? As the Indian government's long-term investors, the strait-jacketed Budgets are not accrual-based, contingent thinking is that the finance ministry should liabilities are not recognised. To that extent, adhere strictly to its fiscal deficit objective the deficit numbers are understated and of 3.5 per cent of the GDP for 2016-17. probably not comparable across time.

Table II lists amounts spent on three major Going by newspaper reports JP Morgan subsidies in the past 15 years. It is appears to be running monetary policy, incumbent on the government to provide suggesting that if the government sticks to food subsidies, which would be more its fiscal target, a repo rate cut of at least 25 efficiently achieved through cash-based or even 50 points would follow. The transfers to bank accounts. The same line of European and Japanese experience has reasoning holds for the petroleum subsidy. amply demonstrated that even with negative However, eliminating plant-specific nominal interest rates there is little appetite fertiliser subsidies and reducing the for lending if banks are laden with impaired enormous waste and worse in Railways, Air debt. Indian public sector banks, which India and at the Food Corporation of India provide the bulk of long maturity loans, are have to be priorities to provide more fiscal groaning under the weight of stressed assets. elbow room.

Table I provides a sense of what lies at the core of the Union government's fiscal choice s.

Looking back, it was not just the balance of payments crisis which triggered the sweeping economic reforms post 1991. The dissolution of the Soviet empire was one of several other factors which convinced fence- It is apparent, even without the benefit of sitters within the government's decision hindsight, that gross primary deficit making circles. Ex-post we know which (revenue deficit less interest payments) business empires withered because they

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would not change. The sense now is that with private sector project experience in there is an unspoken consensus for weak IIFCL and consult private banks particularly reforms. This is probably because a different those with experience of longer term lending set of major corporations and many among in China. The present value of the central the political executive prefer incrementalism government guarantee for IIFCL bonds rather than the uncertainty which would be should be accounted for as capital unleashed with wider and deeper reforms. expenditure.

Fiscal hardliners maintain that the To sum up, the Budget should seek to raise government cannot plan let alone execute revenues and reduce wasteful public long-gestation projects efficiently and would spending in order to increase capital not be able to resist pressures to increase expenditure without compromising the fiscal consumption expenditure. The backlog of deficit target of 3.5 per cent excessively. the slowdown caused by Supreme Court The central government has to govern and judgements plus land acquisition hurdles the annual Budget is too important an means that private investments are not opportunity to miss. As we have witnessed forthcoming for long-gestation projects. repeatedly in the last few decades, lack of Further, the current labour laws and a slew governance leads to the Supreme Court, the of well-intentioned but difficult-to-correctly- central bank and others coming up with implement legislation, for example on short-term solutions with negative longer- payment of wages/bonus/gratuity/fringe term consequences. benefits, rent control, stamp duties, service taxes, copyright often add up to become ***** show-stoppers. However, the BJP is in power with overwhelming majorities in several large states. The central government Monetary policy in wait-and-watch mode could support completion of stalled infrastructure projects and starting of new Arundhati Bhattacharya/ Feb 3, 2016 ones in these states. This should have a strong demonstration effect in non-BJP With an enhanced LCR and lagging deposit administered states. growth, RBI has to proactively manage the liquidity deficit in the system Infrastructure development in G-7 countries and China was mostly funded by The RBI policy announcement maintaining government and public sector bodies. It a status quo was on expected lines. The follows that the employment-boosting decision was guided by uncertainty in global option is for government to step "once more markets. Additionally, with the Union unto the breach". A significant proportion of Budget round the corner, RBI may have the banking sector's difficulties have been preferred to adopt a wait-and-watch policy. caused by private entities claiming force- However, the central bank has also majeure for their inability to repay. Hence, mentioned that the inflation trajectory is for prudent future long-term loans instead of evolving as per expectations; hence, there public sector banks, India Infrastructure may be reasons to believe that RBI will Finance Company Limited (IIFCL) could be continue in an accommodative mode. the preferred lead-lending institution. The government needs to appoint professionals

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Meanwhile, fragility in the global economic sharp 27%. Such an increase defies logic as developments persist. Though the US labour nominal growth is currently weak. There market continues to support domestic may be two possible divergent explanations demand—albeit, with stolid for this. First, this may be explained by manufacturing—and deflation risks are continued currency demand from the public possibly receding in the euro area, Japan is even after the festive season. If this is so, still mired in trouble despite the unique this augurs well for buoyancy in consumer measures taken by its authorities. The Indian demand going forward. The alternative economy is experiencing some gain in explanation could be that when people momentum—RBI’s outlook reveals a pick- expect declining prices, they become less up in the near-term. The dynamics of the inclined to spend, and also less inclined to service sector indicates continued borrow. In the words of Paul Krugman acceleration in road construction and “After all, when prices are falling, railway freight. On the external front, just sitting on cash becomes an investment though exports remained muted, India with a positive real yield!” Whatever be the continues to be a favourable destination for reason, this trend needs to be watched very FDI. closely.

There is one point of concern, though. Since The announcement of the central bank the last monetary policy, system liquidity regarding making it easier to do business has been in a significant deficit mode. As of and facilitating growth of start-ups, now, the liquidity deficit averages around consonant with the government’s Startup R1.5 trillion, compared to around R500 India initiative, is a welcome one. These billion deficit over October-November. measures will create an enabling There are reasons to believe that this may environment for receiving foreign venture have been also driven by factors other than capital, differing contractual structures seasonal ones, like depletion in net foreign embedded in investment instruments, exchange assets. RBI, however, has actively deferring receipt of considerations for intervened through variable term repos to transfer of ownership, facilities for escrow mitigate such liquidity tightness. With an arrangements and simplification of enhanced Liquidity Coverage Ratio documentation and reporting procedures. (LCR)—(from 60% to 70%—kicking in from January 2016 and deposit growth The enhanced LCR norms will also lagging, RBI may have to be proactive in necessitate new products on the part of the managing the liquidity deficit through tools banks. For example, banks in India provide available at its disposal. Additionally, in a working capital finance to their customers situation of capacity underutilisation, like by means of cash credit (CC) limits. Cash the one we are currently witnessing, any credit is provided as a running account, possible liquidity injection may not be which basically acts as a way to transfer counterproductive as far as fuelling inflation working capital, cycle planning and is concerned. forecasting function of customers to the banks. Large cash credit limits, that can be Another cause of liquidity tightness is the drawn by the borrowers without any notice, sudden jump in currency demand by the may pose liquidity challenges for the banks. public. For example, in the current fiscal, In addition, undrawn limits are considered currency with the public has increased by a as part of the possible outflows for LCR,

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resulting in banks being forced to maintain In our imperfect world, decision-makers high-quality liquid assets (HQLA) that only usually come across a lot of ‘not-so-good’ means additional 4.5% G-sec holdings. choices and a few ‘ultimately correct’ ones. Steps may be thus taken by the banks to But leaders must decide because that is their eventually replace CC with working capital job. We have had generations who may have demand loans (WCDL). Interestingly, preferred to do what looks good; but looking drawls by customers under WCDL facility good does not triumph over doing good. for specified durations would lead to Therefore, the courage and integrity to do development of term money market in India. the right thing has gained ground. New alternatives like invoice discounting Inheritance of issues and secured fixed rate note, on the lines of asset-backed commercial paper, prevalent in Finance Minister Arun Jaitley is having to developed markets may also be introduced contend with inherited problems of to replace the prevalent CC system over due significant magnitude and complexity. He is course. hindered by two successive monsoon deficits, of course partly mitigated by On the deposit side, banks should be ready favourable oil prices. Perhaps the last time to offer non-callable deposits as a product at India faced such a long list of issues was in least to those customers for whom the run- 1991; but that was also a period of less off factor is higher. This will ensure lower global integration, as well as a less polarised bank holdings in HQLA, and hence a larger political scenario at home. pie of fund for lending for productive But an impaired polity is the perfect purposes. platform on which to unleash literally a flood of well-publicised and precisely In short, banks in India are on the cusp of a implemented executive actions. Let the transformational change against the country understand that the leadership is background of greater autonomy being capable of surmounting and putting behind it envisaged for public sector banks. the legacy of creaky execution. ***** A first — even if somewhat delayed — step Do it right, right now is more aggressive tackling of inherited issues; here the Centre has stepped in Sidharth Birla / Feb 10, 2016 positively but, in my opinion, too gently. The time for discussing ideas is long gone. Capitalisation of banks through the markets, It’s time for the Centre to deliver on them protecting government stake with a 26 per cent plus a Golden Share stake, can still It is Budget season. Intellectuals with an allow a significant re-rating of the sector and opinion and access to a microphone, provide resources for growth. All the efforts computer or pen, are quick to deliver their being contemplated to attack the NPA list of suggestions. In my opinion, though, situation may not yield results on the desired the time for suggestions is long gone; now it scale. Even insolvency laws — excellent for is time for the leadership to make tough the long term — are unlikely to deliver in a choices. The paradox is that it’s not hard to short span. Aggressive recapitalisation will do the right thing; what’s hard is deciding also assuage the Reserve Bank of India’s what is the right set of things to do. concerns.

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Healthy banks can also be a channel to violating its legal obligations and without bolster consumer spending and investment being protectionist in approach. (in property, cars, and the like) through Looking at mindset needs of the coming enhanced consumer credit. The idea of an decades, I believe it is time to start planning emerging, healthy consumer sentiment may how we can create a sizeable cadre in be exactly what revival of the private government that is more ‘managerial’ than business investment cycle is waiting for. ‘administrative’. We need to be exposed to On taxation, there is no reason to fault the global thinking and practices on a scale not strategies advocated by the Centre. Even so, contemplated before. when uncanny application of tax laws Why can we not have a merit-based system, creates so much negative discussion, ill will selecting, say, 5,000 youngsters each year, and uncertainty both abroad and at home, to be sent abroad to study across a range of some aggressive and visible steps (instead of disciplines — engineering, commercial, passive acceptance) will work wonders. legal, administrative, etc. Their fees and Retrospective cases come to mind expenses should be borne by the government immediately, but there are others — not against binding agreements (a condition limited to capital raising, transfer pricing, precedent) that they will work full-time for and so on — where kosher transactions are the government for a minimum period of 10 being put to much pain. We are now beyond years after they return to India. platitudes, so firm actions will have great multiplier effects. I need not elucidate the expanded horizons of knowledge, thinking or implementation Beyond promises ability, and entrenched integrity this cadre Just days ago, our highly respected Ratan can provide. The cost of training this base Tata made an all-encompassing argument. In level from the age of about 22 years is likely effect, he said promises are necessary to to be more productive than training someone generate investment interest but are in with entrenched thinking at 35. themselves insufficient for investment to actually take place. Businesses, whether In tune with time abroad or at home, must be convinced of a In closing, one last thought on India’s time conducive environment before investing. zone. Our aim must be to align India’s time This goes beyond just ‘ease of doing for greater impact vis-à-vis the world. India business’ and, to be fair, depends more on is perhaps the only major economy with a delivery at the State rather than just the time zone with a 30-minute offset, putting us Central level. I believe the Centre can spell in the company of Afghanistan, Iran and out much more as to what Niti Aayog must North Korea. Perhaps it is time to consider a do for generating results from States. one-time move to end the historical anomaly by moving our clock by 30 minutes. Our Assuming that the economy is powered for IST is misaligned to the realities of our some time by public investment, and seasons and sunshine hours. improvements elsewhere create a healthy consumer market, the challenge is to see Aligning IST to the East may be in India’s how the benefit of demand is directed to larger interests, narrowing time differences domestic enterprises rather than helping with Asian economies. West Asia will not those abroad. It is a no-brainer that India find it problematic to adjust. Such a move must find intelligent ways to protect its may help improve our national productivity industrial base from external assault without

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as well as make for better integration with India with over 1,000 employees. It has Asian financial markets and businesses. supplied six C130J Super Hercules planes to India in 2011 and will be delivering another A senior official told me last year six helicopters next year. (comparing the standing of India and Industry observers said Lockheed Martin's China), “ jab hamari kathni aur karni main "wish to manufacture F-16 is based on the fark kam hoga (when the gap between our strong demand from the Indian armed forces talking and action decreases), we will be and would want to lower the cost of the taken more seriously by the world”. Truer planes for exports by using the low-cost words were never spoken. capability in India". "Certainly, Lockheed This column explores ideas and opinions on Martin would want to exploit the Indian enterprise and economy. The writer engineering skill and low cost capabilities in is an entrepreneur and former president of India and make F-16 very competitive in the Ficci. The views are personal fighter jet markets," a well-informed source told PTI. "Both the US government and ***** Lockheed Martin see the advantage of placing a manufacturing base in India and Make in India boost make F-16 affordable for emerging markets," the source said. The making of F- Feb 18, 2016 16, which will be among the largest projects under the Make in India initiative, will be SINGAPORE: US fighter jet maker conditional to the Indian government Lockheed Martin today said it is ready to making contractual commitment to buy the manufacture F-16 aircraft in India and fighter jets for its armed forces, said the supports the ongoing talks between the two source. countries to set up the first manufacturing facility, one of the largest projects under the "Washington, in return, would ensure 'Make in India' initiative. technology transfer to the Indian engineering sector and a huge boost to "We are ready to manufacture F-16 in India Indian exports," he said. If the two and support the Make in India initiative," government reach an agreement this year or Phil Shaw, chief executive of Lockheed 2017, putting aside all differences on the Martin India Private Ltd told reporters at the mega project and the US' move to supply Singapore Airshow 2016. But the American eight F-16 to Pakistan, Lockheed Martin corporation's executive did not commit any could roll out the first made in India jet in time-frame to have the plant operational, 2019-2020, said the source. Lockheed saying the group supports the ongoing Martin has already decided on India as its government-to-government talks. best option for low-cost and highly qualified engineering workforce, and the final go on Shaw expressed strong interest in having the this is dependent on approval from New F-16 made in India "soon" without Delhi and Washington. elaborating on the time-frame, linking it to ***** the progress of the government-to- government talks. Budget 2016 expected to address Currently, Lockheed Martin manufactures education infra, quality one jet a month from its plant in the US and has a series of contracts and joint ventures in

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Feb 17, 2016 * Incentivising formal skilling: Skill India High achievement always takes place in the has been reemphasised time and again as a framework of high expectation, mused priority area for the government. The Charles Kettering. upcoming budget can be a great opportunity to create a robust skill enhancement The Indian education sector with its sheer environment which motivates people to size and potential for social impact is upskill themselves, corporates to recognise difficult to ignore for our finance minister. and reward skilled employees and public Yet, the sector has not been able to garner sector recruit partially educated but formally adequate interest or funds from the certified skilled workforce. A dedicated fund government since Independence. Last year, to fiscally incentivise personal skilling and a series of reformatory steps were development of training infrastructure linked announced by the administrative ministry; to the mandatory CSR provison under the however, there are still a number of issues new company law, in order to receive funds around infrastructure, quality, and public from the private sector, may be set up. funding which the forthcoming Budget is expected to address. * Separate deduction for tuition In addition to the above, the regulatory fees: Income tax exemption to propel framework governing investments into the household investments has been a perfected sector, especially by foreign institutions, strategy used by finance ministers across the needs to be overhauled. Although FDI is world. The tuition fees across educational permitted up to 100% under the automatic institutions have increased substantially in route, the regulators do not either recognise the recent years and bundling the tuition fees or permit foreign investment directly or exemption under all-encompassing section indirectly in setting up formal educational 80 C with a total deduction of R1.5 lakh is institutions. With inadequate public funding no longer practical. To encourage middle and practical roadblocks in foreign class households to pursue academic investment, the sector seems to be caught in dreams, a separate section under the Income a vicious cycle. Tax Act needs to be provided. With pre-Budget activities becoming busier day by day, the expectations from the * Reexamine withdrawal of service tax academic industry has also become stronger exemption: The government should and urgent. We seek the government’s consider restoring the service tax exemption attention on the following agenda items: on renting immovable property by an educational institution to a third party. * Increasing public expenditure: Although Similarly, service tax levy should also be the government had accepted the Kothari withdrawn from auxiliary education services commission’s recommendation to increase such as transportation, canteen, etc. provided public expenditure to 6% of the GDP, by educational institutions directly to unfortunately it is yet to be implemented. students. We feel that some of the critical challenges facing this sector can be partially addressed * Other sectoral interventions: Given the if this happens. At present, the country is increasing importance of collaboration with spending just 3.5% of its GDP on the entire premier global institutions, the government education sector. should consider establishing a reciprocal

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internationalisation policy (at a multi-lateral continues to be a haven of stability and or bilateral level), which will allow top growth in a very turbulent global Indian and foreign institutions to set up their environment”. branch campuses in respective countries. This will not only enhance the value of Finance minister Arun Jaitley’s core Budget teaching but also improve industry-academia team includes Sinha, finance secretary Ratan relationship, curriculum enhancement, Watal, economic affairs secretary innovation, and research in the country, Shaktikanta Das, revenue secretary providing greater operational autonomy to Hasmukh Adhia, disinvestment secretary private educational institutions of excellence Neeraj Gupta and financial services to encourage investment in the sector. secretary Anjuly Chib Duggal. The It is my humble request to the honorable upcoming budget will be third by Jaitley, finance minister to give this sector its due including the interim Budget of July 2014. share in the forthcoming Budget. I am The International Monetary Fund (IMF) has certain that the benefits which will accrue to kept India’s growth projection unchanged at the nation through such reforms will 7.3% in the current fiscal and 7.5% in the outweigh the costs in the long term. next. As for the world growth, IMF forecast ***** is 3.4% for 2016 and 3.6% for 2017.

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Budget to focus on farmers, jobs, poverty Budget to bet on spurring growth eradication: Jayant Sinha 23 rd Feb,2016 21 st Feb.,2016 The Union Budget for 2016-17 will New Delhi: The upcoming Budget will be primarily focus on stimulating growth citizen-centric with a focus on farm sector, without deviating too much from the fiscal job creation and eradication of poverty, deficit target set by the Finance Minister minister of state for finance Jayant Sinha Arun Jaitley in his previous Budget, said on Saturday. Economic Affairs Secretary Shaktikanta Das indicated on Monday. This will be the second full-fledged Budget of the ruling NDA government, and will be Mr. Jaitley had set a fiscal deficit target of unveiled in Parliament on 29 February. 3.9 per cent of GDP for 2015-16, paring it further to 3.5 per cent for 2016-17 and 3 per “We are working very hard in the finance cent for 2017-18. However, with the ministry to be able to prepare a Budget that economic recovery still tentative and private will truly eradicate poverty, provide sector investments remaining elusive, there prosperity for our farmers, help in massive has been a growing clamour for the job creation for young people and provide a government to relax its deficit targets in better quality of life for all Indian citizens,” order to pump prime the economy via Sinha said. In his pre-Budget message on enhanced public investments. finance ministry’s YouTube channel, the minister said the Budget will be forward- The economic affairs secretary emphasised looking “that will ensure that India that the global economy and market

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movements are far more unpredictable today know what’s going to happen the next day in than ever before, yet India’s growth is any part of the world,” he said. healthy. For Budget 2016-17, the government invited For budget, the govt. invited suggestions from citizens through Twitter suggestions from citizens through for the first time, even conducting a series of Twitter for the first time. polls to gauge public priorities and expectations from the budget. “Unexpectedly, markets are crashing, currencies are depreciating. Whatever “Usually, around 50-60 per cent of the happens in the rest of the world affects us proposals are repeated every year. We because India is getting increasingly analyse these as well because the situation is globalised. I think amidst all these problems, always changing. Just because we couldn’t when we are in a turbulent sea, India is take it last time doesn’t mean we won’t look staying afloat and not just that… this year… at it this time,” Mr. Das said. we are expecting a growth of 7.6 per cent which can be considered as very good, given Some of the new suggestions are the circumstances,” he stressed. administrative in nature and can be examined at any point in the year. “So, we “The government is committed to see that take out what really relates to the budget we not only continue this growth but process and then we have dedicated teams increase it,” Mr. Das said. “There are people for examining these proposals,” the who say we should not be worried about secretary said. borrowing and that spending is where the focus should be. The other school of thought ****** is that we must hold the fiscal deficit tightly because our repayment capability will be otherwise affected. The reality is somewhere Centre, states should work in unison to in the middle,” he said. boost growth: Arun Jaitley

“Given the fiscal constraints, it is the Feb 6, 2016 government’s endeavour to present a budget which is growth oriented and maintains the momentum of growth and tries to develop Invoking the concept of 'Team India', on it,” Mr. Das said during an interview on finance minister Arun Jaitley on Saturday the Finance Ministry’s YouTube channel. said the Centre and states need to work He also said that growth was the key for job together to put the country on a high growth creation and economic development. path even as states pitched for higher allocation to meet additional outgo towards “The world economy today is experiencing pay revision of their employees. volatility and uncertainty which we never saw earlier. There was a time when we used The minister said reforms initiated by the to say that we didn’t know what was going Centre in the recent past will be taken to happen next week in Europe. But today, forward in coming months and urged the we have come to a position where we don’t states to work together for putting India on the high growth trajectory.

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Jaitley appreciated their efforts in attracting suffered in the last two years due to foreign investment and expressed the hope inadequate monsoon. that "the growth momentum would catch pace in coming months". Also, they demanded continuation of certain social development-oriented CSEs such as In a pre-Budget meeting with the states, Sarv Shiksha Abhiyan, Madhyamik Shiksha Jaitley wanted them to step up spending on Abhiyan, ICDS, National Rural Health infrastructure and poverty alleviation Mission and the like on the old pattern as schemes as the 14th Finance Commission many states find it hard to sustain them from has devolved higher funds to them. their own resources. "We expect that those states whose During the meeting, the states suggested resources have been increased after the payment of CST arrears and higher implementation of the 14th Finance allocation in the upcoming Budget for Commission will spend further on implementing Pay Commission infrastructure creation and anti-poverty recommendations. programmes since their incomes have increased considerably," Jaitley told The 7th Pay Commission in November reporters here. recommended an increase in remuneration of about one crore government employees He said the world economy is passing and pensioners, which is estimated to entail through a difficult phase and is quite fragile, an additional burden of Rs 1.02 lakh crore in adding that "though this has also affected 2016-17. The new pay scales, subject to India, especially exports, Indian economy is acceptance by the government, will take able to emerge as one of the fastest growing effect from January 1, 2016. economies in the world." ***** Several states, in their pre-Budget meeting with Jaitley, sought higher allocation in the upcoming Budget to implement Pay Commission recommendations as well as under centrally-sponsored schemes (CSEs). Can higher fiscal deficit revive investment demand? "The states have discussed their own resources and each one of them is competing for higher resources, higher investment and Pinaki Chakraborty / Feb 24, 2016 they are all geared up to fight this Ahead of Budget 2016-17, lack of environment of global slowdown so that investment demand is a major India remains an economy which is on the macroeconomic concern move," he added.

Jaitley assured the gathering that the Centre The press note from CSO shows total gross would cooperate with every state, and as the fixed capital formation (GFCF) is expected growth of states increases, the national to be `39.82 trillion, compared with `38.44 growth will be on the rise. trillion for the year 2014-15. Photo: Mint At the meeting, the states suggested a Advance estimates of national income for sharper focus on agriculture, which has 2015-16 were released by the Central Statistics Office (CSO) on 8 February. The

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press note from CSO shows total gross fixed ignored. Also, there is no guarantee that capital formation (GFCF) is expected to increase in fiscal deficit will result in an be `39.82 trillion, compared with `38.44 automatic increase in public capital trillion for the year 2014-15. investment in the presence of large revenue In 2011-12, GFCF as a percentage of gross deficit. domestic product (GDP) was 33.6%. It is It is true that pressure on revenue deficit estimated to be around 30% of GDP in might have eased due to low crude prices 2015-16. Ahead of Budget 2016-17, lack of and consequent reduction in the subsidy bill investment demand is a major on petroleum products. Also, indirect taxes macroeconomic concern. from petroleum products due to the increase During the last five years, the share of in excise duty on petroleum helped mobilize capital formation in manufacturing remained more revenues. This is good news when it constant at around 18%. The share of comes to managing revenue deficit. investments in other key sectors, namely, However, one should not underestimate the construction, transport and storage and fiscal implications of the impending award communication services, have also declined. of the Seventh Central Pay Commission and Decline in investment in these critical One Rank One Pension (OROP) scheme. sectors only indicates that all is not well These two together would contribute with the economy. roughly to an additional increase in revenue Within GFCF, the only sector where there expenditure to the tune of around 0.7% of has been a sudden increase in the share of GDP. This would certainly put further investment is ‘trade, hotels and restaurants’, pressure on revenue deficit unless this which might be a reflection of credit-led increase is adjusted in Budget 2016-17, growth in consumption demand. either through contraction in non-salary What should be done to revive investment expenditure or increase in revenues. demand for critical sectors of the economy? When it comes to revenue mobilization, the The most talked-about policy stimulus possibility of an equivalent increase in seems to be relaxation of the fiscal deficit revenue is unlikely, given the low nominal target for the year 2016-17 to increase GDP growth rate. Contraction in revenue public capital spending to crowd in private expenditure beyond a point is not feasible as investment. This is the easiest thing to do for a large part of it is committed in nature. any government and can be done provided Given these, if implementation of public capital spending leads to an automatic commitments such as Seventh Pay increase in private investment demand. Commission and OROP are postponed, it is However, the link between the two is only going to provide a short-term illusion certainly not automatic. Also, the structural of fiscal comfort to create unmanageable weakness in central government finances is fiscal imbalance for the future. the presence of a large revenue deficit. As If it is introduced in Budget 2016-17, per the medium-term fiscal plan, the revenue financing revenue deficit would be a major and fiscal deficits of the central government challenge without breaching the fiscal for the year 2016-17 are expected to be deficit target. Thus, one is unsure whether 2.4% and 3.5% of GDP. When more than the talk of breaching the fiscal deficit target 70% of the borrowed resources are to be is to meet these consumption expenditure used by the central government for financing commitments or to increase the public current consumption expenditure in the year capital investment. 2016-17, its downside fiscal risk cannot be

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Also, discussion about higher public public investment spending requires careful investment leading to an increase in private policy consideration. Macro fiscal investment should examine what actually management at the centre cannot ignore has been the movement of public investment these developments. in the country. Latest National Accounts To conclude, the fiscal headroom to increase Statistics show that GFCF by the capital spending to boost economic growth government sector has actually increased in is much more at the state level due to the last few years. As a percentage of GDP, prudent fiscal management by the states. To the increase is from 3.60% in 2011-12 to reap that benefit for the country, the centre 4.12% in 2013-14. As per the revised should talk to the states. estimate of 2014-15, it is estimated to be 4.17% of GDP. In other words, there has ***** been an increase of general government GFCF to the extent of more than half a percentage point of GDP between 2011-12 and 2014- Pinning all hopes on GST 15. Despite the large revenue deficit of the centre, this has happened due to prudent Purvita Chatterjee / Feb 15, 2016 fiscal management by the states by eliminating revenue deficit. If we consider FMCG firms expect to pass on the money long-term capital expenditure trends, while they save through the tax to consumers the centre’s capital expenditure to GDP ratio started declining due to large revenue With profits plummeting for most big deficit, the same for the states started FMCG majors due to weak consumer increasing. As per the latest available data, sentiment, lower indirect taxes through the for the year 2014-15, states’ capital implementation of GST is looked upon as spending is to the tune of around 3.54% of the biggest incentive that can propel sales GDP and that of the centre is around 1.78% and profit growth for the industry. of GDP. “GST will give us a fillip. But apart from State-level examples show that increase in that, increasing the income slabs will help in public capital investment spending is giving more money into the hands of possible while remaining fiscally prudent. consumers which should have an indirect Secondly, since public investment to GDP effect on FMCG companies,’’ says Adi ratio has increased in recent years, subdued Godrej, Chairman of Godrej Group. private investment demand may be due to a host of other factors rather than the volume In fact, GST is expected to have a cascading of public investment. This requires careful effect which will not only impact FMCG examination of factors holding back private companies but also help indirectly in getting investment demand in the economy before more money into the consumer wallets. providing easy solutions like increase in “FMCG companies expect the GST to public investment through higher fiscal replace indirect taxes which will help them deficit. in reducing compliance costs and paper Finally, as capital spending by the states is work. It will have a cascading effect more than double that of the centre, how this whereby FMCG companies will end up plays out in the medium term in terms of losing less money and pass on the benefits to composition, quality and effectiveness of consumers. FDI is also a black box and

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clarity will help FMCG in forging JVs with “We just hope we do not end up paying global brands,” observes Anil Talreja more indirect taxes apart from the current 6 Partner, Deloitte Haskins & Sells. per cent excise since we have to compete with the unorganised sector which does not Categories like food are hoping the Budget pay any taxes. GST is always welcome but will protect the existing excise structure and at the same time the rates should be help in giving more money into the hands of favourable to the food companies,” says the consumer. Devanshu Gandhi, Managing Director, For instance, with rising input costs, biscuit Vadilal Industries. makers are requesting for an increase in Branded edible oil players, such as Cargill central excise exemption threshold from the India, are hoping that there is more parity in current
100 a kg to
150 in the Budget. import duties between crude palm oil and With the minimum selling price of refined edible oil imports to encourage more commodities such as wheat, milk and sugar refining in the country. rising, most of the biscuit majors have been According to Siraj A Chaudhry, Chairman, forced to increase prices between 25 and 30 Cargill India, “The Budget should try and per cent since 2007. equate Indian oil refining companies with “Most of our brands including Marie are their international counterparts by increasing above
100/kg. We are now expecting the the import duties from the current 7.5 per Centre to exempt excise duties to at least cent to 15 per cent. This would encourage
150 per kg as there is inflation in the ‘Make in India’ initiative of the commodity prices which has made most of government and encourage more oil refining our brands go above this price range,” says in the country.” Praveen Kulkarni, Marketing Head, Parle ****** Products.

Making processed food more affordable for Crisil puts Budget focus on agriculture the common man is what food-based FMCG companies are seeking from the Budget. Feb 17, 2016

“We want overall taxes to be less since The government needs to restore the health affordability of processed food is an issue of the rural economy without increasing for the common man and less GST and unproductive subsidy spend for the excise should be the way forward in the new agriculture sector in the upcoming Budget, Budget. Besides, incentive should be given according to the latest study by Crisil for the agriculture sector since it is linked to Research, reports fe Bureau in New Delhi. food and 60 per cent of the economy is dependent on it and it is also helps in GDP The government needs to restore the health growth,” said Piruz Khambatta, Chairman of the rural economy without increasing and Managing Director, Rasna, and unproductive subsidy spend for the Chairman of CII National Committee on agriculture sector in the upcoming Budget, Food Processing. according to the latest study by Crisil Ice-cream makers such as Vadilal Industries Research, reports fe Bureau in New Delhi. It are also expecting excise duties to be must work out a holistic and structural maintained at their current levels. approach for agriculture, including widening irrigation and crop insurance coverage,

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direct subsidy transfer and reorienting farm remuneration. For example, in a key pulse subsidies to boost investment in the sector, like urad, while output prices in the last the report says. decade have risen by 12%, the cost of cultivation in major producer states have Three monsoon shocks (deficient rains in risen in the range of 12-26%. 2014 and 2015 and unseasonal shower in early 2015), a crash in global commodity To herald the second green revolution, the prices and reduced employment generation government needs to improve its under the National Rural Employment investments in agriculture, and to make Guarantee Scheme have badly hurt rural room for spending, it will have to reorient consumption and necessitated the urgent expenditure from subsidies to investment, reforms. the report said. During 2012-13 and 2013- 14, while public sector gross capital The report says a sharp increase in Budget formation in agriculture grew by an average allocation compared with the dismal amount 4.7%, spending on food subsidy rose nearly of Rs 2,600 crore for 2015-16 is required to three times faster. Of the total government substantially increase crop insurance spending on agriculture, less than 10% is coverage and protect farmers from crop towards capital formation, while the rest is failures. Although the Pradhan Mantri Fasal in the form of subsidies for food and Bima Yojana will be operational from 2016- fertilisers. 17, effective implementation is required to meet the target of 50% coverage in the first A critical step to funnelling resources into two years. The current Universal National agriculture will require plugging leakages in Crop Insurance Scheme covers only 25% of the existing public distribution system farmers and 20% in area terms. At the same (PDS), which stood at 46.7%, according to time, adequacy of coverage per farmer per the Gulati-Saini study in 2015. Moreover, crop will be critical to ensure the usefulness this will give households a choice on how to of the scheme. use the cash — whether to buy food grains or other items of consumption — resulting For “drought-proofing” the economy, the in not just a consumption boost for the government needs to deploy sustainable economy, but also social welfare through micro-irrigation schemes and create assets better nutritional intake. for rainwater harvesting and storage. Spending on schemes like the Pradhan While agriculture remains in focus, a lot of Mantri Krishi Sinchai Yojana should be attention is needed to generate non-farm encouraged and linked to employment employment as well to create a safety net to generation. Irrigation covers just 46.9% of mitigate losses to the farm sector in case of a the total cropped area, and around 84% of weather shock, and provide a long-term pulses, 80% of horticulture, 72% of oilseeds, solution to impart skills training and create 64% of cotton and 42% of cereals are employment. cultivated in unirrigated conditions. *****

The government needs to encourage production by making farming profitable at CFOs pitch for more capex in Budget a time when the cost of production is rising at a faster pace than the increase in 19 th Feb., 2016

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Majority also okay with some deferring of in investment and consolidation are not fiscal consolidation schedule mutually exclusive. “Fiscal consolidation is a path the government has embarked on and A majority of respondents in a survey by some slippage on account of boosting infra global consultancy Deloitte want more spend and catering to insufficient demand in government spending on infrastructure in the economy might be beneficial,” he said. the coming Union Budget (to be presented With the state of the private sector, the on February 29). And, deferring of the survey said, capital expenditure by the earlier schedule for fiscal consolidation, it government has been low. says. A majority were confident of Indian About 90 per cent want higher infra economic prospects in the light of a slowing spending; 62 per cent also want fiscal Chinese economy, with 52 per cent consolidation. A majority suggest the believing growth here is primarily government take a longer time route for the determined by domestic prospects. target of a fiscal deficit no larger than three per cent of gross domestic product. The About 30 per cent favour an increase in the present schedule calls for 3.5 per cent in basic exemption limit for personal income 2016-17, from 3.9 per cent in this current tax from Rs 2.5 lakh to Rs 3 lakh a year. A financial year, and then to three per cent in majority feels individual tax rates should be 2017-18. brought down over time, with exemptions or deductions being phased out. Jaitley is supposed to announce a schedule in this This might be a challenge, with the outgo regard for corporate tax, coupled with a for implementing the 7th pay commission reduction in the corporate tax rate to 25 per report for government employees and the cent from the present 30 per cent over four 'one rank, one pension' decision for ex- years. military personnel. Last year, Finance Minister Arun Jaitley had said he was “Fifty eight per cent of the respondents deferring the road map by a year. The earlier agree complete phase-out of tax incentives is schedule was for cutting the deficit to 3.6 a good measure and will reduce litigation. per cent this financial year and to three per Interestingly, 22 per cent agree that instead cent by 2016-17. of phasing out incentives for the infrastructure sector, it should continue in However, most respondents to the survey, the form of a investment-linked tax covering 130 tax executives and finance incentive,” said the survey report. Given the head of companies, also concede that industry pressures and recent announcement diverting from this schedule will raise of tax incentives for start-ups, complete credibility issues for the government. phase-out of these looks difficult, it said. On service tax, 19 per cent favoured an increase Anis Chakravarty, partner, Deloitte Touche in the rate to 16 per cent from the current 14 Tohmatsu India, said: “Our survey shows an per cent; 17 per cent backed an increase to overwhelming majority of respondents 15 per cent. And, 43 per cent wanted the believe a boost to infrastructure is the need Swachh Bharat cess to be subsumed in of the hour and that some change in the service tax, with a rate of 14.5 per cent. consolidation plan, with focus on the quality ***** of spending, is welcome.” He said a revival

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Experts want body to oversee budget The Commission had recommended a sharp increase in allocations to state governments Dhoot Vikas/ 21 st Feb,2016 in its report released last February, which the government accepted. It had also mooted Members of the XIV Finance Commission an Independent Fiscal Council as an have questioned the government’s failure to oversight body over the finance ministry. act on its recommendation to constitute an The council would report to the Parliament Independent Fiscal Council that objectively on how realistic government projections are, evaluates budget announcements and citing similar independent budget and fiscal forecasts, stressing that such an institution management monitoring offices in 35 was critical to improve the government’s countries. credibility on fiscal management. “The Auditor General has to monitor the “If you have the political will (for fiscal FRBM Act but that’s a post-facto discipline), you don’t need this. If you don’t assessment. The Council can react after the have the political will, you can still kill this. budget comes out and give a view whether But in the short and medium term, it will the intended purpose would be met or more help allay fears of global credit rating funds should be provided, and the deficits agencies about the government’s are in line with projections. For example, in commitment to fiscal targets,” Commission the Seventh Pay Commission it could assess Member M. Govinda Rao told The Hindu. if provisions are realistic,” pointed out Sudipto Mundle, a Commission member. In He said the Congressional Budget Office in six of the last eight years, revenue forecasts the U.S. and the Office for Budget of the government fell short by around 10 Responsibility in the U.K. performed similar per cent, due to overestimation. functions. “The public should know if the estimates for Mr. Rao said while the union government schemes such as One Rank, One Pension are monitors fiscal targets of states nobody realistic as no one has worked out the total oversees its own fiscal decisions. liability. Wrong estimates also hurt expenditure and states that now get 42 per “The Centre opts for creative accounting, cent of revenues also get hit,” Mr. Rao said pauses or simply doesn’t follow the targets it while explaining that shortfalls from has submitted to Parliament under the Fiscal projections translate into funding cuts in the Responsibility and Budget Management middle of the financial year for all schemes (FRBM) Act of 2003,” he said. and projects.

States have constraints in managing their Such an independent council could also finances as the RBI controls their deficit and weigh in on the debate over the fiscal deficit cannot float a bond on a state’s behalf that the budget should strive for — that is without the Centre’s approval. Since the currently being driven by only government 2003 FRBM law came into effect, there officials, myriad commentators and the RBI. have been four pauses in the deficit targets enshrined in it and a few occasions where “The government is always under pressure the targets have been flouted, he said. to breach the fiscal deficit target. The Reserve Bank of India’s view is also driven

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by its own perspective and primary focus on The Union Budget 2016-17 is likely to monetary policy. A Fiscal Council would be announce measures to put more money into a very important body especially when the hands of employees with a monthly controversies on issues like fiscal deficit income up to a certain threshold, like thresholds arise as there is no independent Rs.10,000, for instance, by doing away with body to suggest a road map,” Mr. Mundle their mandatory 12 per cent contribution for said. Provident Fund (PF) savings, a government official said on condition of anonymity. “I am afraid that I have to say I am disappointed that the government has taken “We are in favour of waiving the no steps or indicated any intent to act on this employees’ contribution altogether up to a so far,” said Mr. Mundle. certain level of income. This will boost the take-home salary of such employees rather “In the past few years, states have been than force them to park so much of their fiscally prudent but the Union has been monthly income into their EPF account for skipping its own deficit targets. This is why retirement,” said the official, who had we had recommended an independent Fiscal participated in the deliberations of a Council to act as an oversight body on the Committee of Secretaries, set up by Prime finance ministry that would report to the Minister Narendra Modi, that has endorsed Parliament,” he said. the idea.

An independent monitoring mechanism Presently, 24 per cent of salaries of all would boost confidence in government. employees in the formal sector earning up to Rs.15,000 a month, are deducted towards ***** the employees’ PF account — with 12 per cent counted as employer’s share and 12 per cent as employee’s contribution. Union budget may boost take-home salaries Employers would continue to pay their 12 per cent share towards employees’ Vikas Dhoot / Feb 12, 2016 retirement savings account and other administrative charges, including those In the formal sector, 24 per cent of the related to the employees’ deposit-linked employee’s salary is deducted toward the insurance scheme that EPF account holders Provident Fund account are automatically enrolled into. EPF contributions are mandatory for all firms Reuters employing twenty persons or more. We are in favour of waiving the employees’ contribution altogether up to a certain level If the employees’ contribution is waived for of income. This will boost the take-home those earning up to Rs.15,000 a month or salary of such employees rather than force Rs.1.8 lakh a year, the current ceiling for them to park so much of their monthly statutory EPF contributions, it would income into their EPF account for increase take home salaries for such retirement, says an official. employees by Rs.1,800 a month or Rs.21,600 a year. Officials said this would be the equivalent of a tax break to such

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beneficiaries as they are anyway not liable Revamping the indirect tax regime to pay any income tax. Personal income upto Rs.2.5 lakh a year is exempt from income Rajeev Dimri / 23 rd Feb, 2016 tax. Doing away with multiple tax rates, phasing While the government hopes this could spur out of various exemptions, and changing domestic consumption and demand and play credit rules and regulations can set a a part in reviving the investment cycle, it is foundation for the proposed GST regime also keen on doing away with the system of imposing high forced savings on low income The current fiscal has been a year of workers through the statutory EPF significant changes for the Indian economy. contributions. The labour ministry as well as A number of initiatives—new as well as the Employees’ Provident Fund modified versions of old ones—have been Organisation that administers the scheme rolled out in an attempt to refuel the growth have been consulted over the proposal and engine. India topped the list in attracting have concurred with it. An analyst said this FDI, according to the Financial Times, and could also help arrest the trend of higher job jumped many ranks in various other indices, creation in the informal sector and jobs of most importantly 12 ranks in the “ease of informal nature in the formal sector. doing business”. Make-in-India, Digital India, Start-up India are some of the flagship “In a formal sector job, if you earn programmes of the government, in addition Rs.15,000 a month, 44.3 per cent of your to a host of initiatives to eliminate salary is deducted towards statutory benefits bottlenecks in economy and augment like EPF and employees’ State insurance. growth. For someone earning Rs.55,000 a month, the Although far from being perfect, much work same number is just 8 per cent,” said has been done in restoring faith of Rituparna Chakraborty, Senior Vice- international investors in the Indian tax President at Teamlease. A lot of young regime, which had been dubbed entrants into the workforce prefer to opt for unpredictable or even draconian due to a informal work contracts with no benefits in complex structure, high impact retroactive order to ensure that their take-home salaries amendments and high litigations, which are remain high. sometimes even frivolous. Speaking at the CNN Asia Business Forum 2016, Cisco’s “Employers can’t raise their cost to executive chairman John Chambers said, company for employees, while the young “India will become a country that will workers starting their careers want more leapfrog your counterpart in global basis and money in hand to take care of rent, India will be a country that no longer commuting costs and daily meals. And once follows what others have done but leads in they start their career informally, it is terms of innovation and leadership.” difficult to change track,” said Ms. The government has made much headway in Chakraborty, adding that the reduction in implementing what is arguably the single statutory contributions for EPF would largest tax reform post-Independence—the incentivise the creation of more formal jobs. goods and services tax (GST). Some Indian indirect tax laws and practices are archaic, ****** and do not sync with current global practices. GST is being seen as a giant leap

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from ancient to modern so far as the tax and in those cases where decision on similar regime is concerned. Industry, both matters had already been rendered by the domestic and international, has high Supreme Court or high courts. Digitisation expectations from the Union Budget FY17 of court records to map similar cases and in this regard. While rolling out GST granting public access of the same are necessitates crossing a number of initiatives towards this effect, and an constitutional processes and will be a effective tool when GST is implemented. separate event, a few amendments are To augment India as a business-friendly expected in the existing laws. destination, the government must issue Start-up India: A platform for young ignited directives to its field formations to avoid minds frivolous claims by the department. While realigning the tax structure, a robust Businesses should not be made victims of policy with specific benefits for start-ups administrative necessities. If a business can boost their growth on a global scale. The needs to be transacted in a certain way for Action Plan launched by Prime reasons of administrative necessity, mandate Minister Narendra Modi in January of other law or common business prudence, contained a host of direct tax benefits for then such transactions should not (always) start-ups. Similar to these, certain indirect be seen as colourable devices to evade tax. tax benefits can provide a platform for their A few steps may go a long way in curbing growth. such litigations. * Easier registrations norms and procedures * Timely clarifications on potentially under indirect tax laws; disputable positions/practices; * Beneficial tax/duty rates; * Periodic training of officers on global * Exemptions on procurement of inputs and practices, new businesses/business capital goods; arrangements and following the essence of * Higher threshold exemptions for court pronouncements in subsequent recognised start-ups; assessments. * Specific export incentives for certain Administrative and legal reforms: Need of recognised start-ups; industries * Smoother exit mechanisms. In 2015, the Supreme Court ruled in over Disputes resolution: The biggest win for 150 cases pertaining to indirect taxes. Some industries of these judgments could put an end to Tax litigations and disputes hinder growth. certain historic tax controversies—for The disputes legacy takes away the example, the TVS Motor case, where the taxpayer’s ability to litigate even in case of Court laid down that PDI/ASS charges genuine difference of opinion on should not form part of transaction value for interpretation of law. Some changes can levy of excise duty. Incorporating the provide the industry a required push for their amendments in provisions under various easy operation. indirect tax laws based on such landmark * Stricter enforcement of timelines for judgments can help reduce continued adjudication of show-cause notices; litigations on identical issues for other * Elimination of mandatory pre-deposit taxpayers. Some other reforms can also provisions on filing appeals at first stage; make indirect tax laws more effective. * Revision of inflated interest rates of up to * Acceleration of pending refund claim 30% (in case of service tax); approval process; * Fast-track redressal of similar nature cases * Reviewing definitions of terms like ‘input

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service’ etc to remove unnecessary debate officers on ground—success can be had only and litigation. if ground officers adapt to changes and Expanding business with broadened credit evolve from being controllers to being base & rules consultants. Revamping the input credit base and credit The global economy is slowing down and its structure has to be addressed for the benefit growth seems far from recovery any time of domestic industries. soon. At this juncture, a fast-paced growth * Definition of input/input service should can potentially make India a global include all business expenses; economic powerhouse and centre to the * Amendment in Cenvat Credit Rules to policy of global giants across all industries. facilitate credit of Swachh Bharat Cess on To achieve this, the government has to come services; up with some path-breaking business- * Utilisation of accumulated credit of friendly announcements in the Budget, Education Cess and Secondary & Higher which can prove to be India’s step towards a Education Cess prior to March 1 and June 1, robust tax regime that nourishes growth and 2015, respectively, for manufacturers and development. service providers; ***** * Facility for cashless discharge of reverse charge liability by allowing credit in the same tax period in which the liability arises Time to change meaningless income-tax (similar to the concept under European exemptions VAT); * Providing a clarification on the availability Jaydeep Ghosh & Priya Nair / Feb 21, 2016 of upfront exemption, to SEZs, from recently levied Swachh Bharat Cess on If an employee is not paid any house rent taxable services; allowance, he will get a tax exemption of up * The time limit of one year for claiming of to Rs 2,000. "The number was quite decent Cenvat credit should be done away with; it for a small house in the 1990s but means is regressive and not in line with the nothing today. Even in a smaller city, the upcoming GST framework. monthly rent is as high as Rs 5,000. And, in Doing away with multiple tax rates, phasing cities such as Mumbai, Delhi or Bengaluru, out of various exemptions, changing credit even if one shares the room with several rules and regulations, and backing up the people, this amount would fall short," says Digital India initiative can set a good base Rakesh Rai, an employee with a telecom for transition of rigid Indian economy from company. the current indirect tax system to the proposed GST regime. Realigning the With the Union Budget approaching, transition towards GST with Digital India Finance Minister Arun Jaitley will be and transforming the economy towards a inundated with requests from all sections. paperless tax regime can eliminate the Everyone would want sops. If the minister cumbersome documentation requirements would simply enhance the existing limits for for companies. Digital literacy and many outdated exemptions, consumers expansion of internet penetration across tier- would stand to gain immensely. 2, tier-3 cities and other backward regions can help achieve this target. This entails a tectonic change in the mindset of the While the finance minister made some good

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changes in the previous Budget, the net cent a year. impact on the taxpayer was quite limited. For example: The 80C limit was increased Says Gaurav Roy, co-founder and operations by Rs 50,000 to Rs 1.5 lakh, Rs 50,000 was head at BigDecisions.com: "Not only high- allowed towards contribution to the National end schools but even regular schools charge Pension System (NPS) and health insurance higher fees. While it is difficult to put a deduction of Rs 25,000. The interest figure on how much it should be increased component benefit on home loans was to, there should be some benchmark. Maybe increased by Rs 50,000 to Rs 2 lakh. And, it can be linked to the fees charged by finally, transportation allowance was raised schools where half of all students go to." from Rs 9,600 a year to Rs 19,200 a year. However, according to tax experts, for Says Suraj Nangia, partner, Nangia & Co: someone with a taxable income of Rs 8 lakh "One would wonder that these antiquated a year and making use of all the deductions, exemption limits continue to be there as a the annual saving was Rs 16,398. For those namesake and serve no good purpose to the earning above Rs 1 crore, the tax outgo was salaried class. Likewise, the years-old up due to the two per cent surcharge. medical reimbursements continue to be exempt up to Rs 15,000 per annum, when No wonder, experts believe that besides health care facilities have become costly." changes in slabs, the finance minister should look at some exemptions as well. Says Sonu According to him, there are certain special Iyer, partner at EY: "These exemptions have allowances such as border/remote area not kept pace with time. Actual expenditure allowance or tribal area allowance which incurred by a common man has gone up still carry monthly exemption as low as Rs considerably, given the rate of inflation. For 200. It is time all such limits be revised to instance, medical reimbursement of Rs make sense for salaried employees. Most 15,000 per annum, if adjusted for inflation, people don't even claim these deductions; should have been Rs 46,200 per annum in there is more work involved in financial year 2015-16. The current documentation than the benefit. exemption limit recognises only a third of the expenditure." While the minister raised the travel allowance from Rs 800 to Rs 1,600 a month Ridiculous numbers: Some numbers are in the previous Budget, it is inadequate. "Rs ridiculous. For example, the monthly child 1,600 a month is sufficient to cover travel education allowance of Rs 100 and hostel costs for mass transport options (like train allowance of Rs 300 per child, for a and bus passes) but insufficient for most maximum of two children. These guidelines large cities or metros, where travel costs were set in 1997-98. Even if one adjusts for may exceed this amount when you consider consumer price inflation, these would still the last mile to be covered by cab or look very low, at Rs 330 and Rs 989, rickshaw. Such limits should preferably be respectively. One wonders if education or revised to reflect the true cost of travel," accommodation is available at these costs at says a financial planner. all. According to newspaper reports, the average annual fee in CBSE schools is Double whammy of high inflation and low between Rs 40,000 and Rs 4.5 lakh. Most returns: Low or meaningless tax exemptions schools increase the fees by eight to 10 per pinch consumers more because 2015-16

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hasn't been the best of years for both Scheme compensation received by an consumers and investors. The Consumer employee, subject to a maximum of Rs 5 Price Index (CPI)-based inflation, after lakh during the entire lifetime. A revision is falling, has started to rise again. In August required. 2015, the CPI rise fell to a low of 3.66 per cent, even lower than savings deposit rates As specified above, a salaried individual of four per cent for most banks, leading to a cannot claim deduction for any expenditure positive real interest rate regime even if one from his/her taxable income, except for had kept money idle in a bank. However, in specific deductions on investments or January 2016, the number is back at 5.69 per exemptions. "Given that the prescribed cent, the highest in the past 12 months. limits for expenditures have not remained Prices of pulses and vegetables have been on realistic, levying of tax reduces disposable the rise, hitting the consumer's monthly income in the hands of the individual and balance sheet. dis-incentivises investment," says Iyer.

Similarly, investors have little to cheer. Besides bringing these exemptions in line Unless they have invested in debt funds or with inflation rates, there are many other fixed deposits or small savings schemes, suggestions. For example, Roy feels linking they are sitting on losses. With both the Section 80C to salary will help a lot. "The Sensex and Nifty benchmark indices down a limit available under 80C, currently Rs 1.5 little over nine per cent in the past year and lakh should be linked to tax-payers' salary the category average returns of even large- since the section encourages people to save cap funds down 17 per cent, managing of for the long term." money has been difficult. Category average returns of multi-cap, mid-cap and small-cap When people's salary increases, their ability have fared marginally better at -14.49 per to save also increases. So, they should be cent, - 11.76 per cent and -9.72 per cent, given an incentive to save more by offering according to data from Value Research. a higher tax incentive. For instance, for While gold is up five per cent, it has lost its many tax-payers, especially those in the edge as a hedge against inflation. higher tax bracket, Employees' Provident Fund takes up the whole limit of Rs 1.5 Long-term exemptions are too little: Even lakh. This is non-negotiable, since it is part some long-term exemptions are inadequate. of salary. "As a result, other investments like "Some exemptions are for a benefit received insurance or Public Provident Fund, which over the entire lifetime of an individual. For are good instruments for long-term savings instance, Section 10 (10AA) of the Income and retirement do not get tax benefits. Tax Act provides an exemption for leave Offering a tax incentive will encourage encashment received on retirement of financial prudence among investors," Roy employment up to a maximum amount of Rs adds. 3 lakh during the lifetime of an employee," ***** says Iyer, adding this should be raised to Rs 10 lakh, in line with the increase in the limit on gratuity. Global bright spot: Moody’s, OECD see ‘robust’ growth for India in 2016/17 Similarly, Section 10 (10C) provides exemption for any Voluntary Retirement 19 th Feb,2016

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Economic outlook will be determined by Moody’s noted some constraints on GDP domestic factors; large services exports are a growth in India. “First, business investment plus point in general is hampered by banks’ balance sheet repair and elevated corporate debt. While the outlook for the global economy Second, corporate pricing power has been remains challenging, two international limited by the impact on food price inflation agencies expect that India will continue to and households’ budgets of two consecutive witness robust growth in the next two years, droughts,” it said. but underlined the need for structural reforms. Moody’s Investor Service on However, India’s economy is powered by Thursday forecast “stable GDP growth at sustained growth in consumer spending, around 7.5 per cent in 2016 and 2017”. fostered by moderate inflation and still favourable demographics, and strengthening “India is relatively less exposed to external investment, in particular, FDI. The, OECD, factors, including a slowdown in China and too has highlighted that “further progress is global capital flows. Instead, the economic needed in implementing structural reforms outlook will be primarily determined by to ensure that positive developments are domestic factors,” it said, adding that the sustained”. It also noted that structural large services export sector is another source reform momentum needs to be revived as of resilience. Similarly, the Paris-based policies to support demand alone cannot OECD, in its Interim Economic Outlook, restore sustainable growth. pegged India’s growth rate at 7.4 per cent Both the agencies also highlighted that for fiscal year 2016 and marginally lower, at global growth will continue to be subdued in 7.3 per cent, for 2017. the next two years.

“Growth in India is projected to remain “Downside risks to global growth have robust, although floods have had a negative increased… as a further fall in oil prices, impact in the short term…,” it said. The concerns about weaker growth in China and forecasts come just ahead of Union Budget potential further currency weakness for 2016-17, which will be presented on some emerging markets have accompanied a February 29. rise in risk aversion and tightening of financial market conditions,” said Moody’s While the two agencies are optimistic in and pegged G-20 GDP growth at 2.6 per their growth forecasts, they are still subdued cent in 2016 and 2.9 per cent in 2017. in comparison with the government’s ambitious targets. The Central Statistics Terming strong global growth as “elusive”, Office has projected a growth of 7.6 per cent the OECD pegged global economic growth in the current fiscal year and the government at 3 per cent in 2016 and 3.3 per cent in is eyeing higher growth next fiscal. 2017. “A stronger collective policy response However, the Finance Ministry’s Mid-Year is needed to strengthen demand,” it said, Economic Analysis has said higher growth adding that monetary policy alone is not in 2016-17 could be difficult. sufficient.

Both agencies have also called for more ***** structural reforms to support growth. In its report, Global Macro Outlook 2016-17,

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What Budget 2016-17 should focus on investment.

Anand P Gupta / Feb. 2, 2016 First, the allocations must be used

efficiently. Our incremental capital-output Deficit is not necessarily a bad thing. What ratio is already very high and we cannot matters is that the money is used efficiently afford a business-as-usual approach. An India currently faces many challenges. This example of this approach is the case of article presents ideas on what the finance building toilets by a major public entity: minister may do to meet some of these 29,000 toilets at a cost of Rs 300 crore, at an challenges. average cost of over Rs 1.03 lakh per toilet, with a strong reason to believe that the Addressing the issue of banks' bad loans figure of Rs 300 crore does not capture all the costs. What's worse, the public entity in Precise numbers on bad loans of banks are question has no idea how these toilets are not available, given the bank managements' maintained and used. self-interest in not recognising bad loans. But there is reason to believe that bad loans Second, while allocating public money, the of public sector banks currently add up to finance minister must be clear in his mind over 13 per cent of their total advances. This about what public money is supposed to be is not banking, but a welfare system for the spent on. In principle, public money should rich, who agree to share part of the loot with be spent for (a) the provision of public politicians and senior bank managers, the goods or goods with positive externalities, resulting bank losses being made up through that is, goods and services, which the private infusions of public money. sector will not provide (for example, national defence, control of pollution and The finance minister must recognise the elimination of open defecation); (b) the severity of the situation and do whatever he provision of private goods and services to can to speed up the enactment and certain people on equity grounds. implementation of the bankruptcy law. Nurturing a broadly equitable Boosting growth distribution of economic capabilities With exports declining for 13 months in a among our people row, with the situation not expected to Reserve Bank of India Governor Raghuram improve in the near future and with private Rajan argues that we must endeavour "to domestic investors not keen to invest in a nurture the broadly equitable distribution of big way, we will have to rely on foreign economic capabilities among our people". direct investment (FDI) and public India has failed to meet this challenge, with investment to boost growth. Of course, the the finance minister himself providing the implementation of the Seventh Central Pay evidence of this failure. This is what he said Commission's recommendations will push on February 28, 2015: "Our young people aggregate demand to some extent, but this is have to be both educated and employable for not a viable route for boosting growth. FDI the jobs of the 21st century… Yet today less can certainly help but public investment will than five per cent of our potential workforce have to play the major role. The finance gets formal skill training to be employable minister must keep two things in mind while and to stay employable." How can a country proposing major increases in public have a broadly equitable distribution of

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economic capabilities among its people if cent of GDP for 2015-16 and at the same less than five per cent of its potential time allowed central public enterprises to workforce gets formal skill training to be raise Rs 199,917 crore (1.4 per cent of GDP) employable and to stay employable? through extra-budgetary resources, including bonds/debentures and external commercial We need to empower people through borrowings/suppliers' credit. Given the fact education, skill development and better that the macroeconomic effect of a health, and create gainful employment/self- borrowing by the government is the same as employment opportunities for them. This that of a borrowing by a central public demands substantial increases in the enterprise, the fiscal deficit budgeted for budgetary allocations for education, skill 2015-16 is 5.3 per cent of GDP, not 3.9 per development and health, and efficient and cent. Fiscal 2015-16 is not the first year effective utilisation of these allocations. when this has happened - this has been going on for years. To improve The endeavours to meet this challenge will transparency, the finance minister could put many demands on public money. And include the central public enterprises' extra- public money must be allocated to meet budgetary resources in the revised estimate these demands. But do we have that kind of of fiscal deficit for 2015-16 and in the money? Budget estimate of fiscal deficit for 2016- 17. Ideally, such endeavours must be financed by resources raised through taxes. But our Deficit is not necessarily a bad thing. What tax system doesn't raise enough resources. really matters is that the money is used Take, for example, the government of efficiently and effectively and is spent on India's tax collections. These are budgeted at public goods and services. Rs 14,49,490 crore, or 10.17 per cent of ***** gross domestic product (GDP) for 2015-16. Minus the states' share, the government of Finance panel casts shadow on Budget India's net tax revenue budgeted for 2015-16 amounts to Rs 9,19,842 crore, or 6.46 per Sitharam Gurumurthi /Feb 16, 2016 cent of GDP. This is not much - it must be at least five percentage points higher. The The 14th Finance Commission went too far finance minister must mull over this. by raising the States’ share to 42 per cent. This pushes the Centre into a corner The Honouring the commitment to fiscal recommendation of the 14th Finance consolidation Commission to raise the share of the States The finance minister shouldn't worry about in the central taxes from 32 per cent honouring the commitment to fiscal recommended by the 13th Finance consolidation. Why? Because sticking to a Commission to 42 per cent underlines the fiscal deficit target and at the same time need to do some hard thinking. It will put allowing central public enterprises to raise immense pressure on the Centre, perhaps in money through extra-budgetary resources is the Budget, to resort to surcharges and no way of honouring the commitment to cesses to make up for the higher devolution fiscal consolidation. While presenting the burden. The Centre’s fiscal consolidation 2015-16 Budget, the finance minister exercise becomes that much more difficult. announced the fiscal deficit target of 3.9 per

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The percentage share of the States in the revenue receipts as devolution, it is also true Centre’s tax revenue, popularly called that the Centre had not exploited the tax vertical sharing, should not be left to the potential available under Articles 268 and caprices of a Finance Commission in the 269 of the Constitution, like tax on future. The most important function of a advertisements in newspapers, as such taxes Finance Commission established under could only be levied by the Centre but the Article 280 of the Constitution of India in entire proceeds would go to the States. the year 1950 was to recommend the In 1982, Ministry of Finance had estimated quantum of vertical sharing of the central that the revenues from advertisements in taxes in the divisible pool, namely, income newspapers and periodicals might be in the tax and union excise duties; it was also to order of 500 crore per annum and the recommend the system of redistribution of Sarkaria Commission (1984) had the divisible pool among the States, known recommended amending the Constitution as horizontal sharing, and recommend grants under Article 269 to include advertisements to States in need of assistance under Article broadcast by radio and television, to 275 of the Constitution. Rising devolution facilitate taxes on these advertisements as The ten Finance Commissions between 1950 well. A preferred option would be tax and 1992 steadily increased vertical sharing devolution to the States at 33.33 per cent of of States in income tax and union excise the gross tax revenue receipts that would duties. include tax receipts under Articles 268 and According to Raja Chelliah, the weight of 269 of the Constitution. devolution in the total transfers by Finance This has been argued in an article published Commissions had become a little too high. in the Economic and Political Weekly in As a result, enough equalising grants could March 20-23, 1993, titled ‘Towards an not be recommended. When devolution as a Alternative Tax Sharing in India’. This percentage of the gross tax revenue of all the model attracted the attention of the central taxes from 1952 to 1993, was Chairman of the Tenth Finance Commission computed, it was found the percentage had (1992-94) KC Pant. I had suggested that registered a steep increase from 18.59 per devolution at 33.33 per cent of the gross tax cent in 1978-79 to 28.44 per cent in 1979- revenue of the Centre should be 80, thanks to the recommendations of the incorporated in the Constitution itself and Seventh Finance Commission which, this percentage could be reviewed after a besides increasing the divisible pool of period of 15-20 years through the income tax to 85 per cent from 80 per cent, mechanism of the Finance Commission. had increased the divisible pool in union KC Pant, in his report of the Tenth Finance excise duties from 20-40 per cent at one Commission, suggested devolution to the stroke. States be fixed at 29 per cent, namely 26 per This percentage, however, had started cent of the gross proceeds of union taxes and declining and by 1992-93, devolution as a duties plus 3 per cent in the gross proceeds percentage of the Centre’s gross tax revenue of all Central taxes, and that this should had come down to 24.48 per cent. This was remain at this level for a period of fifteen due to the fact the Centre had started relying years. While the Centre accepted this on non-sharable taxes like customs and recommendation and amended the corporate tax for its additional resource Constitution in 1999, to make devolution at mobilisation. While Chelliah’s preference 29 per cent of the net proceeds of the tax was to keep 25 per cent of the gross tax receipts instead of gross receipts, it left it to

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the Finance Commission to review the freeze devolution at 42 per cent for a period percentage share, instead of freezing it for of 20 years so that the future Finance 15 years as suggested by the Tenth Finance Commissions could only recommend the Commission. scheme of horizontal redistribution of Going too far Though subjecting vertical devolution among the States. sharing of the Centre’s tax revenue beyond I would not be surprised if the Union Budget 29 per cent every five years was not for 2016-17 will have a heavy dosage of desirable, the three Finance Commissions cesses and surcharges, as the Centre is left that submitted their reports after the with no other option. The Report of the 14th Constitutional amendment came into force Finance Commission is easily the most in 1999 were quite modest in their approach: irresponsible one in the history of Finance While the 11th Finance Commission headed Commissions in India. by AM Khusro recommended 29.5 per cent, ****** the 12th Finance Commission headed by C Rangarajan recommended 30.5 per cent. The 13th Finance Commission headed by Vijay Controlling the pulse of pulses Kelkar recommended 32 per cent. While all these hikes were quite modest, the PK Joshi and Devesh Roy / Feb.20, 2016 14th Finance Commission headed by YV Reddy recommended a 10 percentage point The rising and highly volatile prices of hike from 32 per cent to 42 per cent of the pulses are seriously affecting the budget of Central taxes, justifying this steep increase households, and pose a major challenge to on the grounds that cess and surcharge in the government to bring down prices and gross tax revenue of the Centre, which do sustain them at manageable levels. In fact, not form part of the divisible pool, had gone the problem of high and variable prices of up from 7.53 per cent in 2000-01 to 13.14 pulses has become perpetual for nearly a per cent in 2013-14 Devolution at 42 per decade. The economics of this phenomenon cent of net tax revenue of the Centre will is simple. The domestic production of pulses mean an increase 18 per cent from the level is unable to meet the demand consistently, of 24 per cent in 1992. leading to the spiral of price increases every While the Centre has been following the year. convention of accepting a Finance Commission’s recommendation both with To fill in the demand-supply gap, imports of regard to vertical sharing and horizontal pulses has indeed expanded, and in value redistribution of devolution, it should realise terms now belong to the billion-dollar club. that the 14th Finance Commission has set a Yet, given that few countries in the world bad precedent with regard to vertical produce pulses and India has a very large sharing. One can expect the successor deficit across several varieties of the crop, Commissions to hike the States’ share to 45- the ability of imports to cool markets has 50 per cent with utter disregard to the been limited. India has struggled to import Centre’s fiscal situation, committed required quantities at reasonable prices. liabilities and huge expenditure on defence outlays. Freeze the limit Since the Although the share of pulses in total value of recommendation has already been accepted, agricultural output is only 5%, making it the Centre should seriously contemplate seem like a fringe crop, yet their rising bringing a constitutional amendment to prices have tended to create a political storm

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in the country. Since India is the biggest (conspicuous by its absence). This could producer, consumer and importer of pulses take the form of a pull system of research of in the world, an effective pulses strategy that the type Kremer suggested for an HIV AIDS results in significantly increased availability vaccine, albeit with much lesser value of of the crop at affordable and stable prices is award in this case. Essentially, the system the need of the hour. The upcoming Union would work as follows. If the traits that are Budget is an opportune moment to start desired are delivered by an innovation, the addressing the problems holding the pulses winners would get a big reward, but transfer sector back. We propose a five-point the intellectual property rights to the package that we believe can increase the government. The private sector, so far, has production of pulses and stabilise their not come forward in pulses seed business prices. due to its tiny scale and the public-sector seed companies are also wary for exactly the One lakh pulses villages same reason. Overall, the playing field should be level between the private and the Pulses are often grown in rain-fed areas public sectors, including the NGOs, in terms having low yields, and are prone to several of being eligible for the big reward if they diseases and pests. The average yield of deliver in terms of desired traits in this pulses is less than 800 kg per hectare. Due to technology. subsequent droughts, production from a peak of 19.27 million tonnes in 2013-14 is Two, there is an urgent need to expand the expected to dip to 17.2 million tonnes in area under existing improved varieties and 2015-16. Notwithstanding the erratic climate also increase the seed replacement rate. pattern, raising productivity from the NGOs which are working at the ground currently very low level should be the first level can be incentivised to produce and step. Farm scientists claim the availability of market improved varieties of pulses seed. To high-yielding, disease-resistant and drought- begin with, an allocation of Rs 400 crore escaping varieties for cultivation. To spread may be made for producing and marketing the improved varieties, the 60,000 pulses about 20,000 tonnes of improved seeds by village programme may be expanded to 1 engaging NGOs in selected clusters. lakh villages for field-level demonstrations (at least five in one village, at the rate of Rs Three, a system of seed certification should 3,500 per demonstration) by allocating a be developed such that better seeds get sum of Rs 175 crore. adopted and receive higher value, thereby encouraging innovation. Restructured pulses seed sector Promote farmer producer organisations Unlike crops such as maize, the pulses seed sector in India is weak; it is reflected in a The Small Farmers’ Agribusiness strikingly low rate of seed replacement Consortium (SFAC) is promoting farmer between 2% and 4%. A three-pronged producer organisations (FPOs) to make strategy is needed to pull up the pulses seed smallholder agriculture remunerative sector. through “farming together, growing together”. Commodity-specific FPOs are One, the rate of innovation needs to get on a coming up for production, processing, springboard by involving the private sector marketing, retailing and export. Although

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some FPOs already deal in pulses, By design, the reserves should be large incentives may be given to form more and enough to deter hoarding, but should not be larger FPOs for production, processing and excessive such that they become a fiscal marketing of pulses. FPOs can play an burden. It can have a cooling effect on important role in production, branding and prices till the imports come in. In the long linking with organised retail and processing. run, a strategic reserve of about 50,000 Incentives may be given to pulses FPOs for tonnes may be developed, which may be procuring machines for sorting, processing replaced on a regular basis. However, to and packaging. A sum of Rs 5 crore may be begin with, a sum of Rs 100 crore may be allocated for incentivising or subsidising provided in the Budget to build a reserve of FPOs for credit, machines, etc, to develop about 10,000 tonnes for 2016-17. the value chain for pulses. A sum of Rs 700 crore will be needed to Incentives to states meet these proposed interventions. However, the long-term solution will rely on States may be given incentives for increasing production. India must target producing more pulses. Pulses fix increasing production of pulses not only for atmospheric nitrogen in their roots. The domestic market, but also for meeting the following crop after pulses requires less of growing global demand for pulses. This crop nitrogenous fertiliser (15-20%), and can thus is the future food both for the developed help in saving costs of fertiliser subsidy. world and many developing African Pulses also contribute in improving carbon countries. There are projections that global content of the soil and raise productivity for pulses consumption may grow by 10% in the subsequent crop. Therefore, states may the coming decade and 23% by 2030. India be incentivised for these environmental has agro-ecology to grow different pulses services contributed by pulses. Any one or crops in different seasons, but needs more states contributing, say, 1 million incentives and institutions. A small amount tonnes or more from the base year of 2014- of R700 crore, which is a mere 1.3% of the 15 may be given an incentive towards total value of pulses production, will be the environmental services and saving in most important gift to the crop’s producers subsidies for nitrogenous fertilisers. A and consumers in the International Year of notional amount of Rs 20 crore may be Pulses 2016. allocated for giving incentives to two or three states. *****

Strategic reserves Will GST see the light of day next fiscal?

The government may consider having a Gautam Khattar / Feb 16, 2016 strategic reserve for at least two pulses crops, namely gram and tur. In the event of During the third Union Budget of the NDA- expected shortfall in supply and rising led government, the industry expects prices, strategic reserves may be used to significant amendments under the current release these pulses crops in the open market indirect tax regime, which will pave the way to control prices. For an efficient reserves towards a smooth transition to GST from the management, it should be combined with next fiscal year. price monitoring and early warning systems.

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The Goods and Services Tax (GST), the sin/demerit goods such as luxury cars, most critical tax reform that India has been tobacco products, aerated drinks, etc, and a longing for, is stalled in the Rajya Sabha, special rate of 2-6% has been suggested for where the ruling political party lacks precious metals. majority. Despite all its efforts, the In line with the recommended GST rate government failed to get the Opposition’s structure, there is a possibility that the nod in the Winter session of Parliament government increases the service tax rate which ended in December. Nonetheless, the from the current level of 14.5%. government seems undeterred and continues The increase in the service tax rate will put to hold a positive demeanour. The release of additional burden on the taxpayers, multiple process reports—including the especially in view of the uncertainty CAG report and the Goods and Services Tax surrounding the time-lines on actual Network (GSTN) report—stands testament implementation of GST. In order to ensure to the government’s commitment to that the taxpayers are not overburdened and introduce GST as soon as possible. to give respite to smaller taxpayers, it is While the original time-line of April 2016 is expected that the government will increase now far from being a reality, the government the threshold exemption of service tax from is likely to make serious attempts to push for the current level of R10 lakh. On one hand, the clearance of the Bill in the Budget an increase in the threshold exemption limit session, beginning later this month. Even will keep small businesses outside the after the successful passage of the purview of service tax net, and on the other Constitutional Amendment Bill in the Rajya hand this increase will substantially ease the Sabha, the actual roll-out of nationwide GST compliance burden on the tax authorities, will take its time, considering other critical permitting them to focus on larger steps required such as the formation of the taxpayers. GST Council, the approval of the CGST Bill The government should also consider through a simple majority in both the houses reducing the rate of Central Sales Tax (CST) of Parliament, and the approval of SGST from the current 2% to 1%, and reduce the Bills in respective state assemblies. tax cost on inter-state sale of goods. During the third Union Budget of the NDA- Rationalising current tax led government, the industry expects concessions/exemptions significant amendments under the current The proposed GST regime, which will indirect tax regime, which will pave the way subsume most central and state-level taxes, towards a smooth transition to GST from the is expected to have a single unified list of next fiscal year. concessions/exemptions as against the Increase in service tax rate and threshold current mammoth exemptions and limit concessions available across goods and In December, a key panel on GST headed by services under the tax regime. Therefore, it the Chief Economic Advisor released its is expected that the government will prune report, suggesting the revenue neutral rate down or withdraw some of the existing set (RNR) to be in the range of 15% to 15.5%, of exemptions or concessions to take a step and to be converted to structured rates. The closer towards GST. lower rate of GST on goods of special Amendments in CENVAT credit rules importance has been proposed at 12% and The GST regime eventually seeks to have a the standard rate at 18%. In addition, a single rate of tax both for goods and higher rate of 40% has been proposed for services, with seamless credit mechanism

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without any distinction between goods credit and services credit. The current CENVAT It is now well accepted that due to logjam in credit rules are restrictive and ambiguous; Parliament regarding the passage of the even the eligibility criteria for availment of Constitution Amendment Bill, uncertainty credit vastly differs for manufacturers and continues to hover in the minds of taxpayers service providers. It is expected that the and global investors. Having said this, it is government brings necessary legislative highly probable that the government will changes in CENVAT credit rules such as make amendments in existing regulations to allowing credit on all expenses related to prepare enough to face the biggest business without any corresponding nexus transformation in the history of indirect with output service/goods, and aligning the taxation of India. provisions for admissibility of credit on ***** inputs/capital goods/input services so as to bring parity in credit availment across goods Macro developments and Budget and services. challenges In addition, one of the industry expectations Ashok K Lahiri /Feb. 2, 2016 is that the recently introduced Swachh

Bharat Cess (SBC), which is currently a cost It is best to stick to the announced fiscal in the hands of taxpayers, should be made targets, since frequently moving them risks CENVAT-able to maintain seamless credit losing credibility chain.

Such a move will reduce the current level of Just as the government's Budget impacts the litigations and provide a boost to the Make- economy, the economy impacts the Budget. in-India campaign, while also neutralising Expected gross domestic product (GDP) at the effect of any increase in tax/duty rates. current market prices (nominal GDP) is an IT preparedness for successful important, but behind the scene, determinant implementation of GST of the Budget estimates. When actual IT infrastructure will be one of the basic undershoots expected GDP, tax receipts requirements for successful implementation underperform, and the ratio of the deficit to of GST. Based on the state government’s GDP is worse than projected, fiscal experience under VAT, it is evident that marksmanship suffers. without an efficient e-governance, it is not possible to administer VAT regime Take for example 2002-03. India's Union effectively. The input tax credit, which is an Budget projected GDP at Rs 25.57 lakh important aspect under VAT, is difficult to crore. With poor agricultural outturn, by the monitor without a fully development time of the next Budget, the advance computer system. A closer look at the estimate (AE) of GDP for 2002-03 turned proposed GST model suggests facilitation of out to be 3.5 per cent lower. As a result, the a robust IT system with all necessary revised estimate of fiscal deficit turned out information for availment of credits to be 5.9 per cent of GDP against the available on the IT platform. In the budgeted 5.3 per cent. upcoming Budget, the government should run a pilot project wherein the dealers can choose to avail credits based on the details For several years, for the Budget, the uploaded by their vendors on the finance minister applied a rate of growth of government tax portal. 12-14 per cent to the AE for the previous

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year to project GDP for the coming financial containing it below two per cent of the GDP, year. The only exception was 2009-10, when and also to postpone the target dates for growth was assumed to be only 10 per cent. achieving the revenue and fiscal deficit For 2015-16, with an assumed growth of objectives to March 2015 and March 2017, 11.5 per cent, GDP was projected at Rs 141 respectively. The Finance Bill, 2015, again lakh crore. postponed the target date for achieving the revenue deficit objective to March 2018. Much hangs on the AE of GDP for 2015-16. Frequent changes in plans cast serious It will be released on February 8. Available doubts on credibility. It is now best to stick data for the first half of the current year to the promised targets by appropriate suggests that GDP for 2015-16 is unlikely to adjustments in expenditure and revenue. reach the budgeted figure. In the first six months of the current year, GDP growth was The second question relates to the 7.4 per cent compared to 13.5 per cent in the deflationary trend manifested by the excess previous year. To realise the GDP figure in of GDP growth at constant prices over such the 2015-16 Budget, growth in the last half growth at current prices in July-September will have to be 17.3 per cent, a highly 2015 and by the wholesale price index unlikely outcome. (WPI) in 14 months since November 2014. In the second quarter of the current year, the Even if growth accelerates in the last six growth of GDP at current prices at six per months from around eight per cent in 2014- cent was significantly lower than the 15 to 10 per cent in 2015-16, GDP will not corresponding growth at constant prices of exceed Rs 136 lakh crore. The shortfall in 7.2 per cent. In each month during GDP will increase the budgeted fiscal November 2014 to December 2015, the WPI deficit, even without any slippage in the has declined at an annual rate of 0.2-5.2 per deficit in rupee terms, to 4.1 per cent of the cent. With deflation, is it time for the GDP from the budgeted 3.9 per cent of the government to provide a fiscal stimulus? GDP. To deliver the promised 3.9 per cent, the finance minister will have to reduce the Indeed there is the example of Japan still fiscal deficit figure from its budgeted level struggling to come out of deflation that by at least Rs 15,000 crore. started almost two decades ago with an asset bubble burst. In Japan, real GDP expanded Two questions arise in this context. First, by only 12.1 per cent between financial year should there be a relaxation of the path 1997 and 2013, and nominal GDP in 2013 at stipulated in the Fiscal Responsibility and ¥481 trillion was 7.6 per cent below the Budget Management Act (FRBMA)? 1997 figure.

Originally, the FRBMA stipulated But with no history of sustained deflation, elimination of revenue deficit and India suffers from entrenched inflationary containing fiscal deficit below three per cent expectations, and is no Japan.There have of GDP by end-March 2008. After eight only been stray years of deflation in India in years, the targets still elude India. The the past, e.g. after World War II in 1952-53, rolling three-year consolidation plans have 1954-55, and 1955-56, in 1968-69 after two been routinely flouted. The FRBMA was drought years, and in 1975-76 when amended in 2012 to relax the objective of inflation was tamed after the first oil shock. eliminating the revenue deficit to just The signs of deflation observed in recent

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times are most likely a one-off development The Budget will be presented against the induced by the economy recovering from a backdrop of a challenging macro phase of high inflation, helped by declining environment international commodity prices, particularly crude, and the pursuit of anti-inflationary The Union Budget forms one of the monetary policy. In each of the 14 months important components of policy making to since November 2014, the consumer price steer the economic road map. For the non- index (CPI) has gone up by 3.3-5.6 per cent life insurance industry, the Budget needs to while the WPI has declined. Admittedly, the provide critical impetus. The passage of the CPI and WPI measure prices of different Insurance Amendment Bill in 2015 paved things: CPI of final consumer goods and the way for the long-term development of services (e.g. housing); and WPI of raw the industry. We have already seen the materials (e.g. crude petroleum), positive outcome of this as many foreign intermediate (e.g. nuts/bolts/screws and players increased their stakes in their washers) and final goods. But, even then, is insurance JVs thereby bringing in critical there a threat of the declining trend in WPI long term capital. transmitting to CPI over time? However, a lot more needs to be done if the The literature is inconclusive on whether non-life insurance sector has to improve on producer price index (not the same as, but a its current penetration of 0.8% of GDP. Any close cousin of, WPI) causes or leads the major calamity or a personal incident leaves CPI. But, the bulk of the evidence supports behind a big financial loss for a huge causality from producer price index to CPI. percentage of population given that people However, inflation in CPI is still above five are not insured against such risks. The recent per cent in India. Even if the declining trend Chennai floods exemplify this point with in WPI transmits to the CPI, it may only total losses estimated at Rs 50,000 crore bring CPI-inflation down to a more though insured losses were only Rs 5,000 moderate level, and not to below zero. By crore. The Budget can provide the much- the time it does so, the international needed fillip to the non-life insurance sector commodity price melt-down may be over, in its endeavour to increase insurance reach. and the past increase in CPI may increase wages and hence labour costs. As a result, While consumers not buying insurance is a the deflation in WPI may end by the time big issue, the industry faces another problem the CPI starts moderating in sympathy with of under-insurance as most policy holders WPI. Too early to declare a war on take inadequate cover. The government’s deflation. move in the previous year’s Budget to ***** increase the tax rebate on health insurance from Rs 15,000 to Rs 25,000 for an individual/ family was a welcome step. However, more needs to be done on this Critical impetus needed to increase reach front. Medical inflation continues to rise in double digits. Mantri Sanjeev / Feb 19, 2016 At the same time, life style diseases are impacting individuals frequently and at a younger age. In this scenario, it is

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imperative that people not only avail Chennai floods and the earthquake in insurance but are adequately covered. With neighbouring Nepal, segments such as home tax rebates influencing the decision to buy insurance find few buyers. The Budget certain amount of sum insured, the should address this issue and introduce government should further enhance the limit necessary measures through tax rebates to to Rs 50,000. push home owners to avail the all-important home insurance cover. Staying on the health insurance subject, an anomaly that the budget needs to correct is The Union Budget 2016 will be presented on the service tax front. While the services amid the backdrop of a challenging macro provided by hospitals, clinical environment even as the country works establishments are exempted from levy of towards creating opportunities for a young service tax, when a health insurance cover and aspiring population. Policy makers provides these services, the same is subject would do well to seize the moment and to service tax. This tax imposition renders ensure that Indians are adequately covered treatment through health insurance schemes for risk even as they seek to chart out new at a disadvantage compared to health care growth maps. services offered directly by health care providers in terms of costs. This imbalance ***** needs to be removed and health insurance services should also be exempted from service tax. Pharma and biotech sector must get its due in Budget Going beyond the above provisions aimed at incentivising purchase of health, the Budget Kiran Mazumdar-Shaw / Feb 5, 2016 can be used as a platform to introduce much- needed reforms in the healthcare space. Finance Minister Arun Jaitley has a challenging task at hand to present a Budget Despite being one of the most critical for FY17 that spurs India’s growth at a time sectors that impact the nation’s productivity when the economic scenario appears and quality of life, the healthcare sector challenging, both externally and internally. remains without the supervision of a health The global economy is expected to slow regulator. With medical treatment and health down further in 2016 pulled down by care witnessing high variance, there is an weakness in major emerging economies like urgent need for a supervising body that has China, Brazil and Russia. the necessary regulatory powers to introduce transparency in healthcare efforts and These global trends as well as weak deliverables, streamline the actions of investment sentiments at home are likely to multiple stakeholders and most importantly impact India's GDP for FY16 and growth ensure that all initiatives are aligned with the prospects for FY17. interests of healthcare seekers. Mr. Jaitley’s last two Budgets belied hopes There are other segments which need of ‘Big Bang’ reforms. Instead, he opted a budgetary support. Home insurance is one of path of gradual reforms aimed at addressing them. Despite the frequent occurrences of both the corporate and social sectors. This natural disasters e.g. Uttarakhand, J&K and time there are expectations that the Budget

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will provide more specifics on Prime However, the impact made by the pharma Minister Modi’s ‘Make in India’ campaign. sector is in sharp contrast with the Given that biotechnology is one of the key concessions it has availed. In FY15 alone, sectors identified by the government as part pharma exports stood at $15 billion. of ‘Make in India,’ it is imperative that the Similarly, the pharma sector has brought in upcoming Budget provides an enabling and over $13 billion in FDI in the past 15 years facilitating framework for preparing the starting 2000. It has also provided Indian biotech industry to meet its employment to over 10 million people. The aspirational target of $100 billion by 2025. Indian pharma industry is today recognised as the ‘Pharmacy to the World’ as it is one The recently unveiled National of the lowest-cost producers of essential Biotechnology Development Strategy has medicines globally, catering to nearly 30 per provided a strategic roadmap for India’s cent of the demand for generics drugs emergence as a global biotech innovation worldwide. hub. However, the tactical elements needed for achieving this distinction will have to The discontinuation of these special tax come from the Budget document. incentives will also adversely impact Special Economic Zones (SEZs), which were set up Access to capital, quality infrastructure, to create new engines of growth and to make high-end talent are some of the immediate India’s exports globally competitive through needs of the sector, which need to be quality infrastructure backed by attractive addressed by the Finance Minister in his fiscal incentives and minimum regulations. Budget. The tax breaks availed by investors in SEZs If India is to build global leadership as a in FY15 were approximately Rs.20,000 knowledge economy, research and crore ($3 billion). However, the exports innovation must be its foundation. It is from these SEZs amounted to almost therefore vital that we focus on fiscal Rs.500,000 crore ($75 billion) in FY15 and incentives that foster research, innovation the sector collectively employed and education in enabling technologies that approximately 1.5 million people. While tax will propel us into the future. exemptions given to SEZs and R&D have delivered on their stated objectives and must In this context, it needs to be pointed out be further augmented to drive investment, that the proposed removal of tax breaks, growth and employment, it would be specifically the weighted deduction for prudent to examine other tax sops. expenditure incurred on scientific research, could blunt the India pharma and biotech Whilst phasing out tax concessions in order industry’s ‘innovation’ edge and put it at a to bring down corporate tax rate is critical, it competitive disadvantage to its peers. is also important for the finance ministry to evaluate the socio-economic impact made In FY15, the weighted tax deductions on by the sectors that enjoy these special R&D amounted to Rs.8,100 crore ($1.4 incentives. If the quantum of the tax revenue billion), which is a mere 8 per cent of the foregone is not substantial and yet it has total Rs.98,400 crore ($16.4 billion) in tax resulted in tremendous socio-economic gain incentives availed by corporate tax payers in it must continue. different sectors.

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India accounted for nearly 70 per cent of all consolidate and fast-track these drivers and new offshore R&D centers established in reset growth. 2015, making it the No. 1 choice for global With India the one bright spot in a glum technology-led R&D, according to global economy, we can aspire for a consulting firm Zinnov. Furthermore, $12.3 sustained 8-10 per cent GDP growth rate; billion or 40 per cent of global engineering industry strongly believes this is possible. and R&D investments in 2015 flowed into India versus $9.7 billion into China. This is At the same time, it is important to go a formidable position which must be beyond GDP numbers and focus on the augmented and not weakened by any policy quality of growth. The impact of growth change. should be felt in the sections of society where it most matters — employment More importantly, the government will need opportunities for the youth, income to walk the talk on the issue of universal generation for the poor, and a better quality health coverage. As a first step, Mr. Jaitley of life for all. could raise the budgetary allocation for pharma and healthcare such that public Show the money health spending in India is recalibrated to at The key question today is whether the least 2.5 per cent of GDP from only about 1 Centre has the fiscal space to undertake the per cent currently. A Budget that puts PM responsibility for driving higher growth, Modi’s ambitious socio-economic initiatives given the weak domestic demand and drop into action would go a long way in pulling in gross fixed capital formation. We feel that the nation out of its current state of however much the government expands its despondence by pushing the development own expenditure, it may not be able to agenda for India with increased vigour and compensate for these factors. Hence, the scripting a new economic growth story. Budget must take care to adhere to the targeted fiscal deficit of 3.5 per cent of GDP ***** as planned. This would help open up access to funds for other sectors to spend, maintain a level of confidence in macroeconomic management, and contain inflation within The Budget can reset growth the desired band. Keeping to the fiscal deficit plan does not Sumit Mazumder / Feb.8, 2016 imply that the Centre would need to cut down on its spending on vital areas such as education, healthcare, social security and The Centre must carefully calibrate a range infrastructure. For infrastructure, the Budget of policy and tax measures can explore various sources of funding such The Centre has taken up the challenging task as attractive public-private partnership of transforming India’s growth processes models, Special Purpose Vehicles, increase and building a new foundation for the in projects by public sector enterprises, and economy. Exciting and innovative so on. campaigns — Make in India, Digital India, The establishment of the National Smart Cities, and others — have been Infrastructure and Investment Fund with a launched that channelise investments in the corpus of
20,000 crore can be leveraged necessary directions. Budget 2016-17 must

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by ten times this amount for the right corporate tax rate of 34.61 per cent, projects. Non-traditional sources such as including cesses and surcharge, adds up to sovereign funds, partnerships with State one of the highest among emerging governments, and the private sector can be economies. Industry suggests that this rate tapped, as is being done by the Railways, can be brought down to 22 per cent without and the roads and highways sector. This may additional levies. Simultaneously, the be extended to special projects under Make applicability of the Minimum Alternate Tax in India, Smart Cities, Swachh Bharat, and may be withdrawn and the Dividend so on. Distribution Tax, an anomaly among emerging economies, could be revisited. Need a strategy To enable the private sector to step up its The game-changer investments, the Budget must come out with Among indirect taxes, the introduction of a strategy to tackle high non-performing the Goods and Services Tax would be a assets in the bank portfolios as this is game-changing reform. We look forward to hobbling additional lending. It is suggested rapid movement on the applicable that a national asset reconstruction company legislation in Parliament. CII is in agreement or asset management company be set up to with the revenue neutral rate of 15-15.5 per take bad assets off the bank balance sheets. cent as suggested by the chief economic Spending on education, skill development adviser, along with a standard rate of 17-18 and healthcare is still much below the per cent and a lower rate of 12 per cent for aspirational proportion of GDP as laid out essential items. This would lower the by various reports. For example, the desired existing tax burden on the consumer. government expenditure on education of 6 We also recommend that in the interim, per cent of the GDP remains distant. The excise duty, service tax and peak customs Budget should outline a roadmap for duty may be maintained at the current rates. achieving this target, without which our next The Budget needs to also revisit inverted generation would not be able to achieve its duty structures and rationalisation of the potential. Quality of education at all levels is Cenvat credit scheme. also a concern. The recommendations of the Tax Similarly, on healthcare, the target is to Administration Reforms Commission achieve universal coverage, and the pillars (TARC) are very relevant to a simple, for this need to be instituted as early as predictable and non-adversarial tax regime possible. The Budget could widen coverage and should be taken up quickly. Dispute of insurance beyond the current population resolution would also help add in stages. It should also encourage setting up predictability. For example, the advance of more hospitals for tertiary and specialised pricing agreements (APAs) applications care as well as medical education facilities. should be accelerated, while more benches A critical aspect of the Budget would be its are required to handle the cases pending ability to spark the new cycle of private with the Authority for Advance Rulings sector investments. In the previous Budget, a (AAR). reduction of corporate taxes over four years The upcoming Budget presents a was announced and industry would look challenging balancing act and the Centre forward to an annual roadmap in the coming would need to carefully calibrate a range of Budget as well as clarity on elimination of policy and tax measures to spark the next exemptions and incentives. Currently, the

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growth cycle. We have full confidence that * Threshold of annual consolidated revenues this can be achieved. of 750 million euros (R5,500 crore) for CbCR applicability is a good threshold and ***** could be maintained.

* Timeline for filing CbCR should be at

least one year. Unless there are major Reducing TP tax disputes is a must material changes, the requirement to update

Master File and Local File should be no Eric Mehta and Prajwala Pai / Feb 23, 2016 earlier than three years. . * CbCR is only a TP risk assessment tool, so Indian transfer pricing (TP) regulations have a revised risk assessment framework should been in place since FY02, with changes be put in place. being effected over the years to bring them * Ample safeguards for maintenance of broadly in line with global norms. With confidentiality of CbCR data. Budget FY17 round the corner, the Increased TPD requirements and a focus on anticipated changes include TP transparency and PoEM-related changes will documentation (TPD), intangibles and put onus on Indian headquartered companies substance. to be sufficiently prepared, including in Improved TPD increases the quality of terms of their IT systems. Indian entities of information provided to tax administration global MNEs should be aware of the and should limit taxpayers’ compliance nuances of the CbCR and the potential need burden. BEPS Action 13 (AP13) has for its local filing. suggested a three-tiered standardised There has been rising focus across approach to TPD, including a minimum stakeholders around the need for substance. standard on Country-by-Country Reporting The focus from a TP perspective emanates (CbCR). from intangibles and control over risks, both The CbCR template suggests maintenance of which embody substance-related of information regarding each country that measures. the MNE operates in and includes For reducing the level of subjectivity, information such as revenue, profits, taxes definition of ‘intangibles’ should be and other economic indicators. AP13 amended. A one-line definition as per BEPS suggests maintenance of information Action 8 “which is not a physical asset or a regarding global business operations and TP financial asset, which is capable of being policies in a global Master File and owned or controlled for use in commercial maintenance of detailed transactional TPD activities, and whose use or transfer would be provided in a Local File specific to each be compensated had it occurred in a country. transaction between independent parties in The TP regulations on documentation comparable circumstances” can be enshrined in Rule 10D are aligned to meet considered. Listing of intangibles in Section Local File requirements. But for CbCR and 92B could be indicated as illustrations of Master File, changes in TPD requirements intangibles if they fall within the are expected. aforementioned definition of intangibles. * Contents recommended in AP13 are Guidance to bring about objectivity in comprehensive and changes to Indian TPD identifying substance of arrangements is requirements could be in line. More expected. Since India has endorsed BEPS requirements would put unwarranted burden deliverables, guidance can be issued to the on taxpayers.

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effect that, on matters where Indian also how he proposes to navigate the regulations are silent, guidance provided in economy through the choppy international BEPS Actions 8 & 10 can be adopted. waters of collapsing commodity prices, How the Budget codifies the changes (rule- demand recession, rising debt, sectarian making or legislative) is expected with a strife and terrorist violence. He needs to bated breath. The last thing that India needs inform the public of not only how he will is more TP tax disputes. We need changes in address the immediate imperatives of our stance to allow resolution of TP disputes poverty alleviation, income generation, skill through APAs/MAPs even in absence of development, social justice and sustainable Article 9(2) in tax treaties; and acceptability development, but also how India can of alternative mechanisms like domestic and maximally lever the opportunities generated international tax arbitration. by the “fourth industrial revolution”—the If successful, MNEs would be able to theme of discussion at Davos. The Budget is objectively align international affairs and not a state of the Union pronouncement, but dispel uncertainties around more tax it is the one occasion when all members of disputes/controversies. Parliament are present and the speech is Will this Budget be an enabler for ‘Make in widely reported. It, therefore, offers a India’, ‘Make for India’ and, most platform to define the government’s importantly, ‘Make India’ is something economic strategy and, in particular, to which will soon be answered. embed its various programmes such as Make ***** in India, Digital India, Start-up India within a holistic, multidimensional and international framework. Looking forward to a big bang Budget The global economy is in trouble. Some Vikram S. Mehta / Feb 2, 2016 analysts are even suggesting that the recession of 2016 will be worse than the The global economy is in trouble. Some financial crisis of 2008. China has been the analysts are even suggesting that the locomotive of global manufacturing for recession of 2016 will be worse than the more than two decades. But its engine has financial crisis of 2008. now slowed in the face of declining demand, rising real wage rates and a shaky banking The finance minster was sensibly measured structure. This slowdown has compelled it to in his response to the chatter in Davos that transit from an export- and manufacturing- India is in a sweet spot. He accepted credit led model to a domestic- and services-driven for the fact that India ranked amongst the platform. fastest-growing economies in the world today. But he made clear that the country This transition, along with a broad-based could not rest on this particular laurel. And contraction of global demand, has knocked that much more is needed to be done to the props from under the commodity market. deliver “achhe din”. The price of every major commodity—from soybeans to steel to copper to oil—has Now back home, the finance minister needs plunged and many commodity-exporting to put together a Budget that puts flesh on countries are now on the edge of financial his intended next steps. He needs to detail insolvency. not only the arithmetic of governance, but

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For instance, the five oil producers in the But the finance minister knows better than Gulf—Saudi Arabia, Oman, the UAE, most that these macro details hide Kuwait and Bahrain—had a combined fiscal underlying weakness. Growth is not surplus of around $600 billion three years generating enough jobs and the numbers of ago. Today, they are struggling to manage a unemployed and underemployed are deficit of approximately $400 billion—a increasing; private sector investment has turnaround of nearly $1 trillion. dried up in the face of overcapacity, high debt and slackening demand; the public The Russian economy is on the skids, the sector has not taken up the investment slack; Nigerian currency (naira) has been the banks are loaded with NPAs; and there is hammered down—as, in fact, have most a disjunct between the rhetoric of structural currencies against the dollar—and reform and the reality on the ground. Venezuela is close to declaring a sovereign default. All this has pushed global stock The finance minister does not need a tutorial exchanges into a bear vice—Chinese stocks from armchair commentators on what needs are down, for instance, 45% from their to be done. That said, my hope is that he will levels in June, and with reduced income present a “Big Bang” Budget that will levels, there is growing likelihood of address most if not all of the above issues. corporate and possibly even sovereign And that he will set out a roadmap for defaults. And if not that, then monetisation levering the benefits of the oil price decline and inflation? (viz. competitive fiscal terms for domestic exploration, opportunistic acquisition of The US stands out for its relatively solid stranded assets, subsidy reduction, etc) and growth rate of around 3%, but even its banks at the same time moving the economy are exposed. Reportedly, they have lent further down the path of a non-oil- and coal- between $500 billion to $1 trillion to shale based energy system (viz. gas pipeline grid, oil and gas companies. With the price of oil clean energy innovation). My hope is also at around $35 per barrel, and still under that he will make the most of this heightened pressure as Iran looks to add 500 kbd interest in India and the fact that the China (thousand of barrels per day) in by March, gloss has dulled somewhat. most of these companies are staring at bankruptcy. In 2008, the US financial India has for long pitched its investment system was brought to its knees by loans story around its open and transparent extended to the housing market. In 2016, it system. Hitherto this has not cut much ice could be placed under comparable stress by because of red tape, corruption and the petroleum industry. contractual uncertainty. And because of unfavourable comparison with China’s Against this international backdrop, it is no decisive and swift decision-making. Today, surprise that India attracted positive however, this pitch could have greater comment at Davos. Its macro fundamentals resonance. This is because investors have are strong. The Balance of Payments is woken up to the reality that they do not healthy; the current account deficit is down really know what is going on in China, that to 1%; the fiscal deficit is on track to reach its numbers cannot be trusted, and that when its target of 3.5% of GDP; inflation is in push comes to shove they have no or at best check; and on a trade-weighted basis, the limited recourse. In contrast, India does not rupee exchange rate is not a cause for worry. fudge its numbers, information is freely

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available, its problems are on full display, 4.Mandatory rural presence, among others. and criticism is normal. If only it were to reduce the hassle factor of doing business. On the face of it, the challenge looks This altered mindset should be in the finance daunting as the restrictions are perceived to minister’s mind when he is crafting his be bottlenecks for customer acquisition as speech. well as building a sustainable business ***** model.

What lies beneath this challenge is that, for these banks to be sustainable, they have to Budget 2016 must encourage digital build, operate and share payment systems. payments The next chapter of the financial inclusion script will be written by these new players, Gitanjali Mishra | February 22, 2016 as they will enable the ecosystem for digital payments through mobile wallets. Mobile Ninety-eight percent of the transactions in will be the new bank and physical market- our country happen in cash. Only 10% of place—kirana shops, coffee shops, eateries, Indians above the age of 15 have made schools, etc—that are yet to experience payments through debit card as against 40% digital cash, will become acceptance points in South Africa. RuPay cards issued as a in this system. Will it be feasible to move part of the Jan Dhan Yojana have not cash-loving Indians to digital payment? changed the payments landscape. Changing spending behaviour will be indeed an unenviable uphill task. In 2016, the entry of new entities and new technology will continue in the banking The size of the large untapped market for space. While Bandhan Bank and IDFC Bank digital payments is huge. Ninety-eight have entered, small banks and payments percent of the transactions in our country bank are going to feature very soon, too. The happen in cash. Only 10% of Indians above business models and potential of the two the age of 15 have made payments through new banks and the proposed small banks are debit card as against 40% in South Africa. believed to be predictable—so, the RuPay cards issued as a part of the Jan Dhan excitement of leaping into the unknown is Yojana have not changed the payments being associated with payments banks. landscape. These banks are saddled with regulatory stipulations like: By 2018, globally people in the age group of 16-24 will spend more time on mobile than 1.No mandate for building assets portfolio all other devices put together. Mobile is the outside government securities, future of everything. The growth of wallets and cards should prompt cash consumers to 2.Individual accounts balance—savings move to digital payment. Payments banks bank and current account—capped at R1 will have a large role to play. Apart from lakh, customer acquisition, payments banks will be creating new merchants ecosystem, new 3.No permission to offer clients fixed or ways of facilitating digital cash acceptance recurring deposits, and systems like m-POS, mobile-to-mobile transfer. Apart from creating a dent on the

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CASA deposits of the legacy banks, more so platform. RBI as well as banks spend huge in rural/semi-urban areas, the payments resources in managing currency circulation. banks will also be aggressive in the small- Part of this expenditure can be reduced by value migrant-labour remittance areas, promotion of digital payment systems and thereby eating into the share of traditional rewarding entities who play vital roles in banks, unorganised remittance channels and this space. the PPIs. Bill payment, utility payment, mobile top up and recharge will be their Policymakers have a crucial role in weaning other stream of income. A more away both consumers and the merchants— interconnected market place linking small or big—from cash, moving to lesser consumers to biller through the cash usage to start with. The payments mobile/wallets will change the way Indians banks’ wish for the Budget is that the pay. government should make digital payment system less expensive than cash by giving The Jan Dhan Yojana has achieved one incentives to both the transacting parties or large objective of financial inclusion—every levying transaction charges on all cash family having at least one bank account. The payments—to start with, for taxes and last man is linked to the financial market government receipts. It is time that digital place through RuPay card and an Aadhaar- payment is made mandatory for transactions enabled payment system. At present, above R10,000. Additionally, in order to get electronic payment of MNREGA wages/ small merchants on board the payment other subsidies or wages through a bank systems, interchange should be minimal. account is converted back to cash Investment by banks, payment banks, wallet immediately. This is a huge cost to the issuers, aggregation service providers, IT banks and the customer. The smaller the and transaction security providers, etc, will ticket size of the transactions, the bigger is pay back only if policy for digital payments the cost to the banks. Digital transactions are in place. will reduce the costs substantially. Moving the entire cash-driven ecosystem to the As the saying goes, Rome was not built in a digital platform will achieve financial day. Similarly, the digital money inclusion in the real sense as the last person architecture will not be built in a day. But, also will become part of the payments for a country tipped to be the fastest- system. growing in FY17, the time has come for a shift to digital payment! Weaning away Indians from cash is going to be one uphill task. As per the USAID survey ***** report, current users of debit cards, mobile wallets and online bank transfer are highly A Budget that may simplify the indirect satisfied with the system for the convenience tax system and safety they offer. In contrast, the non- users exhibit low awareness or if aware, R. Muralidharan / Feb 4, 2016 show very little interest. Similarly, on the merchant side, though the merchants who The government must bring in measures to are accepting digital cash are highly revive industrial growth and facilitate a satisfied, non-accepting merchants show smooth transition to the new tax regime. very little inclination to move to the digital

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With the introduction of the Goods and CENVAT credit. Keeping in mind the Services Tax (GST) regime missing the principles of GST, industry is hopeful that target date of April 1, 2016, one would the definition of input service will be expect the government to use the window of widened so as to allow credit of input taxes the Union Budget to bring in changes in the on all costs incurred in relation to business, current indirect tax regime, which can be such as cost of civil works for setting up a seen as a step forward towards GST. factory or premises of service provider, rent- a-cab service availed for business purposes, The government must bring in measures to etc. In fact, when we operate a negative-list- revive industrial growth and facilitate a based service tax regime, there is no reason smooth transition to the new tax regime. In for a restrictive CENVAT credit regime. the previous Budget, as a step towards GST, Again, credit availability needs to be certain changes were brought about— extended to Swachh Bharat Cess (SBC) and increase in the rate of service tax, doing accumulated education cess and secondary away with education cess, correction of and higher education cess as on February 28, inverted duty structure, etc—and we can 2015, and May 31, 2015. Else, it leads to tax expect the Budget proposals to further these cascading. Service tax on import of service efforts. under reverse charge mechanism should be The industry expects that key amendments allowed to be paid through CENVAT credit, shall be proposed in the current tax regime which will lead to reduction in cash itself in the ensuing Budget, which are in outflows and compliance costs. These consonance with ‘Make in India’ and ‘ease measures could support ‘Make in India’ of doing business’ campaigns of the central initiative. government. Third, over the last 20 years, transactions of First, in order to take the rates of service tax import/export between related entities have closer to the rates envisaged in GST, service increased. The existing mechanism of tax may be increased marginally by the examination of such transactions by the government from the current level of 14.5%. Special Valuation Branch (SVB) in Custom There have been resentments to the House has proved cumbersome and has not periodical upward revisions in the rate of evolved with time. There are uncertainties service tax and, therefore, the government over passing of assessment/renewal orders could consider keeping the tax incidence on by the SVB, resulting in importers making end-consumer-based services such as extra duty deposits, whose refund results in telecom, restaurants, air travel, life delays. It is time the government reorganises insurance, etc, at same level by suitably the SVB in accordance with the requirement adjusting the levels of abatement or by other of modern-day governance practices and means. Further, considering the increase in introduces steps such as Advance Pricing various cost indices and the transition to Agreements. GST, the current threshold limit under service tax may be increased from R10 lakh Fourth, industry hopes that the government to R25 lakh. would go ahead with its slated objective of enhancing ‘ease of doing business’, Second, the government may address clarifying certain grey areas in provision of another significant area of concern to the service tax laws. Industry expects that, in industry, which is the availability of order to bring an end to disputes,

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clarifications are issued regarding scope and meet the deficit target should be adhered to, coverage of intermediary services, taxability said the body which replaced the Planning of liquidated damages, payment to expats, Commission in January 2015. simplifying the definition of exports, etc. On the sales tax side, it was envisioned that the According to the Aayog, postponement of rate of Central Sales Tax (CST) would be the road map for two years in a row would reduced from 2% to 1% in 2009 and phased damage the perception of investors about out with GST. But now, with the delay in India. introduction of GST, it is imperative that at least the rate of CST be reduced to 1% Finance minister Arun Jaitley had received immediately. three pieces of advice from economists and industry about adhering to the fiscal deficit Overall, 2016 can be the year of change for targets. While some said it should be indirect taxes. Though the date for adhered to, others said it should be deferred. introduction of GST is not clear, the year A third set of people asked the minister not should see significant progress on the to bind himself with any deficit target. subject. The Constitutional Amendment Bill should sail through in the Budget session "I came across all shades of opinion on the and, ahead of that, the draft of GST fiscal consolidation road map. While regulation should be finalised and released industry wants more spending, economists to public for comments. The government are sharply divided," the finance minister can use the Budget as an opportunity to had said at an event recently. introduce key changes in the current indirect tax regime, addressing industry concerns According to him, the target of fiscal deficit and demonstrating its intention to create a depends on the growth projection and positive environment for industrial growth revenue buoyancy. ahead of introduction of GST. ***** On Friday, Reserve Bank of India (RBI) Governor Raghuram Rajan had advised the NITI Aayog to FinMin: Stay on fiscal government not to defer the fiscal consolidation road map consolidation road map. On the other hand, an overwhelming majority of economists Feb 2, 2016 polled by Reuters had wanted Jaitley to

postpone the road map for one more year. Even as the finance ministry is grappling "The consolidated fiscal deficit of the states with the dilemma of whether to adhere to the and the Centre in India is by far the largest path of fiscal consolidation or perk up the among countries we like to compare economy, the NITI Aayog has asked the ourselves with; at present only Brazil rivals ministry not to defer the fiscal consolidation us on this measure," Rajan had said. He had road map in Budget 2016-17. The ministry cited International Monetary Fund estimates had already postponed the road map by a to state the consolidated fiscal deficit of the year in the 2015-16 Budget. Centre and states went up from seven per

cent in 2014 to 7.2 per cent in 2015. "So we According to sources, the Aayog was of the expanded the aggregate deficit in the last view that more space could have been taken calendar year. With Ujwal Discom with regard to the fiscal deficit in this year's Assurance Yojana, the scheme to revive Budget. From 2016-17, the commitment to

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state power distribution companies, coming 18. into operation in the next financial year, it is unlikely that states will be shrinking their For the next year, the target was relaxed to deficits, which puts pressure on the Centre 3.5 per cent. to adjust more," he had said while adding it is the IMF figures which investors watch. For the current financial year, the target was adjusted to 3.9 per cent of GDP or Rs 5.5 He had also questioned arguments by those lakh crore against the original target of 3.6 favouring the fiscal expansion on the per cent. As much as 88 per cent of that grounds that it is necessary to generate the target was met by December. growth needed to put our debt to gross ***** domestic product (GDP) ratio back on a sustainable path. A conducive start-up regime needed

"This is a novel argument. Ordinarily, one Viresh Oberoi / Feb 18, 2016 would think that a government should borrow less, that is, run lower fiscal deficits, In today’s VUCA world—one that is in order to reduce its debt. But, there is volatile, uncertain, complex and indeed a theoretical possibility that the ambiguous—what is needed is adaptability growth generated by the fiscal expansion is to the fast changing interconnected global so great as to outweigh the additional debt economy, which can only be provided by that is taken on. Unfortunately, the growth systems and processes that take proactive multipliers on government spending at this and corrective actions on demand. juncture are likely to be much smaller; so more spending will probably hurt debt Consider the Union Budget, which has been dynamics," he said. losing much of its significance and relevance, much like the Five Year Plans Many believe RBI might not cut rates at its that India once used to draw up. In the policy review on Tuesday. They said, the dynamic environment that we are living in, central bank would see the government even a week is too long a period for commitment to fiscal deficit before cutting decision-making. In fact, decisions need to the policy rate. be taken fast and as and when required, instead of once a year. The provisions and On the other hand, the mid-year analysis of recommendations of the Budget, therefore, the economy for 2015-16 advocated the remain just that and don’t always see need to review fiscal consolidation road map implementation. Sometimes, implementation due to the one rank one pension and the happens even when it is not provisioned for. implementation of the seventh pay But that is a decision for the government to commission, which will add an additional take and, for now, we need to use this 0.65 per cent of GDP to expenditure. existing tool in the best possible manner.

The government has already deferred a The upcoming Union Budget must focus on fiscal consolidation road map for one year. creating a conducive ecosystem for start-ups The ultimate target of reining in the deficit in the e-commerce industry. Prime at three per cent of GDP was to be originally MinisterNarendra Modi’s ambitious ‘Start- met next year. But, it was deferred to 2017- up India’ initiative was launched last month

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to boost digital entrepreneurship at the like how easy it should be to set up a grassroots level. At the event, the industry business, or exit it and start afresh if things was vocal and more or less summed up its don’t work out, would come under building expectations regarding the Budget in front of the start-up ecosystem by the government. the Prime Minister. Now we expect finance ***** minister Arun Jaitley to provide income-tax exemptions—at least for the first few Budget 2016: More economic surplus years—to boost start-ups in the country. It is for citizens not only because profits need to be retained by the company during the formative years R. Prasad / Feb 16, 2016 to grow business, but also to avoid the hassle and time and money spent on The Budget day arrives shortly. The issues maintaining and filing returns. The facing the country are manifold—a shortage entrepreneurial teams should not be forced of demand in the market, sharp fall in the to devote any of their bandwidth to such domestic savings rate and the bad financial activities at least for the first few years. position of the public sector banks. Without demand, the industrial sector would create Besides, faster patent registrations and more stress for the banks. Education and quicker exits for companies were some of health sector needs immediate attention the promises made at the event. The industry primarily because lack of education and was quick to welcome the “less interference skills impact growth. The need is to increase and more support” tone of the programme. the economic surplus of each citizen of the The Start-up India action plan country. This can be done by lowering announcement contains sweeping policy customs, excise duty and service tax. innovations to foster more creative start-ups, and like any other plan, implementation in There is no doubt that lowering excise duty letter and, more importantly, in spirit will and service tax would impact revenue but hold the key to its success. The Budget then there is a case for making good the announcements will indicate whether the shortfall by disinvestment or sale of assets government is keeping its promises or not? such as spectrum, mining rights, etc. Increase in economic surplus with each We would also like to see on-the-ground citizen would lead to increased demand in action by the government on policies and tax the economy. relief, breaks to be announced, how they are The economic surplus with each citizen going to be implemented, who is going to be would lead to increased domestic savings. A responsible for implementing them, and how push to domestic savings can be given by we are going to ensure that the entrepreneur increasing the deduction under the I-T Act is positively impacted by all this. from R1.5 lakh to R2.5 lakh. There is a need to cut the interest rates but as the The government’s role in making the government does not offer any social journey smooth for start-ups, in fact, begins security and as these savings are necessary with providing basic infrastructure. for individual’s old age, there is no scope for Electricity, ports, roads as also last-mile cutting the interest rates. connectivity are the pillars on which entrepreneurs will build their business and Economic surplus and demand also value proposition. That apart, certain norms increases from job creation. The priority

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areas in this country are health and The Reserve Bank of India (RBI) on education. There is a need to increase the Tuesday kept its policy rates unchanged, number of nurses and doctors in the country choosing instead to wait for signs of especially in the rural areas. There is a need expenditure control and structural reforms in to allow deduction from tax investments in the coming Budget. schools, skill development, health education RBI Governor Raghuram Rajan gave and hospitals by the private sector. Tax enough indications that the ball was now in incentives and easier loans towards the government's court. In his press construction of homes and infrastructure conference, Rajan stressed that monetary may also generate employment. India’s policy can achieve "only so much" for major employers are the MSMEs. They are growth. Another nudge came in the form of large exporters also. It is necessary to a reminder that fiscal rectitude is important nurture them by giving them incentives and for preserving macro stability. The policy loan facilities so that job creation increases. statement stated that India was being viewed "as a beacon of stability because of the Agriculture is the largest employer in India. steady disinflation, a modest current account Productivity needs to be increased. Tax deficit and commitment to fiscal rectitude". incentives may be given to seed, pesticides The statement also suggested that and seed companies. "controlling spending will create more space Agricultural markets have to be made for monetary policy". efficient by excluding intermediaries. There is a move to lower the corporate rates and RBI will also keep an eye on how the remove exemptions. But taking into account Seventh Pay Commission recommendations the current scenario, it would not be are implemented and expects the wage hike advisable to do it especially as the effective for government employees to have an tax rate is only 23%. There is a need to impact on inflation in the next one or two rationalise the personal income tax structure. years. Further, in view of the disparities in the income of people in different areas, there is Following the status quo in its sixth bi- a necessity to give backward area allowance monthly monetary policy review, the repo to these poor areas. Also, in view of the rate, or the rate at which the central bank disparities in the society between high infuses liquidity into the system, remained at income and poor people, inheritance tax 6.75 per cent. The cash reserve ratio (CRR), may be introduced. or the portion of a bank's money maintained with the central bank in cash, remained at The finance minister’s job is a difficult one four per cent. as he has to match revenue and expenditure. But in difficult times, it may be necessary to A pause in rate cuts was widely expected by spend more than the revenue collected so the market and the analyst community. A BS that growth continues. poll on the policy had indicated the central ***** bank would not want to take any action on rates before the Budget scheduled for Rajan puts the ball in Jaitley's court February 29, but could lower rates by 25-75 basis points (a basis point is a hundredth of a February 3, 2016 percentage point) after the Budget. Says monetary policy can achieve 'only so much' for growth

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RBI also hinted something similar. "The in December, lower than the RBI's Reserve Bank continues to be expectation of 6 per cent by January 2016. accommodative even as it leaves the policy However, the index of industrial production rate unchanged in this review, while (IIP) shrunk to 3.2 per cent in November, awaiting further data on the development of raising expectations that the RBI would, inflation," the RBI said. sooner or later, have to ease its policy rate.

"Structural reforms in the forthcoming The RBI expected Gross Value Added Union Budget that boost growth while (GVA) growth, the new methodology of controlling spending will create more space calculating economic progression, at 7.4 per for monetary policy to support growth, cent in 2015-16 and 7.6 per cent in 2016-17. while also ensuring that inflation remains on In 2016-17, growth would strengthen the projected path of 5 per cent by the end of gradually, "notwithstanding significant 2016-17," the central bank added. headwinds", led by an expected normal monsoon, large positive terms of trade gains, The policy document also iterated the need improving real incomes of households and to revive private investment demand at a lower input costs of firms, the central bank time when the business climate was said. improving and fiscal policy was on the path of consolidation. "Yet, still weak domestic private investment demand in a phase of balance sheet Economists agreed with the RBI's stance of adjustments, re-emergence of concerns putting the onus on the government. "We are relating to stalled projects, excess capacity broadly in agreement with the RBI that the in industry, and sluggish external demand bulk of heavy lifting in investment needs to conditions damping export growth could act be done by the government. While this as headwinds," the policy said. means an increase in the government's capital expenditure, it is the uncertainty Overall, the current pace of growth was related to the fiscal consolidation path and "reasonable", but below what should be the consequent reduction in revenue expected over the medium term, the policy expenditure that it subsequently entails that document said, adding, growth drivers makes the RBI hesitant to act at this needed to be rekindled to place the economy juncture," said Abheek Barua, chief durably on a higher growth trajectory. Banks economist, HDFC Bank. Standard Chartered remained non-committal on further rate cuts, Bank sees the upcoming Budget as crucial but the RBI expects the new methodology of as increased claims on government finances calculating the lending rate, as well as and slow economic growth could pose emergent competition, will force the lenders challenges for the government to meet its to pass on cut in policy rates eventually. fiscal deficit target. "Marginal cost loan pricing that will kick in "In February 2015 the government from April 1 will actually help in recalibrated its fiscal consolidation path and transmission. It will be an improvement over delayed the fiscal deficit target of 3 per cent the earlier base rate. We will see a by a year to 2017-18," said Anubhuti Sahay, significant change in the transmission chief economist of Standard Chartered process when that happens," Rajan said. The Bank, India. Retail inflation as measured by government's capital support to banks was the Consumer Price Index was 5.61 per cent

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adequate, Rajan said in his post-policy expectations from all sections of society. interaction with the media. "The finance This year, the expectations are greater in minister has indicated he will support the view of the pessimistic international PSBs with capital infusion as needed. Our economic environment, declining exports estimate is that the support that has been and slowing private investment. It is hoped indicated will suffice," Rajan said. The that the budget will provide much-needed central bank will continue to monitor signal to revive the investment climate in the inflation and provide liquidity support even country. It is indeed a tight rope walk; the if that means the RBI's own restriction of finance minister has to deal with conflicting keeping liquidity shortage within 1 per cent demands of returning to fiscal consolidation, of net demand and time liabilities (NDTL), increasing public investment and moving or roughly the total deposit base, is away from the pro-cyclical fiscal stance. breached. While there will be many initiatives in the budget, here are some essential issues the The average daily liquidity injection budget should consider to improve the increased from Rs 1.2 lakh crore in economic environment in the country. December to about Rs 1.345 lakh crore in January. In response to the policy, the First, it is extremely important to return to Sensex fell 1.15 per cent to 24,539 points, the path of fiscal consolidation. The mid- the Nifty fell 1.33 per cent to 7,455.55 year review takes the issue of fiscal points, bond yields rose 6 basis points to correction lightly, and I hope the finance 7.85 per cent and the rupee weakened to minister will not be lured into straying away 67.98 a dollar from its previous close of from the fiscal target. At a time when 67.84. household sector’s financial saving is just a ***** little over 7% of GDP, irrespective of what RBI does on interest rates, it is Union Budget 2016-17: Top 5 issues that impossible for the financial system to lend can improve economic environment money to the private investors at low interest rates if the government takes all of M.Govinda Rao / Feb 2, 2016 the financial savings. With the fiscal deficit of Union and state amounting to 6% of GDP The govt must find a way to get back on the and the UDAY accounting for another 1%, it path to fiscal consolidation while increasing is not surprising that private sector is unable public investment. to secure loans at a reasonable rate of interest. In fact, the cash accounting system The Union finance minister will be hides the real fiscal deficit which is much presenting the second full-year budget of higher as substantial subsidy payments to this government on February 29. In India, Food Corporation of India and fertiliser the Union budget is not merely an exercise companies are yet to be disbursed. in presenting the annual financial statement Furthermore, with interest payments at the which is required to be placed in Parliament Union level accounting for almost 50% of under Article112 of the Constitution, but is their net tax revenues and 40% of total also an instrument to signal economic policy revenues, any further addition to the debt direction and to initiate reforms. Not will only crowd out more productive surprisingly, the budget presentation is an expenditures. With increase in nominal GDP important event awaited with great lower than the real GDP, and with

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government expenditure having low fact, about 47% of the arrears have multipliers, additional fiscal deficit will accumulated in disputes up to 2 years and worsen the debt dynamics. Any further the arrears held in disputes up to 5 years postponement of fiscal correction will work up to 76%. The time is opportune to seriously erode the credibility of the negotiate and settle the disputes and gain government. some revenue rather than getting embroiled in court cases dragging on for years. With Second, it is important to increase capital Vijay Kelkar Committee’s report on PPP expenditures from the prevailing level of now available, it should be possible to move 1.7% of GDP and this has to be done by ahead on the stuck investment projects and reprioritising its expenditures and finding revive the PPPs. additional resources. Indeed, the government has done well this year as it is on course to Third, one of the important achieving the budgeted capital expenditure recommendations of the Fourteenth Finance of R2.41 lakh crore which is higher than the Commission is to have an independent revised estimate of the previous year by agency to monitor the implementation of 25%. This was possible mainly due to fiscal rules by the government. There are compression of subsidies as the price of oil over 35 countries in the world which have from over $110/barrel to less than $40. Also, such independent institutions. In the United the government did well to increase excise States, the Congressional Budget Office has duties to mop up additional revenues when made important contribution as a watch dog. the oil prices fell. This bonanza will not Similarly, the Office of Budget continue into the next year and although the Responsibility in the UK has played an oil price has fallen to lower than $30/barrel, important role. In many other countries, we fiscal space in terms of lower subsidies and have parliamentary budget offices and fiscal higher excise taxes will not be large. councils. The important functions of these institutions are to evaluate the budget A number of measures are needed to mop up forecasts, undertake detailed costing the revenues required to increase capital exercises to ascertain the present and future expenditures. The most important measure is liabilities on public policy pronouncements, to divest government’s stakes held in and to monitor the implementation of Specified Undertakings of the Unit Trust of MTFP. Establishment of such an institution India. The total holding is estimated at $7.2 will demonstrate government’s seriousness billion, and this serves no social or in improving fiscal governance. economic purpose. Divesting this could substantially augment resources needed for Fourth, on the taxes side, the process of public investment. The Fourteenth Finance phasing out tax preferences will have to be Commission, too, has made some important initiated as was promised in the last budget. recommendations on disinvestment which, if It is also important to do away with the implemented, could substantially raise difference in the tax rate between domestic additional revenues. In addition, the and foreign companies. The most important government needs to work on reducing the is the implementation of the tax arrears. At the end of FY14, the amount recommendations of the Tax Administration of tax arrears from various taxes amounted Reform Commission (TARC) which are far- to over R5.83 lakh crore or 5.1% of GDP. reaching. However, many of the Almost 86% of this is held up in disputes. In recommendations on the restructuring of the

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tax department to make it independent and taxes and everyone wants more and better doing away with the post of revenue public services. While everyone wants to secretary, important as they are, may not bequeath considerable wealth to their find many takers in the government. On progeny, myopia sets in while it comes to another issue, the government will have to government borrowing even as it involves a initiate its own measures against Base burden on the future generations. Erosion and Profit Shifting (BEPS) by multinationals. While multilateral action on Even in the best of times, Budget-making is this will take some time, the government a very difficult exercise in India. Given the should not postpone the issue of instituting depressing global environment, marked GAAR any longer. slowdown in domestic manufacturing and increasing expenditure demands, the Finally, on indirect taxes front, major challenges this year look formidable. initiatives are necessary to rationalise the structure of excise duty and service tax in The spend-or-save dilemma keeping with the objective of introducing GST. This entails, increasing the threshold of service tax and reducing that of the excise The revival of investment climate requires duty, merging cesses and surcharges with structural reforms besides substantially the base rates, pruning the exemption list increasing public investment since private and reducing the number of tax rates, sector investment is stagnant. At the same particularly by pushing the commodities time, the government will have to leave taxed at lower rates to the general rate, and enough savings for the private sector to putting the administrative action plan for borrow at a reasonable rate of interest which implementing GST including the transitional requires it to contain its claim on the measures. This will go a long way to boost household sector’s financial savings. the confidence and put greater pressure to have the Bill passed in Parliament. In India, aggregate tax-to-gross domestic ***** product (GDP) ratio is just about 17 per cent. Gross tax collection at the Union level is just a little over 10 per cent and after A fine balance on the Budget devolution, the Union government gets just about 6.5 per cent. With the non-tax revenue M. Govinda Rao / Feb 23, 2016 collections amounting to about 2.5 per cent, the total revenue available to the Union Given the pressing need for financial government is less than 10 per cent of GDP. prudence and the equally pressing need for This year, in addition to meeting competing increasing public investment, the Finance demands from various departments, the Minister needs to raise additional resources Finance Minister is saddled with the and rationalise and target subsidies. problem of recapitalising the public sector bankswhich are saddled with huge non- It is Budget time again, and a lot of things performing assets, provisioning for pay have been written and spoken about what revision and meeting additional the Finance Minister should and can do. requirements for “ One Rank One Pension Indeed, every section of the community has (OROP) ”. expectations. No one wants to pay more in

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It is therefore not surprising that the targets and more often than not, it has discussion has veered around the need to observed the targets by breaching it. Credit increase government expenditure even if this rating agencies will be keenly watching the requires violating the fiscal deficit target. stance. While the Chief Economic Adviser in his mid-year review and subsequently in various Raising additional resources fora has strongly argued for increasing public investment by pausing once more on Surely it is important to increase public the fiscal deficit target, the Reserve Bank of investment to revive the investment climate, India (RBI) Governor as well as the vice- particularly when the global environment is chairman of NITI Aayog have emphasised fragile and exports are declining. Injection the need to conform to the targets. The of additional expenditures through pay stance the Finance Minister will take in the increases and the OROP provision will Budget will be keenly watched. increase consumption demand. The way to increase public investment is to find other Indeed, this is a major dilemma, but resources. breaching the deficit target to increase expenditure is only an easy route riddled First, there is no strategic objective served with serious repercussions. The problem is by the government continuing to hold the that at a time when the financial saving of stocks of blue chip companies under SUUTI the household sector is just about 7.6 per (Specified Undertaking of the Unit Trust of cent of GDP, even if the government India). Offloading this could yield about conforms to the fiscal deficit target of 3.5 Rs.60,000 crore. per cent, with the total deficit of the States at 2.5 per cent, the consolidated deficit will be Second, the volume of taxes held stuck in about 6 per cent; the States have to take the disputes is Rs.5.8 lakh crore, and over 60 additional burden of over 1 per cent of GDP per cent of it has been in the last five years. under UDAY (Ujwal DISCOM Assurance Creating a mechanism to resolve the Yojana). Additional borrowing will leave disputes, even if only 20 per cent of this is very little room for the RBI to reduce the recovered, could fetch the government over interest rates, and even if it is forced to, the Rs.1 lakh crore and, more importantly, it banks will find it difficult to transmit it to will create a more favourable investment the borrowers simply because they will not climate. The Kelkar committee has provided have enough money to lend. useful guidance for reviving the public- private partnership projects, including the Furthermore, interest payments at the Union ways to deal with legacy issues and level are estimated at about 50 per cent of immediate implementation could untangle the net tax revenue and 40 per cent of its net significant investments. As it is, the road revenues. With nominal GDP growing at sector has shown a good performance and lower than the real GDP, further addition to the implementation of the Kelkar debt will increase debt-GDP ratio at a much committee’s report can give it a further faster rate. More importantly, there is the fillip. question of credibility. The government has paused four times since the Fiscal Tax and expenditure reforms Responsibility and Budget Management Act was passed in 2003; it has redefined the On the taxes front, the Finance Minister in

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the last Budget has indicated that he will where the minimum standards of services phase out tax preferences for the corporate must be ensured across the country. Perhaps, sector and reduce the rate of tax to 25 per the Finance Minister should discontinue the cent in the next three years, and his actions less important schemes and fund those that on these will be keenly watched. More are important adequately. importantly, the government will have to show its seriousness in introducing ***** the Goods and Services Tax by rationalising the excise duty and service tax Key labour reform proposals unlikely to structures. This requires, in the case of be passed excise duty, pruning of the exemption list, reducing the threshold from the prevailing Surya Sarathi Ray / Feb.19, 2016 Rs.1.5 crore, limiting the list of items taxed at low rates to essential commodities and reclassifying them into general rate Prime Minister Narendra Modi’s principal category, and unifying the rates of tax to labour reform proposals, aimed at ensuring two. In the case of service tax, the ease of doing business by merging 44 extant exemption list will have to be increased Acts into four codes, are unlikely to be from the prevailing Rs.10 lakh and items in passed in the ensuring Budget session of the negative list and exemptions will have to Parliament. And this is not just because of be pruned further. It would also be useful to the likely face-off between the government merge the cesses and surcharges with the and a united opposition over the JNU row; basic levy and make the general rates of the mandatory Cabinet approvals for any of excise duty and service tax uniform. I do not the major Bills like Code on Industrial see much change in the personal income Relations, Code on Wages, Small Factories taxation though there may be marginal Bill and Employees’ Provident Fund & increase in exemptions and savings Miscellaneous Provisions Bill have yet to incentive. come. The Budget session starts on February 23. The labour ministry is still working on On the expenditure side, the government the codes on social security and welfare, and will have to expand the JAM (Jan Dhan- code on safety and working conditions. Aadhaar-Mobile) initiative and move over to cash transfers wherever feasible, While the labour ministry has already particularly on items like gas and kerosene circulated a Cabinet note on the Small subsidy. The subsidies in 2015-16 are Factories Bill and the Code on Wages for budgeted at Rs.2.43 lakh crore and actual the approval of the government’s highest outgo will be lower on account of low oil decision-making body, the Code on prices. Food and fertilizer subsidies continue Industrial Relations and EPFO Bill are still to proliferate, and it is important to being vetted by the law ministry. The EPF rationalise and target them. Increasing the Bill seeks to provide the subscribers of the price of urea is important not only to contain retirement fund body an option of choosing the subsidy but also to promote balanced between EPF and the New Pension System nutrient intake. Unfortunately, the Union (NPS). “The vetting by the legislative affairs government has continued to expand of the law ministry for the two Bills are centrally sponsored schemes rather than pending for quite sometime now,” sources in limiting them to a few meritorious services the labour ministry said, adding that all

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clarifications sought by them have been The existing fiscal consolidation road map clarified. aims at a target of 3.5 per cent of GDP for the upcoming financial year. However, The Child Labour (Prohibition and Finance Minister Arun Jaitley faces a Regulation) Bill, on which a notice in Rajya substantial spending burden in 2016-17, Sabha was given for discussion and passage primarily due to implementation of in the previous two sessions without luck, recommendations of the 7th Pay could be passed in the Budget session. The Commission; one rank, one pension scheme; Bill proposes banning all kinds of child maintaining capital spending levels; and labour under the age of 14 years, except in boosting rural sector demand after two non-hazardous family enterprises or the consecutive years of poor rainfall. It is for entertainment industry, but only after school these reasons that Chief Economic Advisor hours and during vacations. In the winter Arvind Subramanian called for a re- session, the Payment of Bonus assessment of the medium-term fiscal road (Amendment) Bill, 2015 was passed that map in December, in the mid-year economic enhances pay eligibility limit of an review. employee for bonus to Rs 21,000 per month from Rs 10,000, and the monthly bonus According to government sources, both the calculation ceiling to Rs 7,000 per month options were being discussed and a final from Rs 3,500 a month earlier. The view might be taken only after taking into proposed reforms were tipped to be the account views from Prime Minister biggest labour reforms since Independence. Narendra Modi. Earlier this month, Jaitley had said both the options - of keeping the ***** fiscal deficit target and reworking it - had their pros and cons. Jaitley has reportedly Final decision on fiscal deficit target for had extensive discussions on the matter with FY17 likely this week his senior bureaucrats as well as independent policy experts and economists. Arup Roychoudhury / Feb. 8, 2016 "A decision on the fiscal deficit target for The government might take a final decision the next year still hangs in the air. There has by the end of this week on whether to stick been a lot of deliberation on a number of to a fiscal deficit target of 3.5 per cent of Budget-related matters. There have also gross domestic product (GDP) for 2016-17 been meetings with the Prime Minister's or delay the fiscal consolidation road map office and other departments. The coming by another year in the face of additional week will see the final such meetings before spending burden. the Budget goes to print," said a senior official who did not wish to be named. Senior policymakers from the finance ministry are likely to have a number of Subramanian, in his mid-year review, had meetings with the Prime Minister's office in also cut the official GDP growth forecast for the coming days to discuss and finalise the the current financial year to 7-7.5 per cent Union Budget 2016-17. Business Standard from the earlier 8.1-8.5 per cent. has learnt that the still undecided issue of the Subramanian also warned that if the fiscal deficit target for next year will be part government stuck to the current path for of the discussions. fiscal consolidation, demand would be hit.

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He had said GDP growth in 2016-17, based likely to be the burden on the Union Budget on an analysis of likely demand, was not 2016-17, with the rest of the onus on the likely to be significantly greater than in this Rail Budget. It has been reported earlier that year. some of the recommendations of the Pay THE NATION IN NUMBERS Commission might be implemented on a staggered basis so as to reduce the one-time NOMINAL GDP liability. 2015-16 FISCAL DEFICIT (budgeted): Rs 141 2015-16 The defence ministry had said last week that lakh crore at 3.9% (budgeted): Rs the defence pension budget would be around 2015-16 (likely 5.56 lakh crore Rs 65,000 crore for 2016-17, up 20 per cent revised as per 2015-16 from the 2015-16 budgeted estimates of Rs CEA's projections at 3.9% (based on 54,000 crore. Jaitley had said on Friday that of 8.5% nominal revised GDP the Budget would need to provide around Rs GDP growth): Rs number): Rs 5.3 lakh 1.1 lakh crore combined for the 136 lakh crore crore implementation of OROP and the Seventh 2016-17 if growth 2016-17 at 3.5% based Pay Commission. stays 8.5% next on above number: Rs year: Rs 147.5 5.16 lakh crore Additionally, the coming Budget will likely lakh crore come good on Jaitley's promise to India Inc to continue the government's public Going by this lower forecast, the nominal spending push, with capital expenditure for GDP for the current financial year is likely the next year expected to come close to Rs 3 to be around Rs 136 lakh crore, lower than lakh crore for the first time. The Centre is Rs 141 lakh crore projected in the last also looking to boost allocation to various Budget. If the next year, too, sees a nominal rural schemes such as Mahatma Gandhi GDP growth of 8.5 per cent, then the National Rural Employment Guarantee Act, nominal GDP for 2016-17 might be Rs Krishi Vikas Yojana, Krishi Sinchai Yojana, 147.5 lakh crore. If the fiscal deficit target among others. for the next year - 3.5 per cent of GDP - is ***** maintained, that would come up to Rs 5.16 lakh crore. Anatomy of the revenue deficit

That amount is only Rs 14,000 crore less Rathin Roy / Feb. 4, 2016 than the possible revised fiscal deficit of Rs 5.3 lakh crore, which is 3.9 per cent of the Many economists including this writer have likely revised nominal GDP of Rs 136 lakh been advocating strict adherence to the path crore for this year. Jaitley and other finance of fiscal consolidation. I am not a fiscal ministry officials have said this year's target hawk but I join with the hawks in the Indian of 3.9 per cent will be met. The budgeted context. The FRBM target has been relaxed fiscal deficit target in absolute terms was Rs far too many times in India's recent history 5.56 lakh crore. for any plausible explanation for another relaxation to carry any credibility in the The total expenditure burden due to the domestic and international financial recommendations of the Seventh Pay markets. Further, the ostensible reason for Commission is likely to be Rs 1.02 lakh relaxing the FRBM target, to increase public crore, of which around Rs 74,000 crore is

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investment, does not hold. For 35 years now, fiscal surplus which is simply untenable for the central government borrows to consume, a developing economy. Some reduction in not to invest. fiscal burden can occur if the interest rate on government debt falls but the government The rationale for this is just common sense already borrows pre-emptively at a lower glorified as what economists call the rate than others. "golden rule". Consumption must not be financed through borrowing. It is for this Subsidies accounted for Rs 2,57,071 crore in simple reason that we discourage our FY13 or 20.7 per cent of total revenue children from borrowing money for an ice- expenditure. Here, there is substantial room cream but are willing to borrow to invest in for expenditure reduction but the political a house. economy of subsidies is a story that has oft been repeated and I shall not dwell on that Investment generates economic returns that here. Suffice to say that even a 50 per cent ultimately allow the government to increase cut in subsidies in FY13 would have the size of its consumption expenditure. resulted in reduction of the revenue deficit Borrowing for consumption does not do so by approximately 1.2 per cent of GDP, still and adds to the interest burden on the leaving the government with a revenue government. The golden rule means that the deficit of 2.4 per cent of GDP. So this is not government consumption expenditure enough. should be financed through taxation, unless there are rare and exceptional circumstances The third item of consumption is the pay and to deviate from this norm. Since the allowances provided to central government enactment of the FRBM legislation, the personnel. According to the 7th CPC report, states as a whole (rich and poor; big and total expenditure on them amounted to Rs small) have been adhering to this rule. 1,92,580 crore or 15.5 per cent of total revenue expenditure in FY13. By With the Centre, this has not been the case international standards, this is not large but since 1981; the FRBM legislation has not given the notorious optics of bureaucrats worked for the Centre. The revenue/fiscal idling in offices, could an axe be taken to deficit ratio has increased from 4.5 per cent this number? in 1981-82 to 41.7 per cent in 1990-91, to 71.6 per cent in 2001-02, and to 71.8 per Out of total pay and allowances expenditure, cent in 2015-16. So, consumption Rs 55,038 crore is spent on the railways. increasingly has been the driver of central This amount is irrelevant for the revenue government borrowing, and not investment. deficit since the railways has its own budget and is expected to cover its own expenditure The anatomy of this consumption is worthy from revenue generated (called the operating of examination. Total revenue expenditure ratio). The ratio is close to 0.9 which implies in FY13 was Rs 12,43,509 crore. Interest it covers the railways covers its current payments accounted for 25.2 per cent of expenditures from its own revenues. So is total revenue expenditure. This (or at least the remaining Rs 1,37,542 crore, the amount 70 per cent of it) is a consequence of 35 spent on bureaucrats in FY13? No. Our years of borrowing to consume, a committed expenditure on defence personnel amounts legacy. No finance minister can reduce this to Rs 75,869 crore. Presumably, this is a interest burden without running a significant sacred cow. There appears to be a national

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consensus that our soldiers, sailors and These ports would be at Maharashtra's airmen cannot be dispensed with. Dahanu & Dugarajapatnam, Tamil Nadu's Colachel and West Bengal's Sagar That leaves us with Rs 61,673 crore. From this we must also deduct the amount spent Finance Minister Arun Jaitley is likely to on paramilitary forces like BSF, CRPF, propose four new major ports to be CISF and SSB. These forces have expanded constructed, in the Budget for 2016-17. hugely since the 1980s and have grown from These ports would be at Dahanu 3.25 lakh in 1984 to 9.72 lakh personnel in (Maharashtra), Colachel (Tamil Nadu), 2014. This is the price we pay for a Sagar (West Bengal) and Dugarajapatnam disturbed internal security situation whose (Andhra Pradesh) at an estimated cost of Rs causes are too profound to dwell on here. 32,000 crore, sources said. Nevertheless, the two pertinent takeaways are: (a) the causes of this explosion in the Spanning 13 maritime states and Union recruitment of police forces over 30 years territories, India's 7,516.6-km coastline is are clearly structural and there is little fiscal serviced by 12 major ports, and 200 notified room here to manoeuvre; (b) as law and minor and intermediate ports. The 12 major order is the basic function of a government ports are Chennai, Cochin, Jawahar Lal there are few shiftless bureaucrats to be Nehru, Kamarajar, Kandla, Kolkata and sacked. Haldia, Mormugao, Mumbai, New

Mangalore, Paradip, V O Chidambaranar, The anatomy of the revenue deficit points to and Vishakhapatnam. In 2014-15, these an inexorable structural reality; the central ports handled 581.33 million tonnes (mt) of government is borrowing to consume and traffic. the consequences of this have been structurally weakening its fiscal health over A study by Mckinsey and Aecom for the the past 35 years. High outgoes on interest shipping ministry underlined the need of on debt is the price we pay today. Cutting building coastal capacities to meet future subsidies would help, but not solve, the cargo volume. The study notes Indian ports problem. The expenditure on government handled 857 mt of bulk cargo in 2013-14. It personnel is directed at the most basic estimates that in 2025, bulk traffic will function that a state has to perform, i.e. law increase to 1,850 mt a year. Exim bulk will and order. So the reasons for poor and rise four per cent to reach 1,000 mt a year. deteriorating fiscal health of the union The growth in export-import cargo will government are structural in nature and not remain muted due to increase in production amenable to fiscal medicine alone. Hence, in of coal and continued weak global demand the absence of structural reforms, there is no for iron ore. The coastal bulk traffic, short-term option but to persist with fiscal however, will grow at the rate of 22 per cent consolidation. to reach 750 mt by 2025. This would require ****** building dedicated coastal capacities at specific ports. FM likely to announce 4 major ports in Budget The study also states that Indian ports handled 10.7 million TEU (twenty foot Vijay C Roy / Feb 1, 2016 equivalent unit) container traffic in 2013-14.

Container traffic has grown at eight per cent

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over the past decade as the level of hence, everyone gets involved with these containerisation also increased from 60 per numbers, not to forget the ratings agencies cent in 2004-5 to 67 per cent in 2013-14. which look at deficits and debt figures. The The study estimates that container traffic more demanding ones are looking for will grow at 6.5 per cent rate under reforms too. 'business-as-usual' and reach 21.5 million TEU by 2025. With programmes such as However, two things need to be understood. 'Make in India' and development of One, we have to separate the policy part industrial corridor, the estimated traffic can from the Budget. Policies are announced grow to 24-25 million TEU. through the year and hence all reforms that we keep harping on have been announced Currently, the handling capacity of major and implemented through the course of the ports in India is sufficient to match trade year. The Budget is only a projected income demand. The capacity of all the major ports and expenditure statement of the central as on March 31, 2015 was 871.52 mt, government which provides support to the compared with 581.33 mt in cargo traffic extent possible, given the fiscal space. Also, handled through 2014-15. The government the central government Budget is less than has taken several measures to improve the size of the state governments, which are operational efficiency through more active at the root level. So, one cannot mechanisation, deepening the draft and expect a major transformational Budget. speedy evacuations. Two, the Budget should not be viewed as a In these ports, capacity increased by 71 mt, corporate balance sheet, as the government traffic grew 4.6 per cent, average turn- has certain obligations towards the people around time on port account improved to and has to balance social development with 2.13 days and operating ratio to 67.2 per fiscal prudence. Hence, while the private cent in 2014-15. sector need not worry about spending on the ***** poor, the government has a moral responsibility to do so. Thus, any Don’t expect much from the expectation has to be practical. Union Budget

Madan Sabnavis / Feb 15, 2016

February is an important month as it leads to the announcement of the Union Budget, which is often hyped as being a ‘make or break’ one. There are several expectations, with various suggestions being made on what the finance minister should and should not do. Invariably, there is a call to cut down on unnecessary expenditure and increase The Budget for FY16 had an outlay of capital expenditure; and various sectors R17.77 lakh crore. Of this, R4.56 lakh crore would ask for concessions to enable growth. went towards interest payments, R0.88 lakh The Reserve Bank of India (RBI) has also crore towards pensions and R2.46 lakh crore said that it will be watching carefully and, as defence expenditure. These numbers cannot be lowered, given the fixed nature of

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these expenses. Hence, 45% of the Budget is gross fixed capital formation, this would be committed. Add to this the subsidy bill, around 3.5%. Hence, while any capex is which came down to R2.44 lakh crore. It welcome from the government, to consider may be difficult to lower this any further, it to be the engine of growth is quite far- given that the benefits from low crude oil fetched. The push has to come from the prices cannot push the fuel subsidy amount private sector. further down from the budgeted number of R0.30 lakh crore. If the total transfers to In addition, when we speak of the R2.41 states through grants and allocations for lakh crore of capex, the bulk of it goes to centrally-sponsored schemes and state plans defence with R0.95 lakh crore, followed by are added, another R3.29 lakh crore would the railways with R40,000 crore, roads with have been dispensed with. Putting all these R33,000 crore, bank capitalisation and home numbers together, there would be a slice of ministry each with R19,000 crore, and urban 76% being fixed. development with another R10,000 crore. Therefore, these six sectors account for the There is also substantial talk of the bulk of capex of the government. government spending more on infrastructure. The total capital expenditure Hence, on the expenditure side, there is of the government in FY16, for instance, room to the extent that there are resources was R2.41 lakh crore (both Plan and non- being generated. In the past, to justify such Plan), which is 14% of the total expenditure. budgeted numbers, the disinvestment Of this, R1.35 lakh crore was for Plan (both proceeds have been put at a high level which central and state), while the balance was does not materialise by the end of the year, non-Plan comprising essentially defence. hence prompting cuts in capex. In the last The curious bit about this capital three years or so, the disinvestment proceeds expenditure is that this item tends to be cut have fallen short by around R25,000-30,000 whenever there is a need to lower crore, which has forced the government to expenditure to balance the Budget. The cut back on capex. In FY16, due to higher accompanying table provides information on tax revenue and dividends from PSUs/RBI the budgeted and actual capex of the surplus, there could be some comfort. But, government in the last three years. otherwise, compromises have to be made. The table shows that there has been a deviation of around R30,000-35,000 crore On the revenue side, given the GST and from the budgeted numbers in capex, which DTC being in abeyance with the corporate is around 15-17% lower. It may be justified tax roadmap already laid down, not much because this is a discretionary expenditure can be expected. Sops to start-off some of which can be lowered in case there are the initiatives on start-ups or smart cities problems relating to balancing the Budget. could get some momentum, though funding Also, as defence is the largest contributor to options would be limited here. the non-Plan segment, where a large part While one may argue for higher expenditure could be imported, the Plan capex would be or higher fiscal deficit, the issue really is the important component. The question then that, with GDP in a deflationary mode, really is whether a sum of, say, R1.35 lakh which will prevail in FY17 too due to global crore of Plan expenditure, which is, say, less conditions, the elbow room will be limited. than 1% of GDP at current market prices, be The fiscal deficit ratio for FY16 could go up able to kick-start the economy? In terms of by 0.1% to 4% in case GDP grows at

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nominal terms with a slippage in nominal government’s annual budget announcement, GDP growth from 11.5% to, say, 10%. This due at the end of February before taking can be replicated in FY17 too. additional measures,” said Abheek Barua, Chief Economist, HDFC Bank. The central To conclude, it could be said that while the bank has reduced interest rates by 125 bps Budget game is played every February with since January 2015. the government pepping up the sentiment as all sectors demand sops, a realistic view is The RBI also highlighted that retail there is not much that is available in the inflation, though having evolved along the Budget. Also, asking for more reforms is projected trajectory, could face the risk of quite ridiculous, given that the government upward momentum due to factors like 24 has already invoked almost one major policy per cent salary hike proposed by the seventh every month in this year. Asking the pay commission. RBI has projected five per government to do everything could mean cent retail inflation by the end of the shirking the challenge. We have to revive financial year 2016-17. Bond yields spiked the Keynesian animal spirits to brighten our as market participants interpreted the policy own prospects—the Budget will be an stance as hawkish. However, the governor enabler. said, “Broadly, it is not fair to read that we ***** have been more hawkish over time. I think the positives are balanced by the negatives,” Dr. Rajan said. With an eye on budget, Rajan holds interest rates Yield on the 10-year benchmark government bonds ended six bps higher at 7.85 per cent Manojit Saha / Feb 3, 2016 on Tuesday. Equity markets also fell by about one per cent on Tuesday. However, it The Reserve Bank of India (RBI) on was mainly due to global queues and crude Tuesday left the key policy rate unchanged oil prices falling again. While Dr. Rajan at 6.75 per cent, as widely expected, ahead reassured, during an interaction with of the union budget as the central bank will analysts and researchers, that the central wait for the fiscal road map from the bank is still in an accommodative stance, he government. “The Indian economy is said the central bank had the option of currently being viewed as a beacon of effecting an inter-meeting rate cut. But such stability because of the steady disinflation, a a step is usually taken only in the case of a modest current account deficit and “great sense” of urgency to signal a change commitment to fiscal rectitude. This needs in policy direction. to be maintained so that the foundations of stable and sustainable growth are “We will see what the government does and strengthened,” RBI Governor Raghuram react accordingly,” Dr. Rajan said when Rajan said while announcing the last bi- asked if there could be a rate cut after the monthly policy review of this financial year. budget. Bankers said while the policy was on expected lines, they expected some steps The government is targeting a fiscal deficit to address liquidity which had been tight. of 3.9 per cent for the current financial year “On liquidity front, there remains a concern and 3.5 per cent for FY17. “RBI gave clear with systemic liquidity deficit well in excess indications that it would like to wait until of the prescribed one per cent of net demand

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and time liabilities currently. With revised cease to exist with business entities. This Liquidity Coverage Ratio kicking in and would be explicitly stated in the proposed deposit growth lagging, RBI may have to be policy and perhaps even timelines could be proactive in managing the liquidity deficit drawn for a massive privatisation process. through tools available at its disposal,” said Also, cash-rich PSUs would be encouraged Arundhati Bhattacharya, Chairman, State to pick up small stakes to be divested by the Bank of India. government in other PSUs, in what could enhance cross-holding among these firms Going ahead in 2016-17, RBI said growth is and boost the government’s non-debt capital expected to strengthen gradually, receipts. A panel akin to the former notwithstanding significant headwinds and Disinvestment Commission (1996-2004) projected the gross value added growth for could be set up. the next fiscal at 7.6 per cent. Although an exhaustive list of the PSUs to ***** be privatised is not immediately available, eight loss-making ITDC hotels — the ones Budget 2016 to draw up PSU sale map in Bhubaneswar, Puri, Jaipur, Jammu, Guwahati, Ranchi, Puducherry and the Prasanta Sahu / Feb 11, 2016 Lalitha Mahal hotel in Mysuru — are sure candidates for privatisation. Other sick In fact, the phrase “strategic sales” was there companies that could be sold off include in the fine print of the FY16 Budget Scooters India, Tyre Corporation of India, document and some Rs 28,500 crore was HMT Bearings, HMT and Richardson & supposed to be raised through this route Cruddas. The land holdings of these companies would be monetised too. With its disinvestment target set to be missed for the seventh year in a row, the Even though a proposal to divest a majority government will likely revisit the strategic stake in national carrier Air India is hanging sale route for transfer of ownership and fire for several years due to lack of political control in PSUs and unveil a clear-cut policy consensus, a group of secretaries told the in this regard in the coming Budget, Prime Minister in a recent presentation that according to informed sources. The criteria the government should exit sectors such as for selection of PSUs for sale to private airlines, hotels and travel agencies. Besides parties will be spelt out, these sources said, a network of hotels, ITDC also runs adding that PSUs that are not professionally transport units, and nine duty-free shops at run and have no hope of becoming airports and seaports. The administrative profitable would doubtless figure in a list for ministries have already been asked to privatisation being prepared. identify potential companies under them for possible sell-off. “The department of disinvestment is working on the policy prescriptions and a The history of disinvestment in the country mechanism to execute these strategic sales,” can be traced to the United Front a source said. There is already government which set up the Disinvestment understanding within the government as to Commission in 1996. But it was the NDA which sectors the government should have a government led by Atal Bihari Vajpayee presence in with PSUs and where it should which set the process in motion and

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managed to sell 18 ITDC hotels during 1999-2004, bringing down the number of Sidhartha P. Saikia / Feb 18, 2016 state-run hotels from 34 to 16. The Vajpayee government also privatised more than a Budget 2016 countdown: Although Finance dozen PSUs to private companies, the most Minister Arun Jaitley has already announced notable ones being IPCL, which was sold that his government cannot afford a to Reliance Industries, and Bharat ‘populist’ Budget, he is unlikely to turn a Aluminium Company and Hindustan Zinc, blind eye to the demands from the individual both of which went to Vedanta Resources. taxpayers.(PTI)

In fact, the phrase “strategic sales” was there Budget 2016 countdown: Individual in the fine print of the FY16 Budget taxpayers could get some relief as finance document and some Rs 28,500 crore was minister Arun Jaitley is likely to raise the supposed to be raised through this route. But minimum income threshold for paying this was not part of the Budget speech, personal income tax for those below 60 neither did policymakers announce a clear years of age to Rs 3 lakh a year from Rs 2.5 intent to carry out such stake sales. The lakh at present, multiple sources told FE. process remained a non-starter. The income levels where the tax kicks in for The government’s ambitious plan to raise Rs senior citizens (of age above 60 years) and 69,500 crore has yielded only Rs 13,344 super seniors (age above 80 years) could crore so far in FY16, as it could not execute also be correspondingly raised. In case of many minority stakes sales in PSUs due to senior citizens, the current threshold for market volatility and lack of appetite among paying tax is Rs 3 lakh while it is Rs 5 lakh investors. So, the Centre has asked about a for super senior citizens. However, the dozen cash-rich PSUs such as Coal India, higher slabs are unlikely to be revised, the Nalco, NMDC, Power Finance Corporation sources added. and Rural Electrification Corporation to get Currently, income tax is payable at 10% of their board approval to pick up government the amount by which the income exceeds Rs stakes in other PSUs to augment 2.5 lakh (up to Rs 5 lakh), at 20% (between disinvestment revenue. Since this is a work Rs 5 lakh-10 lakh) and at 30% (above Rs 10 in progress, sources said, the disinvestment lakh) in case of individuals up to 60 years of revenue may be even lower than Rs 30,000 age and HUFs. crore in FY16. Jaitley may also reintroduce the extra window of Rs 50,000 for claiming deductions under Section 80C for investments in infrastructure bonds. Currently, various specified investments are eligible for deductions subject to threshold of Rs 1.5 lakh and additionally, a deduction of Rs 50,000 is allowed for contributions to ****** the National Pension System under Section 80CCD. Income tax exemption threshold to be raised to Rs 3 lakh from Rs 2.5 lakh

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The government is aggressively taking steps the Rs 50,000 of deduction for NPS, the tax to bring in more individuals under the tax burden for individuals in the highest 30% net but it also wants to reduce the burden on tax bracket could come down by Rs 16,000, the lower strata of the tax-paying while it will be Rs 10,000 for those on the community to the extent possible. “Of 20% tax slab and Rs 5,000 for those paying course, we are taking measures to bring in 10% tax. more persons under the tax net. We have a ***** target of about 10 million new tax payers to be added in the current financial year. Till November, we added 3.74 million new A call to arms for reforms taxpayers because of these measures,” revenue secretary Hasmukh Adhia had said Shah Ajay / Feb 21, 2016 in a recent interview with FE. In India, there are about 35-40 million individual The non-oil, non-finance sector of the taxpayers, a tiny segment considering the economy is under severe stress country’s huge population. “Considering the savings rate and inflation, In understanding the coming Budget the threshold limit (for personal income tax) announcements, we need to have a backdrop is expected to be raised so as to provide of economic conditions. While gross more disposable income in the hands of the domestic product (GDP) data is the subject individual. This could help in channelising of debate, there is no disagreement on what the higher disposable incomes towards we see with the nominal results of listed increasing consumption and thereby the companies. The results for October- economic growth,” said Vineet Agarwal, December 2015 show a difficult situation. partner at KPMG in India. Recessionary conditions are visible in sales growth and profit margins. Interest Although, Arun Jaitley has already payments continue to grow faster than sales announced that his government cannot or profits, revealing a worsening of credit afford a ‘populist’ Budget and rather there stress. These conditions are a call to arms are needs for structural reforms, he is for reforms. unlikely to turn a blind eye to the demands from the individual taxpayers. “The finance Two important components of demand in minister could look at increasing the limit India are from investment and exports. under Section 80C up to Rs 250,000 so that Many people are aware that the CMIE people channelise their savings into projects data does not show a return to investment linked deductions,” said Divya buoyant investment conditions. What has Baweja, partner at Deloitte Haskins & Sells. not been as widely noticed is the difficulties The government extended the limit to Rs 1.5 in exports. Using quarterly firm data, we lakh in 2014-15 from Rs 1 lakh earlier. This construct an index of exports of non- includes investments in schemes such as financial non-oil companies. This avoids the postal deposit, provident funds, pension fluctuations in exports of petroleum schemes, mutual funds and insurance. products, and pulls together exports of goods and services. The index series runs The deduction for NPS investment has from 1999 onwards, where the firms helped individuals at higher tax brackets to observed in both of two consecutive quarters save more funds. For instance by availing are used to estimate the percentage change.

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The index is seasonally adjusted. These conditions add up to low growth in The calculations show a dramatic decline in net profit. The index of net profit is at values recent quarters. Exports, measured in seen in 2005. A sharp decline has taken nominal rupees, are now back to the value place from 2010 onwards, which reversed seen in 2011, which is not much above that the gains from 2005 to 2010. In other words, seen in 2008. Stalling of exports growth over the past decade, the Indian corporate over a seven year horizon is unusual in the sector has not expanded net profit measured post-1991 period. in nominal rupees.

Difficulties with investment demand and Buoyancy of net profit growth is the export demand have adversely affected ultimate foundation of stock prices. The topline growth. The annualised growth rate market awards a high price-to-earnings ratio of seasonally adjusted net sales, in nominal when it is believed that earnings will grow a rupees, for the December quarter was -6.29 lot in the future. For a decade now, the per cent. The more familiar year-on-year (y- market has been optimistic but the earnings o-y) growth shows a value of -0.42 per cent. growth has not come about. In the past, nominal sales growth on a y-o-y basis has yielded near-zero values in the There are strong signs of a two-speed recessions of 2001 and 2009. economy. All the numerical values described above are macroeconomics: they The index of operating profit shows no are the sum of all non-oil non-finance firms. expansion in nominal terms after 2012, They subsume a class of firms, roughly a where the present recession began. The third of the corporate balance sheet, which is overall operating profit margin is at 17 per faring quite badly. The remainder of the cent, which is similar to the values seen in firms are faring quite well. the recessions of 2001 and 2009. In good times, in India, we get values from 20 per How does this evidence shape our thinking cent to 25 per cent. about macroeconomic conditions and macroeconomic policy? There is a marked While operating profit growth and sales contrast between these estimates and those growth have experienced difficulties, reported by the Central Statistics Office interest payments have grown steadily. In (CSO). The CSO believes that GDP growth every quarter after 2009, interest payments in real terms in the December quarter was have grown by over seven per cent, but in over seven per cent, but the net sales growth many of these quarters, sales or operating of listed firms in nominal terms was -0.42 profits have grown by less than seven per per cent. To reconcile the two views might cent. require CPI deflation of over 6.5 per cent.

A comparison against the pre-Lehman high We should worry that the official estimates is revealing. Interest payments went up by of GDP growth are overstated. This has about 170 per cent over this period, while difficult implications for the stance of fiscal the operating profit grew by 32 per cent and policy. So far, the debate surrounding fiscal the topline grew by 60 per cent. This has policy has consisted of external experts given a deterioration of credit risk measures criticising the proposal of the government to of many firms. go off the Chidambaram-Kelkar fiscal

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consolidation trajectory that was intended to Mr Jaitley's big chance: Structural stave off an imminent credit rating changes to government finances could be downgrade. If, however, the official GDP focus of the Union Budget growth rates are overstated, this means that Mihir S Sharma / February 14, 2016 deficit/GDP or interest/GDP or debt/GDP ratios are all understated. Even staying on In a fortnight, Finance Minister Arun Jaitley the trajectory may mean fiscal metrics that may well render the memory of his two are worse than meets the eye. previous, disappointing Budgets irrelevant.

His first Budget focused on too many The macroeconomic environment of the throwaway "100-crore" schemes instead of good years was predicated on high GDP resetting targets and methods; the second, growth. High GDP growth was why India although it featured a praiseworthy attempt got an investment grade credit rating despite to raise public investment, did not having fiscal problems reminiscent of sub- significantly alter the methods through investment grade countries. High GDP which that would be financed - the Rs growth gave expectations of high earnings 70,000 crore boost to public investment it growth, which underpinned high stock provided did not seem sustainable. Most prices and the high leverage of firms. All importantly, both Budgets appeared to lack these interlocking elements are now under coherence - a unified sense of purpose did stress. We may face a phase of transition not pervade them. They seemed the work of into a very different environment: the too many minds with too many competing malaise of 1999-2002. objectives.

There is a way out of this dark tunnel, which The advantage is that expectations are now is to undertake reforms. India is trapped in much more rational than they were in either the political economy of incumbents who 2014 or 2015. Mr Jaitley can exceed them block change. The Bar Council blocks easily. Indeed, a transformative Budget, of improvements to the legal profession; the the sort that we have had very rarely in this tax bureaucracy blocks improvements to tax country, is within his grasp. policy and tax administration; the Reserve

Bank of India blocks financial sector It is true that the reform agenda extends far reforms; the education bureaucracy blocks beyond just the Finance Bill, and there is education reforms; the health bureaucracy much that a finance minister cannot do. It is blocks health reforms, and so on. In each also true that, at a time of global uncertainty, area, ground-up reforms need to be planned a certain degree of caution is welcome - Mr in meticulous detail, and teams established Jaitley should resist calls to abandon fiscal who can implement the work over long targets, for example. Such abandonment, periods of time. When India will question even if for the best of reasons, will not be incumbents, construct detailed blueprints for read well by jittery world markets. reforms and nurture teams who can push the change, the optimism of the private sector But there is nevertheless much that this will change. finance minister can do - enough to, in fact, turn around the narrative. And all he has to ***** do is to stick to the basics, and to his own

tax-reform instincts. Continuing down the fiscal consolidation path may be essential -

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but how he does it is as important. Each recommendations include reform of tax change that he makes must be to the basic administration as well as of policy. A structure of government finances - making credible effort to implement some of their revenue more broad-based, and reducing reasonable suggestions is necessary. One of expenditure liabilities. the Easwar Committee's recommendations was to take away the tax officer's power to Revenue almost automatically levy a penalty if he First, tax reform. The highlight of the last disagrees with the taxpayer's assessment of Budget was Mr Jaitley's far-seeing decision her dues. Eliminating this and other such to phase out exemptions to the corporate automatic levies would go a long way to income tax, while reducing the headline rate. ensuring a less confrontational tax This intent ran in the opposite direction to environment. much of the messiness that has pervaded thinking about taxes in this country, and The goods and services tax (GST) continues cannot be praised enough. From this year, to be held up - but Mr Jaitley should the promised rationalisation process must increase the pressure to pass it by ensuring start. In addition, he should provide a firm that service tax rates are raised in order to timeline for the phase-out of each harmonise with the likely eventual GST rate. exemption, so that no corporate lobbies can This would also have an additional, positive build up trying to protect one exemption or political fallout; it would take away one the other from the axe. incentive for the Opposition to delay the GST - namely, to postpone the The intent underlying that move - of phasing "inflationary" bump from such a hike in out exemptions and tinkering, while moving service tax to closer to the general elections. to a lower-tax and higher-compliance regime - should be the sole motivation for Expenditure: all Mr Jaitley's tax changes in this Budget. Here, again, Mr Jaitley can distinguish Reducing the prevalence of tax deducted at himself from past finance ministers and source - as is being suggested in some Budgets by focusing on structural change. quarters - would militate against this vision of increased compliance and fewer The government's progress on subsidy exemptions. More, not fewer, transactions reform has been halting and slow. should require PAN numbers. It may also be Hopefully, the finance minister has made the tempting to push 'Make in India' or 'Start Up case to the prime minister and his political India' through clever provisions and advisors that fuel prices are now low enough exemptions - but the finance minister surely that a structural shift away from kerosene knows that the only way that investment is and fertiliser subsidies to direct cash support really guaranteed is if investors see a clearer, is feasible. If not now, then it is difficult to simpler and more reliable tax environment see when it could happen. On the other on the horizon. The private sector's energy hand, if Mr Jaitley's Budget accounts for this should be directed towards innovation and as changing in the coming year, then investment, and not tax arbitrage. confidence that the Centre is structurally reducing its liabilities, and thus in India's Several committees have provided road macro-economic stability, will soar. maps on what to do about taxes - the Shome and Easwar Commitees in particular. Their There are other ways to make the point that

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the Centre is cautious about taking on extra A vision for security: Indian security liabilities, and anxious to shed existing ones. needs a new direction but our military On the former, it may be necessary to leadership lacks the foresight postpone the implementation of the Seventh Ajai Shukla / Feb. 1, 2016 Pay Commission's recommendations. Given that we are in a low-inflation environment The allocation of funds to defence in the and there are no seriously contested forthcoming Budget, and its distribution assembly elections coming up, the political between various services, arms and fallout will be manageable. On the latter, departments, will again be a depressingly what the government decides about the incremental affair. Marginal increases or public sector, including banks and loss- decreases in allocations to the same old making enterprises, will be crucial. For heads will testify to the absence of any new banks, realistic provisioning for thinking, or any new solutions to the recapitalisation must be made. But even a familiar problems of defence. While secrecy hint that genuine reorganisation of state- obscures much of the thinking and policy controlled banking will take place this year - making relating to defence, significant perhaps clearing the decks for some later changes in direction invariably leave a privatisation - could go a long way towards money trail - which canny eyes can glean repairing confidence. from the Budget documents. However, judging from the lack of any major change, Mr Jaitley must have tired of the complaints India is perfectly secure. For the most part, that his ministry is the one holding back our old-school generals, admirals, air reform from occurring in this government. marshals and intelligence officials define This is an odd accusation, given its strictly security as keeping our borders inviolate, limited mandate - and given also that and preventing China and Pakistan from reformist energy has been even less on offer crossing into India. It seems almost from most other ministries. It is a struggle incidental to them that we continue losing for finance ministries to be more forward- lives to terrorism, as in Pathankot and looking than the governments they are in Gurdaspur; that large parts of India remain and the prime ministers they answer to. In mired in armed conflicts; that we continue to my opinion, this government's overall lack be criticised, both in India and abroad, for of policy vision has somewhat shackled the using draconian laws to impose order; and finance ministry, and its management of the that asymmetric, hybrid threats like cyber economy has thus been capable, but not attacks, narcotics trade and the spread of exceptional. However, this year, even while counterfeit currency assault our sense of focusing on little more than his own remit in well-being. It is convenient and comfortable terms of revenue and expenditure, and by to throw a few lakh crore rupees at trusting his reformist instincts, the finance nominally securing a distant borderline, minister could still present a Budget that instead of focusing on how those borders are transforms at least the structure of being bypassed by new-generation threats. government finances. And that would be more than we have had for a long time. India's national security community - which ***** is mostly confined to the serving diplomatic, military and intelligence establishment and those who have retired from it - likes to carp that our political leadership is focused only

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on vote-related issues, and has no interest in Similarly, the air force continues pursuing specifying a direction and agenda for its chimera of 45 fighter squadrons, which national security. Even if this were true were once gauged essential for an Indian (which it is not), what prevents security "two-front war" with Pakistan and China practitioners from driving badly needed simultaneously - an eventuality that would reform, and re-orienting our out-dated suggest Indian diplomacy had died and gone security priorities? to heaven. Yet, having pegged our baseline figure at 45 squadrons, accepting anything It should not require a prime minister to see less sounds like an irresponsible devaluation the folly of maintaining one-and-a-half of national security. This allows the Indian million soldiers, sailors and airmen in Air Force (IAF) to credibly portray our uniform, spending almost Rs 1 lakh-crore on current holding of 33-34 fighter squadrons salaries, and half that amount more on as a mortal danger, and to agitate for buying pensions. This year, the Seventh Pay 36 French Rafale fighters for a mind- Commission could raise that by another 20 numbing $7-11 billion. per cent, taking the salary bill higher than the equipment modernisation budget. The Amidst this self-serving mismanagement, army maintains three enormously expensive Prime Minister Narendra Modi has called armoured strike corps - mobile, tank-heavy for a new approach in unusually vigorous formations that are equipped and trained to language. On December 15, 2015, penetrate deep into Pakistan. This has led addressing top army, navy and air force that country to develop "full spectrum commanders on board the aircraft carrier deterrence", building small (more "usable") INS Vikramaditya, he observed, "At a time tactical nuclear weapons (TNWs) to halt when major powers are reducing their forces advancing Indian strike corps dead in their and rely more on technology, we are still tracks. New Delhi had decided against constantly seeking to expand the size of our launching its strike corps at Pakistan during forces. Modernisation and expansion of the Kargil conflict in 1999, and then again forces at the same time is a difficult and after the December 2001 terrorist attack on unnecessary goal. We need forces that are Parliament. Now TNWs make strike corps agile, mobile and driven by technology, not offensives even more unlikely. Furthermore, just human valour." even if an Indian prime minister were ready to risk a nuclear conflagration, the three Dwelling on the need to focus on battle- strike corps are afflicted by such shortfalls winning firepower, rather than getting in artillery, air defence and engineering bogged down in slogging matches, Mr Modi equipment that they would find it hard to went on: "We need capabilities to win swift achieve operational success - remember, wars, for we will not have the luxury of anything less than outright victory would long-drawn battles. We must re-examine our constitute a defeat. Yet, when the army assumptions that keep massive funds locked (unwisely) insisted that countering the China up in inventories." threat required an infantry-heavy "mountain strike corps", another 60,000 soldiers were Yet the three service chiefs do not appear to added to an already unmanageable payroll. be implementing his directions, although he No thought was given to converting one of interacts more closely with them than any the armoured strike corps instead. recent prime minister. In these monthly face-to-face meetings, Mr Modi has been

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less than impressed, telling a close Defence budget must reflect reality confidante that the three chiefs were Ajai Shukla / February 15, 2016 "unimaginative". Meeting them on the

Vikramaditya, the prime minister demanded bolder thinking. He said: "(W)e look to our Unimaginative increments, persistent refusal armed forces to prepare for the future. And, of funds have turned the Army into an it cannot be achieved by doing more of the underfed child scared to ask for a full meal same, or preparing perspective plans based on out-dated doctrines and disconnected Since October, the military has been from financial realities… (O)ur forces and negotiating with the defence and finance our government need to do more to reform ministries to finalise financial allocations for their beliefs, doctrines, objectives and the coming financial year, 2016-17. strategies." Unfailingly unimaginative, the military's various departments have taken the current Hammering home the point, he said: "We year's allocations, upped them by five to 10 need military commanders who not only per cent and projected that as next year's lead brilliantly in the field, but are also requirements. As usual, the finance ministry thought leaders who guide our forces and has arbitrarily cut those requests. Like security systems into the future." always, when revised estimates are prepared at the end of the year, the capital allocation It is important that the prime minister's (for equipment modernisation) will be important directions be taken through to slashed further since revenue expenditure, their logical conclusion, rather than being particularly salaries, must be paid on filed away and dusted out for his speech priority. Year after year the military ends up next year. Reform within the defence spending money quite differently from what ministry has so far focused almost entirely had been allocated. on reforming and expediting equipment procurement. In addition to this, the Every military financial planner admits the military's planning and operational services are consistently under-budget in structures must be rejuvenated, weaving both the revenue and capital heads. together their multiple strands to deliver not Weaponry sanctioned under the 15-year just battle-winning performance, but also Long-Term Integrated Perspective Plan counters to asymmetric, new-age threats. requires significantly higher capital allocations. Yet, like a child that has been The navy, which is the only service that consistently underfed for years, the military thinks strategically, has recently enunciated no longer dares to ask for a full meal. To a new naval doctrine that incorporates some stretch this analogy further, were the of these aspects. It is time for the other two military to be given that full meal, it would services to update their out-dated doctrines probably be incapable of digesting it. Yet, if and prepare for the conflicts of tomorrow. only as an academic exercise, it is worth Whatever new thinking is put into these reflecting on what a realistic allocation issues would only become aware when the might be for the military. Budget for 2017-18 is presented. For this year, there is only more of the old. In the revenue head the payroll is growing, ***** with the government bound to accept most recommendations of the Seventh Central

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Pay Commission. A modest increase of 20 less than the revenue allocation. That would per cent over the current year's salary boost the defence budget by almost 40 per allocation and a 15 per cent increase on non- cent from the current Rs 2,46,727 crore salary spending would boost the revenue ($36.5 billion), to Rs 3,43,182 crore ($50.8 allocation to Rs 1,79,621 crore ($26.6 billion). As a share of the government billion). spending, defence would rise from 13.85 per cent to 18.25 per cent; and from 1.75 per The capital budget would grow even more. cent to 2.25 per cent of the GDP. The army, while a relatively low-tech, manpower-intensive service, badly needs Can India spend 2.25 per cent of the GDP on new equipment - including artillery, air defence, given the government's fiscal defence missiles, new-generation personal deficit targets, and the pressing need to weapons and battlefield communication boost spending on health care, education and systems. Equipment worth Rs 1,81,450 crore food for the poor? That is a political call. ($26.9 billion) is already sanctioned. India's on-going border disputes with China Assuming these contracts divide payment and Pakistan, several long-running into 10 equal annual instalments, this year insurgencies, and the Army's frequent requires Rs 18,145 crore over and above the employment on natural disasters require Rs 21,574 crore committed last year, which high preparedness. If the government would cover liabilities committed earlier. decides it cannot spend more on defence That would take the Army's capital than it already does, national strategy and allocation up to Rs 39,713 crore ($5.9 the military's tasking must reflect the billion). realities of our pocket. ***** Urgent naval procurements include submarines, stealth frigates, logistic support Working 24X7, Modi puts stamp on vessels, anti-submarine and counter-mine Budget vessels and, most crucially, ship-borne helicopters. This adds up to Rs 2,96,800 Deepshikha Sikarwar / 20 th Feb, 2016 crore ($44 billion), of which one-tenth must be provisioned for in this Budget. Catering With less than 10 days to go before its for committed liabilities, the navy's capital presentation in Parliament, Finance Minister allocation must rise to Rs 53,591 crore ($8 Arun Jaitley and his team are busy putting billion). The air force, which traditionally together what's expected to be a landmark receives the highest capital allocation, is Budget. Prime Minister Narendra Modi and looking to conclude contracts for the (vastly key officials in his office are also as closely overpriced) Rafale fighter, extending the engaged in the exercise. ET spoke to various Jaguar fighter's service life, and a range of officials to piece together how Budget- helicopters. Contracts worth Rs 1,72,600 making under this government is proving to crore ($25.5 billion) require urgent be very different from what it used to be. conclusion, with Rs 17,260 crore payable this year. That takes the air force's capital Indian prime ministers generally set a broad allocation to Rs 48,741 crore ($7.2 billion). direction for the Budget, leaving finance ministers to work out the details. Modi has All this would take the capital allocation to shown through his tenure and even before Rs 1,63,561 crore ($24.2 billion), slightly that that he isn't such a leader, being as

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focused on the nitty gritty as he is on the big Budget. picture. During his three terms as chief minister of Gujarat, he was as closely The term 'broadsheet' refers to the list of involved in policy-making. One bureaucrat proposals that are put up for consideration recalled how the PM sat through a three- by the finance ministry before the highest hour presentation, reflecting his keen decision-makers. interest in policy-making. After initial filtering by officials in the Additionally, the world's attention is focused finance ministry, the broadsheet is vetted by on India, which has not only taken on the the finance minister and finalised after mantle of fastest growing major economy deliberations with the prime minister. Last but is also seen as the sole bright spot amid month, just when the Budget exercise was worldwide gloom and uncertainty, according picking up pace, the prime minister had set to the latest OECD report that was published up eight groups of secretaries to conduct on Thursday. brainstorming sessions and come up with ideas. Some of these may find their way into Those who know him well aren't surprised at the Budget after being endorsed by the Modi's ability to absorb details that others prime minister, said a senior official. may consider tedious, given the kind of engagement the PM has with secretaries and how hands-on he is-. Besides, there are SEAMLESS EXCHANGE OF IDEAS many significant decisions that require his input, such as the fiscal deficit, for one. There is a close and seamless exchange of Should the government relax its fiscal ideas between North Block and South consolidation targets to keep public Block, said another official. expenditure high or stay the course for more long-term gains? Other queries are more This is a big change from the gulf that political in nature, such as the rationalisation seemed to exist during the previous of subsidies or a package to address rural government, suggested some ministry stress. ET had reported on February 15 that veterans, pointing to the retrospective tax the government is working on a twin- amendment as being the result of such pronged Budget that will push structural distance. reform to lift growth and address rural stress through broader social security measures and changes in agricultural policy. South Block, which houses the Prime Minister's Office, has been holding regular EVALUATING PROPOSALS meetings with North Block officials to thrash out Budget details. As chief minister With the Budget scheduled to be announced of Gujarat, Modi was known to have a keen on February 29, Modi and Jaitley are eye for the nuts and bolts of policy that evaluating proposals to pick those that will would make the process of execution make a difference. effective, which was his forte.

"The PM and FM examine broadsheets and The Budget interactions have been centred decisions are accordingly taken," said an on some of the key issues that the official involved in the preparation of the government is grappling with, including its

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initiative to simplify and rationalise the tax 40,000-50,000km of two-lane roads are structure, boost the rural economy and eligible for four-laning on that parameter. kickstart the investment cycle. Until now, the norm has been to four-lane roads that handle 15,000 passenger cars and above daily. Proposals such as the creation of a bad bank In an interview, NHAI chairman Raghav that will take on the rotten assets of state-run Chandra spoke about how the agency is lenders and thereby leave them with a clean working towards widening the country’s balance sheet are understood to have some road network and the challenges it faces. PMO support and there have been several Raghav Chandra rounds of discussions on the matter. Reserve Chandra is a 1982 batch IAS officer who has Bank of India Governor Raghuram Rajan postgraduate degrees in mathematics and hasn't been much in favour of this, public administration from Delhi University suggesting that there didn't seem to be a and Harvard University, respectively. He need to create another government-backed started his civil services career as assistant institution to take on bad loans when the collector in Satna, Madhya Pradesh, and rose lenders in question were state-owned to the position of additional secretary and anyway. financial adviser, Union ministry of agriculture. In August, he was appointed chairman of the National Highways The Modi-led Pradhan Mantri Jan Dhan Authority of India. He is the author of ‘Scent Yojana, which has emerged as the launch of a Game’, a mystery centred on tiger pad for a revamped social security poaching. programme, is expected to be loaded further Edited excerpts: with new initiatives as the government looks How do you see this move of reducing the to make optimum use of the financial criteria for widening of national inclusion initiative. highways? As of now, we haven’t got anything in ***** writing, but what we know is that the plan is NHAI wants adequate funding support waiting for cabinet approval. But definitely from Union budget it would increase the amount of work for us. Our estimate is that there are around 40,000- Jyotika Sood / Feb 8, 2016 50,000km of two-lane highways that would be eligible. With the present rate for The road ministry has decided that all two- construction of highways being around `10 lane highways on which more than 10,000 crore per kilometre, the cost could be passenger cars ply every day would be roughly around `4 lakh crore (`4 trillion). eligible for four-laning That is a huge amount of money. So, are funds a problem for NHAI? Some The road ministry’s plan to amend a key media reports have said NHAI has been parameter for four-laning national highways asked to return `5,000 crore tax-free has thrown up a new challenge to the bonds to the government. National Highways Authority of India Funds are not a problem as of now, but the (NHAI). The ministry has decided that all main thing is getting land and all the two-lane highways on which more than requisite clearances. As far as tax-free bonds 10,000 passenger cars and above ply every are concerned, it’s not that we have been day would be eligible for four-laning. Some

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asked to surrender (the bonds), but our difference is that with cement roads the wear planning shows that we may not need it as and tear of tyres is more, but the of now. So, we are just being cautious maintenance cost over the years is less. The whether to surrender it or not. economics of this entire thing depend on Are you still facing problems in land crude oil prices and cement prices. So, it acquisition? would be decided on a case-to-case basis. If It is a perennial problem. We had, we have a lot of cement factories and they historically, problems with West Bengal, are unable to sell the cement with prices Tamil Nadu, Uttar Pradesh and Kerala. But crashing and they are promising a fixed rate, now in the last one year, West Bengal has then certainly it makes sense. But we have improved. Tamil Nadu is another state to ensure a long-term understanding that the where some projects are stuck. In Uttar cement industry needs to hold their prices. Pradesh, land acquisition is happening, How much is the price difference? And awards are being passed, but actual transfer what about safety? to the beneficiary account from the state Studies by my technical team have showed government is not happening. Reason: sheer that bitumen and concrete roads have a administrative delays. I’ll give you example ballpark difference of 10%, but this is the of Banaras (Varanasi) alone. We have to immediate cost. On a life-cycle basis, it disburse `8,000 crore for land acquisition evens out. As far as safety is concerned, and we have also told the state government there are enough international examples that 10% of this amount, i.e. `800 crore, showing concrete roads are safe. would be paid to you as administrative fee. What are your expectations from the Even then, the state government is not coming budget and your new targets? disbursing the money. In Punjab and Expectation from budget is that we want Haryana, compensation rates decided are continuity and adequate funding support. very exorbitant and then we have to Targets would be broadly same—to award complain to a higher authority, which delays around 5,000km of highway construction. the process. In 2015-16, NHAI acquired Another interesting project that we would be around 67,000 hectares and another 8,000 undertaking now is greening of national hectares is under process. highways. Which are the states where you are One per cent of total project cost would be paying maximum compensation? put in a separate fund and that fund would NHAI is now paying compensation be used for planting saplings and according to the new land acquisition Act maintaining the green cover along the and the rates of compensation vary highways. It would be two to four lanes and between `30 lakh per acre to `1.5 crore per around 1,000 trees per kilometre. acre. For eastern peripheral exp-ressway, ***** maximum compensation paid is `2 crore per acre in Ghaziabad. So, with the new law, compensation rates have gone very high and A roadmap for long-term stability even then a lot of farmers are unhappy and hundreds of litigations are arising. Arvind Srivatsan / Feb 17, 2016 See, the cost of work done using cement is not very significantly different from that of ordinary roads, i.e. asphalt roads. Both sides Budget 2016: On February 29, when finance have strong proponents. The technical minister Arun Jaitley rises in the Lok Sabha

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to present his third Union Budget, there is a interest rate on refunds with that for shortfall lot which everyone will expect from him. payments, and simplifying procedures for After not receiving equivalent pass-through obtaining lower tax withholding orders and benefits of falling crude oil prices, being a tax refunds are some easy-to-implement Good Samaritan and voluntarily giving up reforms that will go a long way in changing LPG subsidies, and paying an additional global perception towards Indian tax bureau. 0.5% Swachh Bharat Cess on all taxable With India emerging as the bright spot in the services, the common man deserves the right global economy, the focus will be on Jaitley to expect tangible tax breaks in the framing tax proposals in the context of upcoming Budget. managing our fiscal deficit, which is While the ministry may consider providing alarmingly high and next only to Brazil. One marginal benefits to individuals by would need to bear in mind that, for FY17, increasing basic tax exemption limits, Jaitley will have to budget for new providing a higher threshold limit for tax allocations to meet outflows arising from the deduction at source and promoting rate of implementation of OROP, Food Security savings by exempting withdrawals/pension Bill and Pay Commission recommendations, payouts of NPS, we also anticipate Jaitley to while ensuring there is enough capital set make adjustments for inflation by expanding aside to capitalise banks to kick-start credit tax breaks on medical reimbursements and growth. health insurance premium (capped at All these will require innovative taxes to be R15,000 and R30,000, respectively), raised without stroking inflation, testing the servicing costs of home mortgages and cost of capital for the government and overall investment limit under Section 80C resultantly for industry. Jaitley may have to (capped at R1,50,000). force a few bitter pills to create a roadmap The lack of clarity on retrospective for long-term stability, increasing the tax- amendments, including withholding tax GDP ratio while ensuring that India provisions, continues to create an unknown continues attracting long-term growth cost of doing business, and taxpayers have capital. been left to the mercy of competent ***** authorities to interpret the validity of these provisions. Domestic business houses and States demand more money from Centre global investors look forward to a clear set ahead of Budget of instructions that articulate the revenue’s February 06, 2016 point of view on disputed issues. These views should be made available in public We should work in unison to boost growth domain and the Budget may endorse such a Even as the Centre harped on devolving view to prevent pile up of disputes. higher share of funds to states following the The Easwar panel recently tabled its report recommendations of the 14th finance on tax procedure simplification and some of commission, the latter demanded that they those recommendations echo taxpayer be given more money and the Union sentiments. Enforcement of e-audits, government should retain its share of rationalisation of Section 14A provisions, funding for centrally-sponsored schemes in deferment of ICDS (tax accounting the upcoming Budget. standards), increasing threshold limit for maintaining books of accounts for At the pre-Budget meeting with Finance professionals/small businesses, aligning Minister Arun Jaitley on Saturday, states

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also sought more funds to pay higher salary to their employees after the Centre Tamil Nadu finance minister O implements the recommendations of the Panneerselvam said that his state was Seventh Pay Commission. States suggested adversely impacted because of the that the Centre should spend more on "deliberate actions" of the Centre. He said agriculture. And as a bargain for the the excise duty of Rs 4 on every litre of proposed Goods and Services Tax (GST), petrol or diesel has been converted into a states demanded the Centre should clear all cess. As a result, the revenue is no longer dues on account of phasing out of the shared with the state. Similarly, the Wealth Central Sales Tax (CST). Tax, a measure that used to be shareable, has been replaced by a surcharge of two per Speaking to reporters after the meeting with cent. state finance ministers, Jaitley said he expected states to increase spending on Tamil Nadu has 11 MPs in the Rajya Sabha infrastructure and poverty alleviation and is opposing the GST Bill. The schemes as the 14th Finance Commission Jayalalithaa government has hinted that its has devolved higher funds to them. "We position on GST is negotiable. Both Tamil expect that those states whose resources Nadu and West Bengal will go to Assembly have been increased after the polls this year. Other election-bound states - implementation of the 14th Finance Kerala, Assam and Puducherry - also asked Commission will spend further on Jaitley for higher allocation. infrastructure creation and anti-poverty programmes since their income have All states demanded that the Centre should increased considerably," Jaitley said. spend more to reduce rural distress and drought-like situation in nearly half the "Each state is competing for higher districts. Several states, including poll- resources, higher investment and they are all bound Assam, said Centre should allow geared up to fight this environment of global them to raise more money from markets. slowdown so that India remains an economy The 14th Finance Commission had which is on the move," Jaitley said, adding recommended that states which have almost all states have demanded that maintained financial discipline should be agriculture be given a boost. allowed to borrow 3.5 per cent of the state's GDP, up from three per cent. "Since we State finance ministers were, however, less have maintained financial discipline, the conciliatory in their statements and said the government should allow us to increase Centre should uphold the spirit of borrowing limit. This will allow us to raise cooperative federalism and release more Rs 3,000 crore more for FY 2016," said funds. "As many as 39 important schemes Jayant Malaiya, finance minister of Madhya were simply eliminated in the last Budget. Pradesh. These include building of model schools and States with huge power discom debts also police modernisation. Now we cannot sit demanded that the methodology for back. We have to build those schools and we calculation fiscal deficit of states under the have to modernise the police forces, fiscal responsibility and budget management especially in a state where the threat of left- (FRBM) Act be relaxed to exclude proposed wing extremists exists," said Amit Mitra, bonds to be issued by the state government finance minister of West Bengal.

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as part of the restructuring package proposed Amendment Bill for the Goods and Services under the UDAY scheme. Tax will be passed in the Budget Session, ***** which starts Tuesday.

Budget FY16 report-card: Jaitley scores The government’s efforts to check black in pushing schemes money too have met with limited success. While the Undisclosed Foreign Income and Surabhi / Feb 22,2016 Assets (Imposition of Tax) Bill, 2015, which will check stashing abroad of illicit money, Another Budget is upon us, and it’s time to was passed by Parliament, the Benami take a look at the fate of promises made by Transactions (Prohibition) Bill, 2015 to curb Finance Minister Arun Jaitley in the last black money at home is still pending with edition. While the Finance Minister has been Parliament. However, the government successful in implementing most of the managed to get the Commercial Courts, schemes announced, he has been less so in Commercial Division and Commercial pushing through the legislative agenda. Appellate Division of High Courts Bill enacted on the last day of the Winter Apart from the passage of the Constitution Session. Amendment Bill for the Goods and Services Tax, the Centre is yet to take up the other Schemes fare better proposed pieces of legislation, including amendments to the RBI Act for setting up a In contrast, most of the schemes announced Monetary Policy Committee, the draft by Jaitley have seen the light of day. Public Contracts (Resolution of Disputes) Flagship schemes, including the MUDRA Bill, and amendments to the EPF and the Bank, Skill India and Pradhan Mantri Jan ESIC Acts for portability to the National Suraksha Yojana, were launched last year to Pension System and private insurance plans. much public acclaim and active While the Centre has drafted these Bills, participation. they are yet to be taken to the Union Cabinet for approval and tabling in Parliament. Similarly, definite measures have been taken to cut down the subsidy bill with plans to Similarly, the proposed Indian Financial start cash transfers for fertiliser subsidy and Code that Jaitley hoped to table in for giving a larger role to the Direct Benefit Parliament “sooner than later” to revamp the Transfer Mission. Gold monetisation regulatory architecture for the financial schemes have taken off, as also the National sector, remained mired in controversy for Investment and Infrastructure Fund. The much of the year, and is yet to be finalised. plan to make it mandatory to quote PAN In yet another delay to the government’s (Permanent Account Number) for plans to improve the ease of doing business, transactions above
1 lakh kicked in from the Insolvency Code was referred to a January 1. Parliament joint committee, which is expected to submit its report only next However, big-ticket announcements for port month. corporatisation and new ultra mega power projects are still in the works. So also a The Finance Minister is, however, optimistic proposal to incentivise plastic money. that the Code as well as the Constitution *****

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Farm & farmers must get top priority in cent of the voters said women and youth Budget: twitterati should be the main focus of the Budget while six per cent said it should be the Surabhi / Feb.19, 2016 under-privileged section of society.

Make in India, Skill India schemes get the The poll, which concluded earlier this week, thumbs up sought public opinion on priorities for the Union Budget on three issues – sector, The twitterati wants Finance Minister Arun section of people and schemes. Jaitley to focus on agriculture and farmers’ issues in the Budget 2016-17. In another poll on schemes, 36 per cent According to a poll conducted by the voters said that the MUDRA Yojana that is Ministry of Finance on Twitter, the general aimed at encouraging micro and small mood was since the country has faced two businesses and entrepreneurs through loans consecutive failed monsoons the Budget should be the key focus of the Budget. should give something to the sector. Meanwhile, financial inclusion schemes – Jan Suraksha Yojana and the Jan Dhan The voters also gave a thumbs-up to the Yojana were also favourites. However, only Centre’s Make in India and Skill India nine per cent of the people voted in favour campaigns and favoured more measures for of the gold schemes. the MUDRA scheme in the Budget. Jaitley will present the Union Budget on February Among schemes, Make in India and Skill 29. India tied with 36 per cent votes each while 18 per cent voted for the Swacch Bharat The Finance Ministry had last week initiated mission. Only 10 per cent of voters felt that four online polls on Twitter to assess the Digital India should be the top focus in the pulse of the people. Budget.

As many as 55 per cent said agriculture “It was an exercise aimed at getting people should be the main focus of the Budget. more involved in the Budget and also to get Jaitley, himself, has been hinting at steps to their suggestions as it is an instant medium improve farm productivity and address rural that doesn’t require people to write out long distress. suggestions,” said a government official.

Meanwhile, despite the sector facing a ***** chronic slowdown, just 29 per cent of voters have favoured manufacturing and Budget may leave corporate tax rate infrastructure as the top priority while nine unchanged per cent voted for start-ups and just seven per cent for the services sector. Surabhi & Richa Mishra / Feb 16, 2016

Similarly, 57 per cent of the voters said the Service tax could be hiked to 16% in Centre should address farmer issues in the preparation for GST rollout Union Budget, while 27 per cent said that middle classes should be a priority. Ten per New Delhi, February 15:

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Finance Minister Arun Jaitley may not be down well with industry, which has been able to keep his promise of reducing the seeking a concrete roadmap for withdrawal corporate tax in Budget 2016-17. North of exemptions and a simultaneous cut in the Block is, in fact, looking to keep the rate corporate tax rate. unchanged and also remove a number of Service tax re-jig exemptions. Jaitley’s team is also weighing the option of According to the plan under discussion, raising the service tax rate to 16 per cent in while the corporate tax rate may remain at 2016-17 as the government gets ready to roll the current 30 per cent in the next fiscal, out GST ( Goods and Services Tax). “Under some sweeteners could be offered to India the GST, the tax rate on services will be Inc in the form of benefits under the Start- higher and this could be a good time to hike Up India, Make in India and Smart City the rate as a preparatory move,” said a initiatives. senior official, adding that it will also boost A call on the corporate tax is expected by tax collections. the end of the week, highly placed sources Services are currently taxed at 14.5 per cent told BusinessLine . after being increased from 12.36 per cent in “The Budget-making team of the Finance June 2015 in line with a Budget Ministry seem to be in a fix as Budget 2015- announcement. 16 had given an indication of a reduction in Tax experts said industry is expecting such a corporate tax rates. A section of the officials move. “This will be a concrete step in the hold the view that a marginal reduction in direction of GST where services are likely to rates could be considered,” an official be taxed at 17-18 per cent,” said Anita associated with the developments said. Rastogi, Partner, Indirect Tax, PwC. Jaitley had announced in Budget 2015-16 that the corporate tax rate would be reduced ***** to 25 per cent over the next four years while exemptions to corporates would wound up. Looking to Make in India Leaving the tax rate unchanged would give some cushion to the exchequer which faces Meenakshi Verma Ambwani / Feb 16, 2016
1.10-lakh crore additional payout on account of the Seventh Pay Commission recommendations and the One Rank One Excise duty cut is a key demand of the Pension scheme. The Finance Ministry had sector in November 2015 also issued a draft roadmap for rolling back exemptions over It is not only the infrastructure sector, but the next two years. also the domestic consumer durables industry that is looking for opportunities that Corporate tax collections grew a robust the Make in India programme will throw up. 10.44 per cent between April and January The durables industry is hoping that the this fiscal and the government is hopeful of initiatives announced by Finance Minister a further improvement next fiscal as the Arun Jaitley on February 29 during the economy revives. Budget presentation will help boost demand However, if Jaitley decides against reducing as well as incentivise manufacturing in the corporate tax rates, the move will not go country.

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An excise duty cut on consumer appliances The industry is also hoping that the is one of the key demands of the industry government will remove inefficiencies in the that is facing a fall in demand. The system posed by the inverted duty structure. government had doled out excise duty sops Industry players are urging the government for consumer durables in 2014, which were to remove basic customs duty levied on later rolled back. import of components used to make “With the fall in rupee, the sector is eagerly appliances such as refrigerators, air- awaiting a Budget that can stabilise the conditioners and washing machines. economy and give a boost to the struggling Nandi said this will ensure a level playing industry. A reduction in excise duty from 12 field for the industry and encourage per cent to 10 will bring relief,” said companies to manufacture appliances locally Anirudh Dhoot, Director at Videocon rather than import them into the country. Group. Kim-Ki-Wan, MD, LG Electronics India, The Bureau of Energy Efficiency has been said Make in India must be incentivised for working towards stricter energy efficiency Indian products to be competitive in the norms, which have also contributed to rising world markets and must be supported by the costs for the industry and rising prices for development of a world-class infrastructure the consumers. to reduce transaction cost and overheads. “As the energy efficiency norms are getting Also, companies are hoping for a lower rate tightened, industry players are finding it of taxes with the implementation of GST. challenging to make some of the five-star Wan said, “Tax reforms implementation rated products in categories, such as frost- should include a fast roll out of GST, so as free refrigerators, as the cost is exorbitant. to have an equitable tax system and unified “Consumers cannot afford them due to such market which, in turn, can improve high costs. The government needs to efficiency and competitiveness. Simplified incentivise consumers to upgrade to higher and transparent tax policies will improve star rated products,” explained Kamal ease-of-doing business and reduce litigations Nandi, Business Head and Executive Vice- or disputes, thereby building investor President, Godrej Appliances. The consumer confidence and supporting the Make in India durables industry has been seeing muted campaign.” growth of 4-5 per cent year-on-year for the ***** past four to five years. Industry players say, for the growth rates to be sustainable, the industry needs to grow at about 10-15 per cent and this requires measures to boost Budget must boost infra sector demand. Hemal Zobalia / Feb 16, 2016 Shantanu Das Gupta, Vice-President,

Corporate Affairs and Strategy, South Budget 2016: Lack of funding, over- Asia, Whirlpool, said the industry is hoping leveraged balance sheets, slow regulatory the Budget will lead to more disposable and government clearances, many disputes income in the hands of the consumers to pending in arbitration, etc, are few problems spur consumption. the infrastructure space is grappling with. This year, it is expected that finance minister

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would draw a policy to set up an This budget will also likely announce ‘infrastructure adjudication tribunal’ to hear amendments in tax laws to give effect to all infra-related litigations or would attempt action plans recommended in Base Erosion to revive stalled infrastructure projects by and Profit Shifting (BEPS) report. If these providing single window clearances. provisions are enacted in the budget, all companies, including infra ones, will have to Budget 2016 is likely to announce the relook at their existing structures. Power, scheduled phase-out of corporate tax being one of the key sectors, requires huge exemptions and reduction in corporate tax investment in near future in view of the rates from 30% to 25%. Though the overall power shortage the economy is intention is to eliminate all exemption facing. It is suggested that both fiscal and provisions, the government is open to non-fiscal measures to be taken to prop up evaluate and extend such benefit on case-to- solar projects and create an effective eco- case basis. The infrastructure sector is a fit system for making solar power a sustainable case to get the exemption due to longer source of energy in the country. The Budget gestation periods. The government is may offer incentives for solar power plants currently reviewing the model of permitting with a capacity to generate 3,000 MW or infra companies to file consolidated group more to boost efforts to raise the country’s tax returns, i.e., consolidate profits and solar power generation capacity by five losses of their subsidiaries/special purpose times to 1,00,000 MW by 2022. vehicle and pay taxes as one single entity. The infrastructure sector is looking forward Reserve Bank of India has also recently to the government for the required fiscal introduced masala bonds, i.e, rupee- impetus and policy support for the macro denominated overseas bonds. To boost economic growth. Time is running out and, funding in infrastructure sector, lower if some bold reforms are not taken for withholding of taxes @ 5% on interest infrastructure sector, the government may income from masala bonds (which will be not meet its ambitious growth targets before the final tax) and the exemption on certain the next election. related capital gains has been announced. Suitable amendments to this effect are likely Co-authored with Jimit Devani, director, and to be introduced in this budget. Archita Modi, deputy manager, Deloitte Haskins and Sells LLP. The author is The government plans to set up a guarantor partner, Deloitte Haskins and Sells LLP. for corporate bonds to catalyse the bond market for infrastructure. It is likely to ***** announce the Bond Guarantee Fund of India (BGFI) to complement the National Investment and Infrastructure Fund set up last year. The BGFI will underwrite bonds issued by both public and private sector companies in order to enhance their ratings to attract investments from insurers. This will help in developing both greenfield and brownfield projects, including stalled ones.

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