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Will The Budget Change The Course Of The Economy?

Monday, February 06, 2017
By Dominic Rebello

There have been many interesting post-Budget analysis of the various provisions put forth by the Finance Minister. Here is what the leaders had to say…

The Budget for 2017 “has indicated the government’s continuous agenda to improve macros and maintain the fiscal discipline path. Further, this Budget highlights the government’s focus on curbing black money and improving the transparency in governance (political funding). The lower net borrowings and a clear vision to reduce the fiscal discipline is expected to keep the interest rates lower in the near term and increase the credibility of government policies. Moreover, the government has also refrained from the increasing the long term capital gain tax rates on equities. Overall, we see FY2018 Budget to be well disciplined and positive for the markets” says Angel Broking in an analysis of the Budget.

Crisil is of the view that “The imprimatur of Bharat is unmissable in the budget. Reviving fortunes in the hinterland by bolstering the agricultural economy and rural infrastructure seems to be the primary motivation of the Union Budget announcements this time, as evinced in higher allocations for MNREGA and the Pradhan Mantri Awas Yojana, among others. Increase in credit availability, the focus on micro-irrigation and dairy-related activity, making farm incomes more predictable – all will have an upshot: it will bolster rural incomes and support consumption demand, which should benefit makers of consumer goods and durables, two-wheelers and tractors.”

Crisil believes “Increased outlays on roads, housing, sanitation and electrification through various schemes would make a difference in rural livability. In the process, there would be significant opportunity to the construction, cement and metals sectors.”

HDFC Mutual Fund on its view on the Budget says “The Union budget 2017 was remarkably simple, consistent and without any surprises. In line with the earlier budgets, it was consistent with the government’s strategic direction, the key elements of which are: Accelerate growth, job creation and investments; Fiscal discipline, low inflation and interest rates; Focus on agriculture / rural incomes / housing for all by 2022 and Reduction of informal economy, simplification of taxation and widening of tax base.”

It believes “Indirect tax rates were broadly left untouched as GST is due from July 2017. The budget also does away with the distinction between plan and non-plan expenditure and only retains the revenue – capital split. This budget has also subsumed the railways budget within itself.”

Incidentally, TiE Mumbai in partnership with Deloitte also presented a budget analysis with a specific focus on start-ups and investor community on 3rdFebruary 2017. The discussions were initiated by Naveen Raju, Executive Director, TiE Mumbai, were around the impact of Union Budget 2017 on Start-ups. With the Government of India giving a strong push to start-ups by offering various tax incentives in its Budget presented in 2016 there was a natural build-up of expectations this year.

The Department of Industrial Policy and Promotion (DIPP) was learned to have suggested tax sops for the start-ups, including changes in the way ESOPs are taxable, holding period of long term capital gains for unlisted securities and many other provisions. The start-up ecosystem was certainly looking at the budget for relief from the recent action of the income-tax authorities to levy tax on premium received during the angel and VC funding rounds.

However, the actual delivery seems to have fallen a little short of expectations with only limited issues being addressed by the FM. In a very interesting panel discussion moderated by Raj Nair from Avalon Consulting an eminent panel of speakers including Anand Desai,President, TiE Mumbai & DSK Legal, Jitendra Gupta from Pay U, Nishith Desai,board member of TiE Mumbai and Founder, Nishith Desai Associates and the Deloitte team represented by Pritin Kumar and Deshpande among others.­­

Among the many interesting points that were discussed were some key issues including those of taxation which were impacting the valuation of start-ups and the consequent difficulties investors were facing. These issues pertaining to the initial valuation of the start-ups and the subsequent valuation in following rounds of funding has been a major issue hampering the start-up ecosystem. Entrepreneurs have been worrying about these contentious sections and many representations have been made to the government to address the issues surrounding them.

The provisions that made good sense for start-ups were the ones in relation to the carry forward of MAT credit to be carried forward to 15 years from the earlier allowable limit of 10 years and the allowability to seek tax exemption for 3 years out of 7 years instead of the earlier mandated 5 years along with a lower tax rate for turnover up to Rs 50 crore were the ones hailed by the panel during their discussion.

"It is my belief that the Budget will carry forward the development agenda of the government, generate a new climate of confidence and help the nation to scale new heights... In FUTURE, the letter 'F' stands for the farmer, 'U' stands for underprivileged which includes dalit, oppressed, women etc., 'T' stands for transparency, technology upgradation - the dream of a modern India, 'U' stands for urban rejuvenation - the urban development, 'R' stands for rural development and 'E' stands for employment for youth, entrepreneurship, enhancement to give a push to new employment and boost to young entrepreneurs."

— Prime Minister Narendra Modi

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