Budget 2017: What's in store?

The big day is about to arrive, finally. And this time, it will be intriguing to learn how a government that takes pride in being strict with control of fiscal deficit provides for in the budget anticipated to be full of sops for the common man in order to mitigate the adverse consequences of demonetisation. So, the budget will be litmus test for the Modi government and hence hold high level of significance.

The Union Budget will be presented on February 1. That means, the budget session could convene as early as the second week of January.

Since this article will try to construct a basic overview of the upcoming union budget, I will try to list down the major expectations here.

Almost all economists will agree to the belief that the Modi government will focus on consolidation and improvement of existing social welfare schemes. The agricultural sector may reap the maximum benefits as they bore the maximum pain.

Since demonetisation resulted in hitting purchasing power of the common man despite the pubic servants receiving significant hike in salaries from 7th Pay Commission, budget may feature some relaxations in income tax.

Nevertheless, a top-up between the personal income tax rates and corporate tax rates for a government which is still uncertain about the revenue mop-up this fiscal and after effects of note ban will always be there.

Corporate tax accounted for a little less than a fifth (19 percent) of the government’s receipts last fiscal whereas income tax receipts accounted for just 14 percent of total receipts. Together, these two tax heads accounted for a third of government’s revenues. The total tax (Rs 16,30,888 crore) collected by the central government last fiscal, corporate tax has the major share, though it has declined from 39 percent in 2009-10 to estimated 30.2 percent in 2016-17. So, it will be interesting to see if income tax slabs change and the corporate tax limit as well.

The assumption is that this Budget would target rural development, infrastructure and skill development through a range of measures and higher allocations. 

The infrastructure sector would continue to be one of the main thrusts, pushing the economy in the upward direction.

Talking about one of the sectors which contribute significantly towards the gross domestic product (GDP) and also provide large scale employment, auto also was bucked down by mute demand.

In December total vehicle sales declined by 18.66 per cent which was a 16-year low. The note ban has surely affected the sales and profitability of the sector. Not only dealer sales were impacted, the prospective buyers even postponed the purchase.

The auto industry is pinning its hopes on the forthcoming Budget to boost consumer sentiment.

The urgent need is to increase disposable income of the general public.

What can be expected out of markets is the big question. However, market seems to have bottomed out and now it needs a positive trigger. This may come in the form of pre-Budget rally.

We need a budget that is feel-good in letters but spirits as well.