UNION BUDGET 2016-17

Agriculture And Farmers' Welfare

Agriculture growth (last year) -0.1% ; this year expectation = 1.1%

48% population depends on Agriculture ; stagnant Agriculture growth = stagnating industrial growth

1) Key Announcements

• Allocation = Rs. 48000 crore ; 84% more than 2015-16.

(a) Irrigation

i) Announcements

• Long term irrigation fund in NABARD created ; agriculture credit target raised

• Projects under Accelerated Irrigation Benefits Programme (AIBP) = fast tracked.

• 2.85 million hectares to be brought under irrigation t/g Pradhan Mantri Krishi Sinchayi Yojna (PMKSY) scheme in 2016-17.

• Government = reduced excise duty on electric motor, shafts, etc (centrifugal pump) to 6% from 12.5%.

ii) Likely impact

• Currently > 60 % of farm land not covered under irrigation ; Fast tracking = will help irrigate nearly 8 million hectare

• Accelerated Irrigation Benefits Programme (1996) = central financial assistance programme to states for completing ongoing irrigation projects costing Rs. 1,000 crore or more.

iii) Challenges

• Problems in land acquisition and technical difficulties like constructing tunnels thr too

(b) Agriculture Marketing

• Unified Agriculture Marketing Scheme and e-platform connecting Agri mandis would be launched

• State governments = to launch e-market platform in state, thereby allowing farmers to sell their produce in any mandi of their choice.

Department of Agriculture = to provide free software to state governments (customizable)

(c) Agriculture Credit & Finance

• ‘Krishi Kalyan Cess’ of 0.5% = imposed on all taxable services (input credit thr)

• To ease burden of loan repayment on drought-hit farmers, Rs. 15,000 crore allocated towards interest subvention.

(d) Insurance

• Funding for Pradhan Mantri Fasal Bima Yojna (PMFBY)= doubled

(e) Soil Health Card & Organic Farming

• Target to cover all 140 million farm holdings under soil health card scheme by next year (March 2017).

• To increase crop yields in rain-fed areas, government to promote organic farming

(f) Fertilizers

• Government = to introduce Direct Benefit Transfer of fertilizer subsidy on pilot basis

• Government = reduced excise duty on micro nutrients (covered under Fertilizer Control Order, 1985) to 6% from existing 12.5%.

(g) Pulses

• To increase crop yields of pulses in rain-fed, budget allocated Rs. 500 crore under National Food Security Mission (inadequate) ; cover 622 districts

• Price stabilization fund = create buffer stock of pulses (inadequate)

• Increase scope of decentralised procurement and to do online procurement through FCI

(h) Livestock

• Allocation for ‘Pashudhan Sanjivani’ animal wellness programme and Animal Health Cards (‘Nakul Swasthya Patra’); Advanced breeding technology; Creating ‘E-Pashudhan Haat’, Creating e-market portal for connecting breeders and farmers; Creating National Genomic Centre for indigenous breeds.

i) Impact

and hence improve farmer profitability.

• E-commerce will help us improve transparency and eliminate middle men. proposed e-commerce

• National Genomic Centre = unleash potential of indigenous breeds; focus on advanced breeding req. = as sexed semen technology, patented by 2 global companies is not available in India.

• Proposal = to amend Income-tax Act to reduce deduction for cold chain facility, warehousing facility ( agricultural produce), fertiliser production from 150% to 100%

• Service tax on cold storage facilities provided by state-run National Centre for Cold Chain Development exempted

• Government extended concessional 5 per cent basic customs duty for pre-cooling units, pack houses, etc

2) Analysis of some new Announcements

• Current selling price of Urea = almost 1/4th world price ; leakage / illegally export to neighbouring countries thr

• Though government allowed gas pooling recently, but entire benefit goes to Urea industry and not to NPK manufacturers.

• DBT = positive results in LPG sector by eliminating ghost beneficiaries.

ii) Challenges of introducing DBT in Fertilizers

• Implementing PAHAL-DBT model in fertiliser will require arriving at indicative non-subsidised market rates, linked to international prices.

• Issue of upfront payment (Pay now, reimbursed later)

• Making direct payments to crores of farmers,

3) Way Forward

• System to track movement of every bag of fertilizer.

• Uniform fertilizer subsidy policy is must

• Issuing Kisan Subsidy Cards only for making upfront payments on subsidised inputs like fertiliser and seed using custom-made swipe machines at fertiliser/seed stores

RURAL SECTOR

Rural India = 650,000 villages ; 69% population ; contributes 50% GDP ; Budget = pro farmer, pro rural & pro Infrastructure.

Major announcements for Rural Sector:

• Allocation for Rural Sector - Rs.88000 crore.

• Grant in Aid to Gram Panchayats / Municipalities [14th Finance Commission] ; will translate to average assistance of over Rs.80 lakh per Gram Panchayat ; But Panchayats still lack in resource management capacity & are poor in book keeping, Fund Management.

• Blocks under drought / rural distress = intensive Block under Deen Dayal Antyodaya Mission; formation of Self Help Groups (SHGs); Cluster Facilitation Teams (CFT) will be set up under MGNREGA = ensure water conservation / natural resource management ; these districts given priority under Pradhan Mantri Krishi Sinchaii Yojna.

• Rs.38,500 crore allocated for MGNREGA ; 215 crore persons days of employment to be created ; 5 lakh farm ponds & dug wells in rain fed areas and 10 lakh manure pits for production of organic manure will be created

• 300 Rurban Clusters will be developed under Shyama Prasad Mukherjee Rurban Mission ; providing infrastructure, amenities and market access for farmers ; increase employment ; But Providing Urban Amenities to Rural Areas (PURA) scheme failed (earlier)

• 100% village electrification by 1st May, 2018 ; number of hours electricity is provided is very low

• District Level Committees under Chairmanship of senior most Lok Sabha MP from district for monitoring and implementation of designated Central Sector and Centrally Sponsored Schemes.

• Priority allocation from Centrally Sponsored Schemes to villages that have become free from open defecation.

• New Digital Literacy Mission Scheme = to cover around Rs. 6 crore additional household within next 3 years ; support Digital India; speed up digital delivery of services / create employment ;but basic literacy/ infra is low

• National Land Record Modernisation Programme has been revamped (under Digital India Initiative) ; build integrated land information management system.

• New scheme Rashtriya Gram Swaraj Abhiyan proposed = develop governance capabilities in Panchayat Raj Institutions to deliver on Sustainable Development.

• Rural road development get Rs.19000 crore ;but condition of roads built earlier through Pradhan Mantri Gram Sadak Yojna is poor

• National Rural Drinking Water Programme for supplementing States efforts

• There is huge cut in Industrial and Commercial Development Corporation (ICDS) which is mainly benefiting children in rural areas & supporting them to stay out of malnutrition.

SOCIAL SECTOR INCLUDING HEALTH CARE

Allocation for social sector including Education and Health Care – Rs.1.5 lacks crore.

1) LPG Connections:

Rs. 2,000 crore allocated for providing LPG connections to BPL families.

• Scheme to be continued for at least 2 years to cover total 5 crore BPL households ; ensure universal coverage of cooking gas.

2) Health:

a. New Health Protection Scheme

• New Health Protection Scheme = provide health cover up to Rs. 1 lakh per family to be launched ; For senior citizens additional top-up package up to Rs. 30,000 thr.

Improvement over Rashtriya Swasthya Bima Yojna (RSBY) scheme ; policy did not include outpatient care.

b. Prime Minister’s Jan Aushadhi Yojna

• 3,000 Stores under Prime Minister’s Jan Aushadhi Yojna will be opened during 2016-17. ; provide generic medicines at affordable price.

c. National Dialysis Services Programme

• Currently demand is only half met

• ‘National Dialysis Services Programme’ to be started under National Health Mission through PPP mode.

• Exemption of certain parts of dialysis equipment from basic customs duty, excise Countervailing Duty (CVD) and Special Additional Duty (SAD).

3) Entrepreneurship

a. Stand Up India Scheme

• Promote entrepreneurship among SC/ST and women ; facilitate at least 2 projects per bank branch.

• National Scheduled Caste and Scheduled Tribe Hub establishment in partnership with industry associations = provide professional to fulfil obligations under Central Government procurement policy 2012

• Schemes for welfare and skill development of Minorities such as Multi-sectoral Development Programme and Upgrading Skills and Training in Traditional Arts/Crafts

for Development (USTAAD) shall be implemented effectively.

SC Venture Capital Fund for economic empowerment of person from marginalized section (earlier)

4) Measures for moving towards pensioned society

• Withdrawal up to 40% of corpus at time of retirement; tax exempt in case of National Pension Scheme.

• Exemption from service tax for Annuity services provided by National Pension System (NPS) and Services provided by Employees Provident Fund Organisation (EPFO) to employees.

• Government to contribute 8.33% in Employees Pension Scheme (EPS) of new employees for 3 years.

Promise of FDI in pensions and social security platform linked to Aadhaar is also good move.

But decision of funnelling of money into EPS is regressive decision but it will boost formal employment.

EDUCATION, SKILLS And JOB CREATION

Announcements:

• Marginal increase of 4.8% in overall budget for education with bigger thrust on improving higher learning.

• Higher Education Financing Agency (HEFA) t/b estb with initial capital base of Rs.1,000 crore ; not-for-profit organization; funds from market + donations + Corporate Social Responsibility (CSR) funds; finance infrastructure expansion and renovation of

government institutions such as IITs, IIITs, NITs and different central universities ; Funds t/b serviced through internal accruals.

• Setting up of National Board for Skill Development Certification in partnership with industry and academia

• Scaling up Pradhan Mantri Kaushal Vikas Yojna to impart skill training to 10 million young people over next 3 years from current 2.4 million; skill education for marginalised

• 10 public and 10 private educational institutions to be made world-class.

• Digital repository for all school leaving certificates and diplomas.

• Rs. 1,000 crore for higher education financing.

• Rs. 1,700 crore for setting up 1500 multi-skill development centres across country.

• 62 new Navodaya Vidyalayas to provide quality education (rural students)

• Digital Literacy Scheme to be launched to cover 6 crore additional rural households

• IITs witnessed hike of almost Rs.700 crore in their allocation; Rashtriya Uchchtar Shiksha Abhiyan (RUSA) scheme focused on funding higher education in states, saw increase of 18%.

• Allocation for Sarva Shiksha Abhiyan and Mid Day Meal Scheme raised

Criticisms:

• About 4% of total budget and 0.5% of GDP is allocated for education. This is far from 6% of GDP (Education Commission set up in 1966 under chairmanship of D.S. Kothari)

• Secondary education not focussed

Positive Outcomes:

• Budget aims towards creating parity across all sections ; strengthen economy through substantial investment in infrastructural development, healthcare, job creation, skill development, and micro, small and medium enterprises.

Infrastructure And Investment

Infrastructure sector suffers from lack of funds, clearance and regulatory hurdles.

Current projects= Sagarmala Port Development Program ; Smart Cities development ; Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Hybrid Annuity Model for National Highways.

Thrust areas = construction and award of 10,000 km roads per fiscal ; up gradation of 50,000 km. of state highways into national highways ; rolling out of 85% of stuck projects

Announcements:

• Total outlay for infrastructure in Budget 2016 now stands at Rs.2,21,246 crore.

• Enhanced allocation in road and highways sector by around 22% is definitely positive for this sector.

• National Highways Authority of India (NHAI) will raise funds through bond sales ; Bond issuance by NHAI, PFC, REC, IREDA, NABARD and Inland Water Authority t/b thr

• Rs. 8,000 crore has been provided for Sagarmala Project ; develop new green field ports ; Ports in public sector t/b corporatized (Companies act, 2013)

• Plans for revival of underserved Airports ; Many non-functional air-strips will be developed ; Centre + States to revive small airports for regional connectivity ; Aim = boost civil aviation sector / improve regional

connectivity ; part of government’s low-cost airport plan ; help reduce cost of domestic flights.

• Department of Disinvestment to be renamed as Department of Investment and Public Asset Management.

• Minimum Alternate Tax (MAT) will be applicable for start ups that qualify for 100% tax exemption

• Service tax exemption for affordable housing schemes even within realm of public-private partnership (PPP)

Re-vitalising PPPs:

• Public Utility (Resolution of Disputes) Bill will be introduced during 2016-17

• Guidelines for renegotiation of PPP Concession Agreements will be issued

• New credit rating system for infrastructure projects to be introduced

• Reforms in FDI policy in areas of Insurance and Pension, Asset Reconstruction Companies, Stock Exchanges.

• 100% FDI to be allowed through Foreign Investment Promotion Board (FIPB) route in marketing of food products produced and manufactured in India.

• new policy for management of Government investment in Public Sector Enterprises, including disinvestment / strategic sale was approved

• Railways sector = generate 10-20% of Revenues from non-tariff sources over next 5 years by monetising assets ; Rs. 50 crore = innovation grants to start ups

Likely impact:

• Clarity on dividend distribution tax of Real Estate Investment Trusts more funding of realty projects.

Financial Sector Reforms

Financial Sector reforms = 1 of 9 key areas which receive special attention in this Budget.

Key provisions :

(a) ARC

• Amendments proposed in SARFAESI Act 2002 = enable sponsor of ARC to hold up to 10% stake in ARC ; permit Non-institutional investors to invest in Securitisation Receipts.”

• Budget permits 100% FDI / Sponsor ownership on Asset Reconstruction companies.

(B) Bankruptcy code t/b enacted

• Will provide specialized resolution mechanism to deal with bankruptcy situations in banks/ insurance companies / financial sector entities.

• aim = reduce delays ; improve recoveries ; draft bill has proposed timeline of 180 days, extendable by another 90 days, to resolve cases of bankruptcy.

(C) Banking sector

• Rs. 25000 crore rupees will be infused towards recapitalization of Public Sector Banks in 2016-17 (Inadequate for NPAs)

• Bank Board Bureau (BBB) will be made operational during 2016-17 (under former CAG Vinod Rai) ; roadmap for consolidation of Public Sector Banks will be created

• Government may reduce its stake in IDBI bank to below 50%

[IDBI Bank is an Indian government-owned financial service company, formerly known as Industrial Development Bank of India ; established under an Act of Parliament to provide credit and other financial facilities for the development of Indian industry]

• Budget also proposed Code on Resolution of Financial Firms ; code envisages Resolution corporation.

Need for Resolution Corporation:

• Unlike in West, there is no closing of banks in India ; regulator and government force weak banks to merge with another lender.

• Resolution corporation would step in much before financial firm’s net worth (capital plus reserves minus liabilities) erodes by selling assets/ changing management/ even winding up in orderly way ensuring there is little impact on financial system / economy in event of its failure.

Criticisms of Budget Provisions

• Foreign investment in stock exchanges = increased from 5% cap per investor to 15% cap ; 5% control is quite similar to 15% control in terms of ability to change management (not attractive)

• Triple taxation thr = corporate tax ; dividend distribution tax ; investor paying tax

• Many Justice Srikrishna financial sector committee recommendation ≠ announced for implementation

• No reform in taxation on alternative investment funds that invest in listed securities ; discourage domestic savers from investing

Governance And Ease Of Doing Business

Definition:

• Ease of doing business is index published by World Bank ( aggregate figure)

Description:

• Aggregate of distances to frontier scores of different economies (Regulatory Best Practices)

• Indicators = construction permits, registration, getting credit, tax payment mechanism etc.

• India ranks still ranks 130 out of 186 countries.

Budget 2016 on Ease of Doing Business:

• Focus= corporate entities + ordinary people ; to remove irritants in their dealings with government.

• Theme = minimize government and maximize governance ; task force for rationalizing human resources in government / autonomous bodies constituted

• Budget = solutions to end tax disputes from retrospective taxation of capital gains ; phasing out corporate tax exemptions ; deferred implementation of POEM (Place of Effective Management) rules by another year.

• Offer =one-time settlement of pending tax disputes relating to retrospective amendments to tax laws ; pay tax arrears and get waiver of interest and penalty ; withdraw all appeals against government

• 11 new tax tribunal benches for indirect taxes and steps to reduce transfer pricing litigation announced ; to implement recommendations of ‘R.V. Easwar committee’ to simplify income-tax laws including rationalization of tax deducted at source provisions.

• Amending Companies Act 2013 = increasing ease of doing business ; facilitating registration of new company in one day ; improve enabling environment for start-ups

• Moderation of penal interest to 30% ; align current tax regime closer to GST

• Reduce penalty & encourage taxpayers to settle disputes expeditiously

• Currently over 3 lakh cases are pending in direct taxes involving amount of ~ Rs 5.5 lakh crore.

• To ease process of exit of loss making firms = bankruptcy code t/b brought.

Issues:

• Discretion to levy penalty = with assessing officer for malafide intent only ; malafide or bonafide intent not clearly defined

• Under-reported income = income assessed – returned ; misreporting = include misrepresentation/suppression of facts/ false claims of expenditure/ false entries in books /etc. (misreported income= attract 200% penalty)

Steps Taken To Improve Ease Of Doing Business:

• Abolishing wealth tax.

• Reducing corporate tax to 25%

• Introducing e-Business portal which merges 14 regulatory permission at 1 place.

• Deferring General Anti-Avoidance Rule (GAAR) by 2 more years.

• Establishment of dedicated branches in court for early resolution of commercial disputes

• Getting rid of distinction between FDI & FII

• Merging Forward Market Commission (FMC) With Security and Exchange Board of India (SEBI)

• Reduction in number of documents required to export & import to 3 from 10

• Security clearance by Foreign Investment Promotion Board (FIPB) to be done w/n 30 days (earlier= 90 days)

• Proposed 5 pronged labour code to replace 44 laws.

• Introduction of Labour Identification Number and putting inspection on unified portal.

• Fast track approval agreement with Japan & Germany.

• FIPB permission req. only for FDI investment above Rs.5000 crore(Earlier= Rs.3000 crore)

Fiscal Discipline

Budget 2016 & Fiscal Deficit:

• Fiscal Deficit target = 3.5% of Gross Domestic Product for 2016-17( 3.9% of GDP in 2015)

• Despite maintaining fiscal consolidation roadmap, budget proposes 15.3% higher expenditure at Rs.19.78 lakh crore in 2016-17 (Rs.5.50 lakh crore under Plan and Rs.14.28 lakh crore under non-Plan)

• To set up committee to review FRBM Act ; determine= range or set number for fiscal deficit targets ; would give necessary policy space to government in dynamic situations ; Headline Consumer Price Inflation (CPI) and Debt-Servicing Costs (DSC) for Central government were not satisfactory u/ FRBM era too

• RBI says= Structural reforms in forthcoming Union Budget may allow rate cut

Tax Reforms

Budget 2016 provisions related to taxes:

• No changes = to existing income tax slabs

• Presumptive income tax scheme for all professionals with gross income of Rs. 50 lakhs

• 100% tax exemption to start ups on profits for 3 years and capital gains tax relief.

• National Pension Scheme = 40% of withdrawal to be exempt

• Proposal of taxing withdrawals beyond 40% of Employment Provident Fund (EPF) corpus may be withdrawn (opposition= f/m parties/ union/etc)

• First home buyers to get additional deduction

• Higher taxes on all cars.

• Taxes on tobacco products, barring beedi, to go up by 10-15%.

• No Service Tax for houses built under 60 sq. metres.

• 4% high capacity tax for States SUVs

Positives

(a) Automation of assessment

Notices and documents can be issued in both paper and electronic form ; term ‘hearing’ will include e-communication of data ; scope of e-Assessments will be introduced in 7 Mega Cities ; scrutiny in e-Environment unless either of 2 parties wants face-to-face interaction [reduce opportunities for corruption]

(b) Income declarationImmunity & concessions will be granted to those who declare their undisclosed income

(c) Income limit For Presumptive tax scheme raised

• Small businesses with gross income up to Rs. 2 crore can now use presumptive taxation scheme ; extended to professionals with gross income up to Rs. 50 lakhs too

• Under this scheme, sum equal to 8% of total turnover / gross receipts is deemed to be profit and taxed ; frees entities from maintaining detailed books of account and getting audit done.

• For small enterprises with turnover up to Rs. 5 crore, Budget proposed to lower corporate income tax rate to 29% plus surcharge and cess for next financial year from current 30%.

Criticisms of Budget:

• No indirect tax relief to Small and Medium Enterprises (SMEs)

• On one hand there is “tough talk” of dealing firmly with tax evasion, and on other hand there are amnesties (pardon).

• Budget 2015= over next 3 years FM would cut corporate tax rates from 30% to 25% ; no mention in Budget 2016

• Goods and Services Tax (GST) bill stalled in Rajya Sabha ; Direct taxes code ≠ talked of

• Minimum Alternate Tax (MAT) not repealed even from SEZ)where introduction of MAT in 2011 have significantly reduced new investments

OTHERS

Revenue Deficit: 2.3 percent of GDPEffective Revenue Deficit:1.2 percent of GDPFiscal Deficit: Rs.530,000 crore (3.5 % GDP)Primary Deficit:0.3 percent of GDP (halved)

Railway Budget 2016-17

• Passenger Fares and Fright rates ≠ changed

• IRTC will start to manage catering (children’s menu, baby foods, baby boards to be made available for travelling mothers)

• India Railway = started using World’s first Bio-vacuum toilet developed indigenously in Diburgarh Rajdhani Express ; 17000 Bio toilets and additional toilets at 475 stations to be provided

• To introduce bar- coded tickets & scanners  on pilot basis on major stations to check without ticket travellers

• Quota reserved for lower berth for senior citizens and women will be increased by 50 %.

• Indian Railway has opened Broad Gauge Lumding – Silchar section in Assam, connecting Barak Valley with the rest of country.

• Sale of tickets would be conducted through hand held terminals for the benefit of suburban and short- distance travellers; vending machine = t/b used to sell platform ticket through cash / credit/debit cards.

• 139 helpline can be used for the cancellation of reservation after verification using ‘One Time Password’ 

• To provide Tatkal Tickets to rightful passengers, Railways will install CCTV cameras at tatkal counters ; CCTV network has been provided at 311 railway stations.

Announcement in the Railway Budget 2016:

• The companies owned by Railways will come under holding company

• By 2019 two dedicated Freight corridors will be completed

• 33 % sub quota will be provided for women under all reserved categories.

• India first rail auto hub will start functioning in Chennai.

• Will enhance advertising revenue by more than four times this year ; coolies will wear dresses w/advertisements (now called luggage assistants =Sahayaks) ; provided with lorries now

• GPS based digital display will be installed in coaches for showing upcoming stations.

• Will introduce new policy or multi-purpose stalls at all stations = multiple services like milk / medicines

• Overnight double Decker trains will be introduced on business travel routes

• New freight corridors = Kharagpur-Mumbai ;

Delhi-Chennai ; Kharagpur-Vijaywada ; 2800

km of new tracks will be commissioned in the

next year; Mizoram and Manipur will be

connected with broad gauge; 600 km

electrification this year and another 2000 km

have been proposed for next year.