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    February 2016

Budget 2016: A litmus test for Modi Govt


Amid global concerns and tepid private investment growth, all eyes are on the Narendra Modi Government’s budget for 2016-17 which will be unveiled by Finance Minister Arun Jaitley in the Lok Sabha on February 29. The Union Budget, an eagerly-awaited annual event, is significant as it would spell out a roadmap for implementing various key announcements made by the Modi Government during the course of the year and also prepare the nation to meet the unanticipated global shocks which often hit currency and stock markets.
The current financial year has not been very inspiring as far as major changes and reforms are concerned, but the Union budget for 2016-17 can change the trend and lay a solid foundation for sustained high growth. Our Cover Story reflects the expectations of industry which wants the Government to walk an extra mile and announce some key initiatives to improve investment climate in the country.
The Union Budget for 2016-17 is going to be a tightrope walk for the Modi Government which is expected to come up with some big bang reform measures to boost economic activity without compromising on the need to promote welfare of the poor and needy. Besides, the salary earners expect a substantial increase in the tax exemption limit from the government to meet the increasing cost of living.
The Modi Government’s ambitious ‘Make in India’ project is a promising initiative but concrete steps are needed to carry forward the campaign to make the country a hub for global manufacturing. The industry legitimately expects major action on the infrastructure front, especially with regard to ports, airports, roads and the rail. This is essential for improving connectivity and generating more jobs.
Small and Medium Enterprises are the backbone of a manufacturing nation. The SME sector too will be looking for incentives from the budget. This sector is crucial for broadbasing industrial activity, promoting exports and creating employment as well as self-employment opportunities for a large number of people across the country.
Similarly, those wanting to start their own enterprises could look for major incentives in the forthcoming budget. The Prime Minister himself promised a ‘tax-friendly’ regime for startups at a keenly watched function in the National Capital recently and now the onus is on the Finance Ministry to give a practical shape to those announcements to boost fresh entrepreneurship.
In addition to direct and indirect tax sops, the Government will have to come out with policy initiatives to promote structural reforms with a view to improving ease of doing business and making the country an attractive investment destination.
Jaitley will also be expected to announce fresh deadlines for implementing the proposed Goods and Services Tax (GST) which is currently stuck in the Rajya Sabha on account of political logjam. The Government will have to make extra efforts to break the political deadlock to push the Constitution Amendment Bill for a rollout of the GST. The new indirect taxation regime is imperative to reduce the compliance cost and make India a large unified market. Clarity on the GST, which is being touted as the most comprehensive indirect tax reform since Independence, will significantly help in improving business sentiments.
However, big bang reform announcements alone will not bring industry out of the woods. The Government would also need to expedite implementation of its policy decision in fullest measure. It’s a matter of just few days when we will get to know whether the Modi Government has passed the litmus test. Till then, hope persists.


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