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Union Budget 2017: 5 challenges for Arun Jaitley as he looks to lessen demonetisation woes

Arun Jaitley will present his fourth Budget on February 1, nearly three months after the ban on old Rs 500 and Rs 1000 notes came into effect, creating an unprecedented cash crunch across the country.
Union Budget, Arun Jaitley, demonetisation Source: PTI
India TV Business Desk New Delhi January 30, 2017 22:21 IST

Finance Minister Arun Jaitley will present his fourth Budget on February 1, nearly three months after the ban on old Rs 500 and Rs 1000 notes came into effect, creating an unprecedented cash crunch across the country.  

The Budget is expected to be the most challenging for Jatiley as he seeks to soften blow of currency ban with tax and other sops even as he looks to revive growth. 

While largely sticking to fiscal consolidation roadmap, Jaitley will present the Budget for 2017-18 amid strong headwinds caused by government decision to invalidate 86 per cent of the currency and the newly elected US President making protectionist noises. 

Here are some of the reliefs that Arun Jaitley might be looking to provide in the Union Budget 2017 and their challenges:  

1. Income Tax exemption: 

Topping the list of sweeteners could be the hike in Income Tax exemption limit to Rs 3 lakh from current Rs 2.5 lakh as the Minister will look at putting more money in hands of people to not just create a feel good atmosphere but also check the disruptive impact of demonetisation on demand, supply chains and cratered credit growth. 

He may raise the deduction limit for interest paid on home loans to Rs 2.5 lakh from Rs 2 lakh currently. A higher medical rebate may also be on the cards. 

Challenge

While presenting the Budget in 2015, Finance Minister Arun Jaitley announced the fiscal deficit targets for three years as 3.9 per cent for 2015-16, 3.5 per cent for 2016-17 and 3 per cent for 2017-18. To achieve the target, the revenue collection must go high and raising the exemption limit may lead to less tax collection.  

2. Universal basic income: 

Besides tax break, there could even be an universal basic income in the Budget, industry officials and tax experts said. Comments by senior officials have indicated that government was seriously considering some of universal basic income.  

Challenge 

Considering the population in India and the high unemployment rate, a universal basic income would cause a lot of burden on the exchequer. While the government is trying to reduce the spending to reduce the fiscal deficit, the program faces an unlikely realisation.   

3. Corporate tax: 

Many industry bodies have demanded a reduction in the corporate tax rate which currently stands at 30 per cent. The reduction in the corporate tax will come as a boon for companies hit by demonetisation. Reduction may also boost up investments which have not been as per the expectations of the government.  

Challenge 

Cutting the corporate tax may not be easy given that government's official estimate of 7.1 per cent GDP growth for the current financial year does not take into account the chaos wrought by demonetisation. While revenue collection targets for the current fiscal may exceed, there are doubts if Jaitley may project any substantial jump in tax receipts in 2017-18. 

4. Social schemes:  

Incentives or schemes for farmers and rural India, women and social sectors like health and education may be cornerstone of his budget given that five important states including Punjab and Uttar Pradesh will be voting within days of his Budget presentation.

Challenge 

Government is not expecting much jump in its revenue collection in coming fiscal which would be essential fund such a scheme and also achieve the fiscal deficit target. Also, the rising oil prices are a cause of worry for Jaitley, leaving him with very little fiscal room to manoeuvre social and infrastructure schemes. He will have to juggle numbers to remain largely within the fiscal consolidation roadmap. The current year's fiscal deficit target of 3.5 per cent of GDP is mostly likely to be met on back of surge in tax receipts from 7th Pay Commission grant to employees and tax amnesty schemes. 

5. Schemes for manufacturing industry and startups: 

Indian startup industry desperately needs a boost as venture capital cash in the most of the companies is now drying up. Most of the startups, including e-commerce ventures, are in bad shape with many seeking incentives from the government as they are trying to turn up the loss-making machines into profit-generating companies. More than the funds, these companies have sought protectionist support from the government against foreign rivals. Flipkart and Ola have already raised the issue against their American rivals, Amazon and Uber respectively.   

Challenge 

The government already has schemes like “Startup India” to help set up new players. But the protectionist support that Indian startups seek from the government would give a wrong message across the world. Any support to Indian startups and efforts to demotivate their foreign rivals would send a message of non-level playing field, which could also affect Foreign Direct Investment (FDI) in the country.  

Of all, Jaitley’s biggest challenge is to meet his ambitious deficit target of 3 per cent in 2017-18, the widest in Asia. A roadmap on Goods and Services Tax (GST), that will not just turn India into one market with one tax rate but also improve tax compliance and check evasion, may figure in Jaitley's Budget speech.

 

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