Gearing up for a populist Budget

Even before its presentation, the Union Budget 2017-18 has set some precedents by digressing from the usual course of action. This year’s budget will amalgamate railway and finance budgets together, ending an age-old practice of presenting them separately in the Parliament.

It has also been moved ahead from its traditional time period of February-end, to February 1 this year. However, what really sets the 2017-18 budget apart is that it comes just months after demonetisation of old Rs 500 and Rs 1,000 notes an exercise the country is still coming to terms with.

Prima-facie, the overall intent of the Budget is expected to be reviving public sentiment and economic growth. Considering the government’s push for cashless economy, it is expected that digital transactions will be incentivised in the upcoming budget. The tone of the budget is expected to be populist.

“To meet the expectations following demonetisation, some relief in personal income taxes seems to be a major change expected during the Budget,” says a pre-budget survey by business consulting firm Ernst & Young. It adds that finance minister may consider pushing up the income tax exemption limit from the current Rs 2,50,000.

As demonetisation is said to have dampened consumer sentiment and demand in the already stressed real estate sector, credit rating agency ICRA expects the budget to provide thrust to affordable housing.“With respect to the middle income group, relaxation in the tax deduction limits for housing loan principal as well as the increase in the tax exemption limits from Rs two lakh currently can support demand from the middle income group,” it says.

ICRA expects high priority for infrastructure in capital expenditure. Affordable housing, roads, renewable energy and railways are expected to get a push, with the latter in light of the merging of the Union and rail budgets. “The recent announcements such as interest relief for farm loans for 60 days and guaranteed eight percent interest for senior citizens on bank deposits up to Rs 7,50,000 for 10 years should be fully funded in the budget,” ICRA says. Enhanced allocations for social sector spending will boost sentiment, it expects.

Modest relief in the form of reduced direct taxes and subventions to the lower income groups could also be provided, to give a fillip to consumption growth. According to audit and advisory firm KPMG, the budget is expected to bring a road map for Goods and Services Tax (GST) roll out and an agreement on GST rates, increased spend on railways, additional tax breaks to promote start-ups, construction activities and affordable housing.

By Karnika Bahuguna