The last couple of days have been quite
busy for experts in the various sectors of the Indian Economy. Everyone has
been buzzing about the Indian Union Budget that was tabled by our Fin Min on
1st Feb 2017. As expected opposition and their loyalists are claiming this
budget has nothing fruitful and the ones in power and of course their loyalists
claim this budget to be the next best thing since sliced bread. There are
numerous articles that are listing down all the budgetary highlights so I don’t
want to bore you guys with yet another bullet point list type article.
Where do we stand as the common man? How
does this Budget impact our lives and livelihoods? Is this budget a Hit or a
Miss? Hopefully this article will help you get an answer to that.
Budget
2017 Hit or Miss?
Speculation for what the Government has
in-store for the people of this country had been ripe for weeks prior to the
budget. Everyone expected super-sops to help sway the upcoming state elections
in favour of the ruling party after months of hardships post Demonetisation has
left the voters unhappy.
But, this budget did not carry much sops or
anything to appease voters. It was focused on Infrastructure Growth, Improving
the Rural Economy and Farmers of our nation. Many minor changes have been
introduced across various aspects of our economic functioning but overall if I
were to rating this budget on a scale of 10, I would give it a 5 out of 10.
Budget
2017: Impact Score 5 / 10
Why
only 5?
Let’s start off with the notable misses
that would’ve helped bump the score higher and then we will talk about the
points that helped this budget garner this score of 5 / 10.
Post Demonetisation, the honest taxpayer
has had to brave a lot of struggles in the past 3 months. Despite having no
black money, the honest taxpayers and the low-income group that doesn’t earn
enough to beat the starting tax slab braved the cash crunch. Apart from the 5%
tax rate reduction for the 2.5 to 5-lakh range, there was nothing worthwhile
for the citizens who fall in the low and middle income group. Yes, additional cusses
have been introduced for the super-rich but that would not impact the common
many whose income is much lower than 10 lakh in a year. Even, all of the
Deductions and limits that were set many years ago when the Indian Rupee had a
much higher value & buying power were left untouched. This was a huge let
down.
The Finance Minister also quoted that only
24 lakh individuals have filed tax returns in the previous year with incomes of
over 10 lakhs. This is a miniscule number and shows off the obvious fact that,
there are numerous individuals out there who are evading taxes. How do I know
that? Just go around your city and count the number of luxury bungalows or
luxury cars plying on the roads. This number would probably be lower than the
count you will get in just a few major cities of our country. What about the
rest of the nation? With the government emphasizing on the Demonetisation being
just the starting point in the fight against black money, I was seriously
hoping for the government to introduce some stringent regulation about
identifying and dealing with tax offenders which didn’t materialize either.
This again was a huge let down.
You might have seen in some of the prior
articles in my blog about the huge NPA (Bad Loans) problem plaguing our banks.
Nearly 10% of all loans given out by banks in India are in the NPA category.
That’s an amount closer to 7 lakh crores and counting. Though the
Demonetisation resulted in a huge liquidity rush into the banking system and
helped avoid a catastrophic collapse, the government (or the RBI for that
matter) hasn’t taken any steps to address the root of the problem. Loans were
granted to non-creditworthy borrowers with little to no due-diligence resulting
in this mess. Willful defaulters who owe crores to banks have either gotten
away with it or are enjoying their lives while borrowers who owe a few thousand
rupees and don’t have any means to defend themselves by enlisting the help of
fancy lawyers are being harassed by the banks. With so much social media
attention about our Bad Loans problem, this budget was an opportune moment for
introducing regulations about the lending practices of our banks, which again
was given a miss. Yes, the government did set aside 10,000 crore as
recapitalization fund and is open to infusing more capital to PSU Banks but for
me, this is just too little and may not be enough if we don’t address the root
of the problem.
Is
there nothing Good in this Budget?
No, of course not. There are some good
aspects of this budget too, that’s why the review score is a 5 out of 10.
The Infrastructure Sector has received a
massive push in this year’s budget. A record-breaking amount of 3.96 lakh
crores (as against 2.21 lakh crores from the previous budget) has been set
aside for Infrastructure projects across the country. This includes roads,
railways, ports and even affordable housing projects that have been brought
under the infrastructure umbrella. This will help boost the economy and infuse
new life into our banking industry that has been sulking with bad loans. In
fact, many of the bad loans plaguing our banks are from the infrastructure
space and this infusion of money will help get some of those ailing businesses
on their feet.
All infrastructure projects need manpower
for implementation and this level of funding will help generate millions of
direct jobs across the country. Not to mention the boost the manufacturing industry
would get from getting contracts to manufacture the items needed for these
infra projects. In my opinion, this investment is a step in the right direction
and will help generate tons of employment across the country at a time where
the generation of new jobs in the past few years hasn’t been that spectacular.
Agriculture and Farm sector too has been
recipient of a sizeable funding and development programs that is going to help
boost the Agricultural Production of this country. Special schemes have been
announced to help the women of our country to find employment and contribute
towards our nation’s economy.
Bad habits like smoking, pan masala, gutkha
etc. have as usual received further hikes in taxes and cesses which are going
to make them dearer to those that buy them on a regular basis. I have
intentionally added this point as a reason toward the score of 5 because; these
bad habits cause cancer & other deadly ailments to millions of people. With
Affordable healthcare a distant future vision, increasing the price and making
these evil habits out of reach is probably the only option (outside of banning
them which is practically impossible) to continue to persuade more people to
quit these habits.
Abhishek
Bhattacharya, Director and Co-Head - Financial Institutions – India Ratings and
Research, shares his opinion
For the banking sector, the budget reinforced
India Ratings thesis on rationing of growth capital for PSU banks, while
keeping the option of providing bailout capital open. Modest growth target for
agricultural lending also points to the fact that Government is cognizant and
comfortable with PSU banks inability to grow at a rapid pace. India Ratings
expects this to keep the demand for Additional Tier-1 bonds high even in FY18.
The budget continues to incentivize affordable housing and builds on the
announcements made by PM on December 30th. Affordable housing has been given
infrastructure status enhancing funding access as well as reducing borrowing
costs, pace of lending through NHB
continues, eligibility parameters on tax benefits for developers have been expanded
and higher spends are being directed through PM Awas Yojna. The budget also
proposed 30% increase in MGNREGA while increasing allocation of women workforce
to 55% from 45% earlier. In India Ratings view this could provide a big boost
for women borrowers availing MFI loans.
Some
Last Words:
To summarize this budget, I would say that
Cautious Optimism prevails toward Economic Growth that would be powered
primarily by Strong Infrastructure Spending. The common man’s life has been
pretty much left unchanged.
What are your thoughts on the Budget 2017
and its impact on the Banking Sector in India? Sound off in the comments
section.
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