Budget 2016: Notes from the Council

Last week, the Finance Minister delivered a critical 2016 budget in front of the Parliament.  The Council’s policy staff analyzed the fine print from budget 2016, examining the current fiscal action and its implications for different sectors of the economy and trade flows.  Overall, the budget consolidates the Government’s pro-growth agenda through economic liberalization, while remaining committed to bringing in long-term investment in areas such as agriculture, infrastructure development, and clean energy. In addition, the Council applauds the Government’s continued efforts to create a stable tax environment to encourage enterprise and ease of doing business. The budget also encourages investment in food marketing, irrigation, and cold chain— all welcome moves to stimulate the Make in India program.  Below is a detailed break-down of the budget by sector:

Real Estate:
USIBC real estate members deem this budget as and pro-business and pro-real estate, giving it 8 out of 10. The key provision has been exempting Real Estate Investment Trusts (REITs) from the Dividend Distribution Tax (DDT) – ushering REIT listings a big step closer to reality. According to a member, currently around 229 million square feet of office space is REIT-compliant. Even if half of this space got listed, we would be looking at REITs listings worth $18.5 billion. However, capital gain is still taxable at the REIT level. On the other hand, the budget provided a big fillip to the affordable housing segment with tax sops for first-time home buyers. This would boost the GOI’s “Housing For All by 2022” scheme. Additionally, Public Sector Units (PSUs) have also been encouraged to sell off parts of their land to the private sector to put to productive economic use.

Logistics and Transportation:
The Union Budget for 2016-17 also has some positive news for USIBC’s logistics and transportation members. The government has allocated a total of $32 billion towards transport infrastructure. The Government expects to lay 10,000 kilometers worth of new roads and upgrade 50,000 kilometers of existing roads; revive 160 airports in tier 2 and tier 3 cities; upgrade facilities along India’s 12 major ports and provide an impetus to developing inland waterways. The rail budget also charted out ambitious growth plans including winning back the lost share in intermodal freight and development of dedicated freight corridors.

Tourism and Hospitality:
With an obvious focus on upgrading and laying out new transportation infrastructure, this budget will also have positive spillover effects on the tourism and hospitality industry. As foreign tourist arrivals surge year on year, the Indian Government faces the impending need to upgrade and build its tourism-related infrastructure and offer a business-friendly environment for the hospitality industry to grow. To this extent, the national budget allocation for tourism was hiked by 70% for 2016-17.

The Council is encouraged to see the ambitious theme of the Rail Budget – including efforts to reform, reorganize and rejuvenate the Indian Railways. We applaud the opportunities created for further private sector investment: via measures to fund new projects through assistance from multilateral agencies, joint ventures with states, a new public-private partnership strategy and selling rupee bonds. The budget 2016-17 left passenger fares untouched; freight rates to be brought down over the fiscal year. The Ministry of Railways is focusing on using non-tariff based measures to tackle financial problems of the Railway ministry through measures like increasing advertising revenue. Multiple new trains were launched to cater to various socio-economic strata of India.

Infrastructure development is a critical component to India’s rise as a global manufacturing hub. We had hoped to see significant public investment in infrastructure that will improve the ease of movement and storage of goods across the country. Together with the capital expenditure of the Railways, the total outlay on roads and railways will be INR 2,18,000 crore in 2016-17 while The total outlay for infrastructure in BE 2016-17 stands at INR 2,21,246 crore. A new policy for management of Government investment in Public Sector Enterprises, including disinvestment and strategic sale, has been approved. Lastly, the duty drawback scheme has been widened and deepened to include more products and countries.

A sum of INR 8,500 crore has been provided for Deendayal Upadhyay Gram Jyoti Yojna and Integrated Power Development Schemes. Budgetary allocation of up to INR 3,000 crore per annum, together with public sector investments, will be leveraged to facilitate the required investment for nuclear power generation.

Financial Services:
A sum of INR 25,000 Crore has been allocated towards recapitalizing Public Sector Banks. Also Pradhan Mantri Mudra Yojana (PMMY) target has been increased to INR 1,80,000 crore. General Insurance Companies owned by the govt. will be listed in the stock exchanges while the tax rebate ceiling has been increased from INR 2000 to 5000 for individual tax payers. Reduction of corporate tax rate to 25% did not materialize against expectations.
Securities Transaction tax in case of options derivatives is proposed to be increased from .017% to .05%. The enactment of Insolvency and Bankruptcy Code would provide a major boost to the development of the corporate bond market and encourage entrepreneurship. In addition to this, an electronic auction platform will be introduced by SEBI for primary debt offers, boosting the corporate debt market. Lastly, a framework for an electronic platform for repo market in corporate bonds will be developed by RBI.

Food and Agriculture:
We were expecting subsidies for farmers in the budget, and for a tax on sugary, aerated beverages.  Industry had requested reduction in tariffs for a number of items, including frozen poultry. Budget 2016 allows 100% FDI through FIPB route in marketing of food products produced and manufactured in India. Allocation for agriculture and farmers' welfare is INR 35,984 crore. The ‘Pradhan Mantri Krishi Sinchai Yojana’ has been strengthened and will be implemented in mission mode; 28.5 lakh hectares will be brought under irrigation under this Scheme. A Long Term Irrigation Fund will be created in NABARD; provision of INR 12,517 has been made in the 2016-17 budget for the same. Fasal Bima Yojana is a crop insurance scheme; funds of INR 5500 cr. allocated in 2016-17 budget.

Life Sciences: 
Increasing access to health insurance, whether provided through the public sector or the private sector, was a key concern to Council members, as it is the surest means for enabling families to afford their healthcare. Furthermore, greater healthcare financing would also attract new investment in the health sector, including both infrastructure building and innovation in new products. Healthcare is just as much about the availability of doctors and hospitals and health insurance as much as it is about access to new medicines and cutting edge technology. The Council encouraged the Government of India to achieve its goal of contributing 2.5 percent of the country’s GDP to healthcare. 
Allocation for social sector and healthcare is INR 1,51,581 crore. A new health protection scheme to provide health cover up to INR 100,000 per family has been proposed.  The Government is making efforts towards creating National Healthcare Network for insurance, wherein it promises certification of hospitals, cashless billing etc..