UNION BUDGET: DISINVESTMENT TARGET AT RS 72,500 CRORE, BANKS GET A BOOST

The Budget has provided Rs 10,000 crore for recapitalisation of banks in 2017-18. But what is reassuring is the FM’s statement that need based additional allocation would also be considered, emphasising focus on the resolution of stressed legacy accounts.

The Government also announced several Public Sector Undertaking (PSU) reforms, like revised mechanisms and procedures to ensure time bound listing of identified Central Public Sector Enterprises or CPSEs on the stock exchanges. This will foster greater public accountability and unlock the true value of these companies.
Additionally, CPSEs will be integrated across sectors through consolidation, mergers and acquisitions. This will give them capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders. DTA Consulting principal Deepak Talwar hailed this decision, “This is a much delayed and much needed step.”
Sectors such as oil and gas, the Finance Minister indicated is a focus area. Here, the Government proposes to create an integrated public sector ‘oil major’ which will be able to match the performance of international and domestic private sector oil and gas companies.
The budget also announced that 3 Rail Public Sector Enterprises (PSEs) like IRCTC, IRFC and IRCON would be listed in the stock markets. The Finance Minister said that the Exchange Trade Fund (ETF), comprising shares of ten CPSEs, has received overwhelming response in the recent Further Fund Offering (FFO). The Government will continue to use ETF as a vehicle for further disinvestment of shares. Accordingly, a new ETF with diversified CPSE stocks and other Government holdings will be launched in 2017-18.
Dealing with the markets, high net worth NBFCs can also now participate in IPOs just like the banks and insurance companies. Systemically important NBFCs regulated by RBI and above a certain net worth would be categorised as Qualified Institutional Buyers (QIBs) by SEBI at par with the banks and insurance companies, making them eligible for participation in IPOs with specifically earmarked allocations. This will strengthen the IPO market and channelize more investments.

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BUDGET PUSHES FOR EASE OF DOING BUSINESS

Giving an impetuous to the Prime Minister’s primary focus to make India an attractive investment destination, the Union budget made a case for removing bureaucratic bottlenecks that held back foreign entities from setting up here.
The one major announcement being that the Foreign Investment Promotion Board (FIPB) will be phased-out in the next fiscal. Stating that the Government has already undertaken substantive reforms in FDI policy in the last two years and more than 90% of the total FDI inflows are now through the automatic route, the Finance Minister in his budget speech said that the FIPB has successfully implemented e-filing and online processing of FDI applications and has now reached a stage where it can be phased out. Therefore, FIPB will be abolished in 2017-18.
According to policy analyst Deepak Talwar from DTA Consulting, “The ‘Ease of Doing Business’ in any country is not merely about regulations/laws, but also a factor of the bureaucratic dispensation, and with the FIPB being phased out, this will have far reaching consequences for creating a business-friendly environment to meet consumer demand.”
Several other measures were proposed to carry on the Government focus on easing business conditions in the country.
1. The threshold limit for audit of business entities that opt for presumptive income scheme has been raised from Rs. 1 crore to Rs. 2 crore.
2. Similarly, the threshold for the maintenance of books for individuals and HUF is now increased from turnover of Rs. 10 lakhs to Rs. 25 lakhs or income from Rs. 1.2 lakhs to Rs. 2.5 lakhs.
3. Foreign Portfolio Investor (FPI) Category I & II will be exempt from indirect transfer provision under the IT Act. Besides, indirect transfer provision shall not apply in case of redemption of shares or interests outside India as a result of or arising out of redemption or sale of investment in India which is chargeable to tax in India. This will remove apprehensions over taxation upon transfer of stake of investors of India-based funds located abroad but investing in India-based companies.
4. Professionals with receipt up to Rs. 50 lakhs p.a. can pay advance tax towards presumptive taxation in one instalment instead of four.
5. In effort to improve the ease of doing business, the Finance Minister said the process of registration of financial market intermediaries like mutual funds, brokers, portfolio managers, etc. will be made fully online by SEBI. Steps will be taken for linking of individual demat accounts with Aadhar.

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BUDGET 2017 TACKLES CORRUPTION AND REWARDS HONEST TAX PAYERS

Taking a cue from the aftermath of demonetisation, the Finance Minister while presenting the Union budget admitted, that the present tax burden on honest tax payers and salaried employees is unfair.
A crack down on the dishonest and the corrupt and rewarding the honest tax payers, therefore became a centrepiece of the Budget which proposed a slew of measures. For example:
1) If an accountant or merchant banker or registered valuer, furnished incorrect information in a report or certificate, he or she shall be liable to a penalty of Rs 10000 for every such default.
2) A grant of interest in case of refund of excess payment of TDS. At the same time, to ensure timely filing of returns of income, a fee will be levied in case of delay in filing the return.
3) The Government is trying to also broaden the personal income tax next and in this direction reduced the Income Tax rate from 10 to 5 per cent for small taxpayers. At the same time, it imposed a 10% surcharge on taxable income of Rs 5 million.
4) Another proposal is that no person shall receive payment or aggregate of payments of an amount of Rs 3 lakh or more from a person in a day, or in respect of a single transaction, or in respect of transactions relating to one event or occasion except by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account. Contravention of this provision will invite penalty.
Says DTA Consulting principal Deepak Talwar “The push towards greater transparency and tax compliance if implemented well, will ultimately result in improving the economic infrastructure of the country.”
Pointing out that there is an urgent need to protect the poor and gullible investors from dubious deposit schemes, operated by unscrupulous entities, the Finance Minister said that a draft bill to curtail the menace of illicit deposit schemes has been placed in the public domain and will be introduced in parliament shortly after its finalisation.
This Act will be amended in consultation with various stakeholders, as part of our ‘Clean India’ agenda, he added.

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RBI decides to remain cautious, leaves rates unchanged.

In the sixth and final bimonthly monetary policy for 2016-17, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) changed its stance from accommodative to neutral. The policy rates, therefore, were kept unchanged. RBI decided to wait and assess how the transitory effect of demonetisation on inflation and output gap play out.
Deepak Talwar, Principal of DTA Consulting said, “A rate cut at this juncture would have perhaps acted merely as sentiment booster for investors but would not have been a necessary or sufficient incentive to turn more bullish than what it is now.”
“A rate cut would not have changed anything fundamentally for the borrowers,” said Mr. Talwar.
Interest rates, Deepak Talwar pointed out, have moved lower with banks passing on the benefits of previous rate cuts by RBI. “Flushed with funds after demonetisation”, said Principal of DTA Consulting, “banks reduced interest rates. RBI action on policy rate was, therefore, not expected.”
Repo rate, the key policy rate used by RBI, remains unchanged at 6.25%, Bank Rate and Marginal Standing Facility rates at 6.75%.
According to Deepak Talwar RBI was judicious in its assessment of the economy. Taking into account the short term problems the economy faced after demonetisation RBI reduced GVA growth forecast for fiscal 2016-17 to 6.9% , nearly one percent less than 7.8% predicted by India’s Central Statistics Office last year. However in view of the success in remonetising and keeping into account the pickup in manufacturing sector activity RBI predicted growth rate of 7.4% during 2017-18. “This is a fair assessment”, said Deepak Talwar.
MPC of RBI flagged certain issues for turning neutral from accommodative in its policy stance.
First and critical most is the fact that prices now remain sticky with further downward move looking unlikely. The lower food prices due to seasonal factors and also some distress sale of perishables due to demonetisation kept CPI at less than 5% for the quarter but this is not expected to last long.
Second, the global commodity prices are firming up due to expected boost of infra spending in USA and also reduction in oil production causing rise in crude prices. The Indian economy will face price pressure in coming months.
Third and no less critical is uncertain global scenario. The complex political development and protectionist tendencies seen might impact the Indian economy adversely. There may be pressure on rupee exchange rate also.
“RBI was justified in maintaining caution in view of these factors”, felt Talwar. “However for the Indian economy there are several positive factors as well”, said Principal of DTA Consulting.
The remonetisation process has put back liquidity to the consumers. This will increase discretionary spending. “Service sector which suffered due to demonetisation, will get boosted”, said Talwar.
Secondly demonetisation brought in liquidity to the banking system which made banks reduce lending rates. “What RBI rate cuts earlier could not do, demonetisation did at last”, commented Talwar.
Third and no less important is the Union Budget 2017-18 stepped up capital expenditure, provided support to affordable housing and also rural economy. The GVA in 2017-18 is expected to receive a boost. RBI predicted a 7.4% growth rate in the next financial year, 0.5% more than the estimated growth rate of 6.9% in 2016-17.
“Economy can no longer bank of monetary policy to stimulate growth. A lot will now depend on administrative efficiency and introduction of GST”, summed up Deepak Talwar.

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