India’s annual budget, was pre-sented by the Finance Minister on February 1, departing from the decades old pre independence era practice of presenting it on February, 28. It is merely to ensure that the entire budget enaction ex-ercise is completed by March 31. It was however preceded by wild allegations by the Opposition, that the preponement of the budget was timed to announce freebies for the forthcoming UP state elections and they unsuccessfully approached the Supreme Court to thwart its presentation. The budget, till about five years ago, was the most important economic/fiscal legis-lation of the year, wherein critical reforms were generally announced with fanfare. So important was it, that if a budget was devoid of the expected reforms/fiscal correction, it was considered to be a lost year for the Indian economy. Reforms, particularly under the Modi re-gime, have been an on going gover-nance process and are not limited to the annual budget. The signif-icance of the budget, as a seminal event in India’s fiscal calendar, has thus been whittled down, but it is yet a keenly watched event. The importance of the budget for tax amendments/incentives, however remains untouched, since frequent amendments to the tax laws is a tedious parliamentary process, which is not easy in times of bitter fractious politics. The 2017 Union Budget has been yet another mile-stone, in the as-piring journey of the Indian econ-omy to strength-en itself to develop, to facilitate growth and to attract investment, both domestic and foreign.
The budget has been present-ed in the aftermath of what the FM calls major global economic and political developments during the last one year. The global economy grew by about 3.1% in 2016, con-sisting of a growth of 4.1% in the emerging economies and 1.6% in the advanced economies. The government identifies three major challenges for the emerging econ-omies, which include the current monetary policy stance of the US Fed to increase interest rates, the uncertainty around global com-modity prices and the signs in sev-eral parts of the world of increasing retreat from globalisation of goods, services and people, with the build up of pressures of protectionism. Thus while FDI inflows into In-dia increased by 36% last year, (in the backdrop of a 5% reduc-tion in overall global FDI inflows), and India remains a bright spot in the global economy, with a GDP growth of about 7%, yet the government remains resolutely fo-cussed on making India an attrac-tive investment destination. The 2017 budget contains measures to burnish India as the globally pre-ferred FDI destination for foreign investors.
The FDI in India has come a long way, from most foreign invest-ments needing prior approval of the RBI, to over 90% of the FDI now flowing in through the automatic approval route. The few cases that needed a FIPB approval, faced cumbersome processes. In a bold move, the government has decided to phase out the FIPB and is implementing an e-filing online process-ing of FDI applications. The FM says that a further liberalisation of FDI is on the cards. The tax rates for small size domestic companies has been reduced to 25%, to make India’s tax rates more competitive. In order to attract more investment into affordable housing, where India has a backlog of 50 million homes, the tax holiday measures have been further rationalised. To ensure the inflow of external loans into India the concessional with-holding tax thereon has been ex-tended till 2020. India’s tech start up sector has been vibrant and to sup-port it further, the tax holiday pe-riod for start ups has been extend-ed. A slew of fiscal measures have been announced for the infrastructure segment, which has been wit-nessing tons of foreign investment and a rapid build up. The overall tax measures for foreigners have been sedate and not aggressive.
The PM has launched a full scale was on tax evasion, in the bud-get too, but has failed to tame cor-ruption which provides feedstock to tax evasion. While the budget re-forms are much welcome, but their efficacy will be muted if red tapism and corruption are not rooted out.