Businesses can breathe easy now that the government has shown commitment to fiscal consolidation. Union Budget 2016 holds an actionable promise of growth and casts the net much wider than in previous years, resulting in the inclusion of rural India alongside established urban economies. Considering businesses can thrive best in thriving communities, Budget 2016-17 has paved the way for sustained and inclusive growth. However, businesses that were expecting immediate sweeping changes, may be in for some disappointment.
Balanced Budget over short-term gains: There is considerable stress in rural India because of the poor rains, the investment environment is weak, public sector banks could do with a push and the global economy is still uncertain. Under these circumstances, the government has planned a measured increase in tax revenues, provisioned for growth of infrastructure and shown significant support for manufacturing in India.
Steady pace over populism: Global markets remain volatile and sizeable tremors have been felt as close to home as China. In a bid to remain strong against negative global economic influences, the government has been pushing the ‘Make in India’ agenda. To this end, the finance minister made several announcements including tax benefits to start-ups, ‘Residency status’ to foreign investors, and modifications in the structure of customs and excise duty to give impetus to domestic manufacturing by bringing down costs and increasing competitiveness. What is also reassuring is that Budget 2016-17 projects a realistic commitment by maintaining the fiscal deficit target at 3.5% of the Gross Domestic Product (GDP) for the financial year 2017.
Inclusion over indulgence: The clear focus of the Budget this year has been on inclusion. The reforms will bring much cheer to rural India, small tax payers across the country as well as citizens below the poverty line. These measures are aimed at bringing relief to the extremely stressed rural segment, which has been brought to its knees by poor rains and unfavourable circumstances. Substantial allocations have been made for farmer welfare, the development of safe groundwater, a dedicated irrigation fund and a digital literacy plan. For businesses marketing to rural India or considering and entry into these areas, this implies that consumers will have higher disposable incomes and more access. Small tax payers have got relief by way of an increase in the ceiling of tax rebate for people with an income of up to INR 500,000. The measures have been matched with announcements that cars will get costlier and the super-rich will have to pay an additional income tax surcharge.
Empowerment over entitlement: The government has made it clear that they will not hand benefits over on a platter, and would rather play the role of facilitating inclusive growth and performance. This is apparent in the provisions made to encourage start-ups, the impetus given to the Make in India initiative, enablement through digital programs and financial inclusion. The focus on infrastructure and roadways points to a strategy that seeks to connect, enable and empower in the long term.
What stands out in this Budget is the government’s priority of promoting entrepreneurship to further the Make-in-India vision, and the development of rural India. By supporting capability development and promoting inclusion, the Budget shows foresight. What remains to be seen is how plans of infrastructure and development shape up and how businesses adapt to the rise of rural India and low income households.