Tuesday February 19, 2019
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Demystifying the process: Budget 2016

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By Amit Kapoor

New Delhi: The course of fiscal policy of the government is decided by the budget, which is an important document. This year too seems to be kick started with the halwa ceremony, renowned for commencing the printing of the budget documents on February 19.

Another unique feature of this year’s budget is that some of the key officials have communicated through a series of videos that aim to demystify the budgetary process. These videos also give a flavor about the essential features of the upcoming budget to be presented by FM Jaitley on February 29.

The key officials that have spoken before the budget announcement include the finance minister, the minister of state for finance, and the revenue and the economic affairs secretaries – and all have made some crucial points relating to the budget 2016.

The finance minister, in his interactions, had mentioned the use of technology to the advantage of all taxpayers. Already some 1.4 crore people have been notified of the budget refunds through the technology platforms and their refunds have been processed through the same medium. Roughly 90 percent of the budget filings are done online, and this is where the power of technology is making the tax process smooth and efficient.

The minister of state for finance, in his interaction, has mentioned that the budget will aim to reduce poverty, provide prosperity to farmers, help in job creation for the young people of the country and provide a better quality of life to all citizens. He also expressed his belief that India will continue to be a beacon of growth and stability in a very turbulent global environment.

The economic affairs secretary tried to demystify the budget process and mentioned that it is a long-term process as opposed to the common conception. It generally starts in September with a detailed circular being issued to all the ministries. Post this, in November and December, the Department of Expenditure holds meetings with various ministries about the requirements in the current and the next years.

At the beginning of January, the Department of Revenue makes its forecasts for the current year and the next year. There are the revised estimates for the current year and the budget estimates for the next year. Post this once the revenue and expenditure proposals converge, the finance minister holds consultations with various stakeholders and proposals are concretized at the end of January. Decisions are then taken and post this followed by printing of budget documents.

The economic affairs secretary also alluded to the fiscal deficit and how the government is looking at it. He too was upbeat about India’s performance amid global turbulence and said that budget has to focus on growth as it leads to job creation and economic development.

The revenue secretary, in his interaction, mentioned taxation and the broad structure of the budget. He stated that the total tax revenue projection is Rs.14.4 lakh crore. The income tax revenue is close to about Rs.7.9 lakh crore and the indirect tax revenue is close to Rs.6.5 lakh crore.

Within the income tax, there are two components – the corporate income tax and the personal income tax. The corporate income tax is around 59 percent while the personal income tax is around 41 percent.

On the indirect side, there are three major components: excise duties, customs and service tax. Normally these are roughly the same contribution, but this year, due to the oil duty, the excise duties are close to 39 percent while the other two form the remaining indirect taxes.

The service tax structure is diversified, which is a good thing. The direct side seems as having a shortfall of about Rs.40,000 crore as corporate earnings have been low but this will be compensated by the indirect side which is buoyant. The revenue secretary also alluded to ways and means to reduce the litigation that has been seen as a perennial problem for India’s corporate sector.

In the week ahead, a lot of haze will get cleared on the issues pertaining to the budget. The new media strategy seems to be a good initiative leading up to the budget. Overall the stage is set for a historic budget. It is also hoped that the government succeeds in the balancing act when Finance Minister Arun Jaitley presents the budget in the Lok Sabha at 11 am on February 29. (IANS)

Next Story

Will The Budget Provide a Lifeline to Realty?

There is likelihood of bringing down the GST on construction material like cement to boost home affordability, paving the way for speedy revival of housing.

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Modi, India, Farmers
Indian Prime Minister Narendra Modi, center, is garlanded by BJP leaders on the first day of the two-day Bharatiya Janata Party national convention in New Delhi, Jan. 11, 2019. VOA

By Vinod Behl

In a way, this year’s interim budget, the last from the present NDA government before the Lok Sabha elections, is set against a similar backdrop as its first (albeit not full) budget of 2014-15 when the real estate sector was reeling under a major financial crisis. As such, it is expected of the February 1 budget to provide a liquidity lifeline to revive the realty sector, recently hit by the crisis in the NBFCs that have been a major source of its funding.

The Modi government’s first budget had contributed to considerably improving the investment climate by liberalising the FDI norms in the construction sector, besides injecting Rs 4,000 crore to the National Housing Bank (NHB) to promote affordable housing and introducing REITs (Real Estate Investment Trusts) with tax incentives to unlock a new source of financing for cash-strapped developers.

So, on the one hand, while that budget focused on boosting supply through increased investment, on the other hand, it provided a recipe to boost demand by increasing the home loan interest exemption limit by Rs 50,000 and raising the income tax limit by Rs 50,000. And now, five years later, in the wake of the real estate sector facing the initial disruptive impact of progressive reforms like RERA and GST, the sector is looking up to the government to provide it a similar budgetary booster dose, both on the supply and demand side.

India, Farmers
Interim Finance Minister Piyush Goyal, center, holds a briefcase containing federal budget documents with Junior Finance ministers Shiv Pratap Shukla, center right, and Pon Radhakrishnan, left, upon their arrival at the parliament house in New Delhi, India, Feb. 1, 2019. VOA

Though the key reforms undertaken by the NDA government have brought in the much needed transparency and fair play in realty transactions, yet the restrictive provision of maintaining escrow accounts under RERA to check misuse of customer funds has resulted in liquidity constraints for the developers, made worse by the crisis in the NBFCs.

Hundreds of housing projects across India are today stalled for want of funds, in turn driving down the real estate sentiment. It is in this backdrop that the sector is looking up to the new budget as a saviour to provide some kind of lifeline to the stalled projects. It is expected of the budget to create a stressed asset fund to take up incomplete projects.

The industry captains are also hoping that the budget may provide some incentives to stressed asset companies to encourage them to undertake stalled projects. And to further boost supply, the industry has on its budget wishlist a long-pending demand of introducing a structured single window clearance system.

The supply constraint can be considerably tackled by boosting flows from banks to the sector. This can be achieved through a policy initiative to grant industry status to real estate, though in the backdrop of NPA-struck banking, this looks unlikely, especially as the infrastructure status earlier granted to affordable housing has not brought in the desired results in terms of cheaper bank funding.

 

budget
Himachal Pradesh Governor Acharya Devvrat being welcomed by CM Virbhadra Singh and Speaker BBL Butail on his arrival on the first day of Budget Session of the State assembly, Flickr

Incentivised policies to promote rental housing and boost construction skills and technology are also required which may ultimately improve home affordability.

While the liquidity crunch has been adding to the supply side problems, the current crisis in the real estate sector has a lot to do with home affordability. As such, it is expected of this budget to follow the first budget of the NDA government in enhancing the income tax limit as well as increasing the home loan interest deduction limit.

And as inflation has shown signs of relaxation, going forward, the reduction in interest rates, especially subsidised interest rates for affordable housing, along with tax benefits in home insurance, may well bring home ownership within comparatively affordable limits.

Besides unaffordable home prices, the high transaction cost (12 per cent GST for standard housing and 8 per cent for affordable housing), in addition to 6-7 per cent stamp duty, has been playing spoilsport in reviving housing. The government may well bring down the GST to 8 per cent and 5 per cent, with input tax credit, to make it more or less tax neutral.

 

Also Read: With The Elections Coming Up, Indian Government Promises Farmers Their Income Support

Further, there is likelihood of bringing down the GST on construction material like cement to boost home affordability, paving the way for speedy revival of housing.

But the big question is: Will these high hopes from the interim budget materialise for the real estate sector, especially as due to poll compulsions, the government has a higher priority of addressing the rural and farm distress? (IANS)

(Vinod Behl is Founder & Editor, Ground Real(i)ty Media)