Fiscally speaking: A show of wisdom by Modi Government
Overall the union budget emphasizes and encourages Modi governments much discussed initiatives like Digital India, Skill India and Start-up India
Along with a greater emphasis on improving the economy of the nation, the budget specifically aims to provide the young entrepreneurs operational ease of doing business
Boosting economy. Shrinking deficit. Meeting revenue targets. Policy & taxation reforms. Social development. Job creation. Start-ups. And pleasing the ‘Aam Aadmi’.
It all seems a task. But Arun Jaitely, the Finance Minister of India, addressed it all in the Union Budget 2016-17. Mostly hits, a few misses and a major rollback. Mr. Jaitley has tried to lay a path that has the potential to deliver high growth. The budget was practical and straight-forward. And as PM Narendra Modi stated, “the Budget is close to your dreams. This government has presented its commitment along with programs," he said.
The 9 pillars that Jaitley outlined for transforming the Indian economic scenario comprised the following core elements – Agriculture and farmer welfare, rural sector, social sector including healthcare, educational skills and job creation, infrastructure investment to enhance quality of life, financial sector reforms, governance reforms and ease of doing business, management of government finances and tax reforms.
The key points of the Union Budget revolved around at creating a facilitative environment for businesses to operate – boost to start-ups, fiscal consolidation, increasing retail access to government securities, skilling, education, healthcare and many more such elements. India Inc. also gave a nod of approval to the budget that was laid down in view of the economic growth that will be instigated by budget boost to the rural and infrastructure sector. However, the corporate taxation got a thumbs-down from the corporate sector as the industry expected a reduction in the corporate tax rate in a phased manner.
Commenting on the key aspects of the budget, Pankaj Bansal, Co-Founder and CEO, PeopleStrong HR Services Pvt. Ltd., in a post-budget comment stated that “the government’s nine pillars of budget are very interesting. The government has hit the nail in the head by providing 8.33% employee provident fund (EPF) contribution towards new employees for three years and INR 1000 cr have been allocated towards it. This will not only promote employer to generate more jobs, but will also encourage employers to move towards professional employment.”
EPF proposal roll back
One of the biggest revisions that Mr. Jaitley had to make was on his proposed taxing of the 60 per cent of EPF. Although this was done with an aim to promote a pensioned society and to balance the tax treatment of the National Pension Scheme (NPS) and Employees’ Provident Fund (EPF) schemes, the proposal that that 60 per cent of the investor’s EPF corpus was to be taxed at withdrawal and only 40 per cent to be exempted received a huge backlash from people and unions. The reason for this criticism was that this kind of a proposal forced employees to invest in pension annuity schemes. With Jaitely announcing the roll back of the proposed tax on withdrawals from employees' provident fund, in a suo motu statement, he stated that “the purpose to tax EPF withdrawals was to encourage a pensioned society. However, in view of representations received, the government would like to do a comprehensive review of this proposal and therefore I withdraw the proposal. Employees should have the choice of where to invest. Theoretically such freedom is desirable, but it is important the government to achieve policy objective by instrumentality of taxation. In the present form, the policy objective is not to get more revenue but to encourage people to join the pension scheme.”
Integration with other government’s initiatives
Overall, the union budget emphasizes and encourages Modi government’s much confabulated initiatives like Digital India, Skill India and Start-up India. Along with a greater emphasis on improving the economy of the nation, the budget specifically aims to provide the young entrepreneurs operational ease of doing business. With a five-fold hike in the budget for funding start-ups, the government is all set to increase the overall funding to start-ups from Rs.40 crore to Rs. 200 crores. And start-ups are all set to receive 100% tax exemption on profits made in any of the three years out of their first five years. “The budget from a startup owners’ point of view is very pro startups. Having freed startups from paying tax on their profits for three years out of the first five years of existence. Capital gains won’t have to be paid if the proceeds are invested in government-approved fund-of-funds or if an investor is a majority shareholder. This is bound to encourage angel investment and startup activity, thereby also creating more jobs” states Ms. Sairee Chahal, Co-Founder of SHEROES.in.
With job creation and skill development as the two core agendas of the government, the skilling sector has also received the budget with positivity. Shri Rajiv Pratap Rudy, MoS for Skill Development and Entrepreneurship (Independent Charge) and Parliamentary Affairs stated that “The budget for skill development is highly encouraging for us. As announced, we will be creating 1500 Multi Skill Training Institutes (MSTIs) which will basically be the new generation ITIs set up in PPP mode. So far we have just had standalone government or private ITIs. These will be set up in those blocks and districts of the country which are yet to focus on skill development. We are also certain and committed to achieve our target of skilling 1 crore youth over the next 3 years under PMKVY. In line with this, we are already setting up model skill centres across more than 500 districts in the country. The formation of the National Skill Certification Board is another big step in further strengthening the skill ecosystem. It will see representation from both government and industry, which will collectively enable a joint framework for quality skill assessment. The focus of the budget on creation of jobs and entrepreneurship opportunities through initiatives like Start-Up India and others, spells out the clear vision of government, to link the skilled workforce with employment opportunities.”
In a nutshell, the Union Budget aims to strengthen and accelerate economic and social growth and also seems to give a promise to the Indian people whether in skill development, education, research outcomes, job creation or in promoting entrepreneurship.