Consumer Issues
Cars, cigarettes to become dearer, pension plans cheaper
New Delhi : Finance Minister Arun Jaitley on Monday in his budget proposal made a few products and services cheaper while others have become more expensive for the common people.
 
Things which will become dearer:
 
** Various tobacco products other than beedi by about 10 to 15 percent 
 
** Luxury cars above Rs.10 lakh
 
** Jewellery articles, excluding silver jewellery, other than studded with diamonds and some other precious stones
 
** Imported imitation jewellery
 
** Gold bars (countervailing and excise duties increased to 8.75 and 9.5 percent respectively from 8 and 9 percent respectively)
 
** Branded readymade garments and made up textile articles with a retail sale price of Rs.1,000 and above
 
** Bill payments and eating out (due to additional levy of Krishi Kalyan cess on all services)
 
** Air travel 
 
** Ropeway, cable car rides
 
** Lottery tickets
 
** Legal services
 
** Electronic reading devices
 
** Goods and services above Rs.2 lakh in cash
 
Things which will become cheaper:
 
** Service Tax on service of life insurance business provided by way of annuity under the National Pension System 
 
** Service Tax on low cost houses up to a carpet area of 60 square metres in a housing project of a government scheme 
 
** Braille paper
 
** Solar lamps
 
** Router, broadband modems
 
** Digital video recorders
 
** Set top boxes, CCTV cameras
 
** Microwave ovens
 
** Sanitary pads
 
** Footwear
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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Will RBI cut rates soon?
Given the government's commitment to fiscal consolidation, Nomura believes that the RBI will perceive the budget as a positive event and may go for a 25bp repo rate cut in April with a greater chance of an inter-meeting cut  
 
In the union budget presented on Monday, the Indian government chose macro stability over growth, delivering a positive surprise by sticking to its fiscal consolidation roadmap, says Nomura in a report.
 
"Overall, the budget is a positive surprise, relative to our expectations. The commitment to adhere to the stated fiscal deficit targets suggests that the government has chosen to prioritise macro stability over growth. Given the government's commitment to fiscal consolidation, we believe that the Reserve Bank of India (RBI) will perceive the budget as a positive event. Hence, we continue to expect a 25 basis points (bps) repo rate cut in April with a greater chance of an inter-meeting cut," the report said.
 
According to Nomura, much of the funding is coming via asset sales like disinvestment, strategic stake sales, and telecom spectrum where market conditions and balance sheet capacity (telecom) will play a key role, but lower tax assumptions suggest that the overall revenue collections are achievable. However, it said, expenditure on account of the seventh pay commission seems to have been under-budgeted, which could lead to higher spending later.
 
Here are Nomura's key takeaways from the Budget:
  1. Credibility of the fiscal arithmetic: We think the fiscal assumptions are optimistic on asset sales, but conservative on tax projections. Disinvestments and strategic sales are pegged at Rs565 billion (versus Rs253 billion in FY16), while revenue from the telecom spectrum (under the communication category, which includes past arrears and fresh auction receipts) has been budgeted at Rs990 billion (versus Rs574 billion in FY16). We view these as optimistic. However, gross tax revenues have been budgeted to rise only 11.7% in FY17 versus 17.2% in FY16, which could be higher. On nominal GDP, the budget has assumed 11% growth in FY17 versus 8.6% in FY16, which we think is reasonable. In our view, the revenue target is achievable, on an overall basis, with some overshoot on taxes and some undershoot on non-tax revenues and asset sales. 
  2. Accounting for pay commission and OROP: The total outlay on account of the pay commission and the "one rank one pension" scheme is estimated at Rs1.1 trillion. At first glance, the budget seems to have under-budgeted for this, which suggests a staggered implementation of the pay commission's recommendations or greater outlay at a later stage.
  3. Quality of spend suffers: The quality of spending has deteriorated given the higher wages and pensions bill and elevated subsidies. Revenue expenditure (running expenses of the government) is budgeted to rise 11.8%, up from 5.5% growth in FY16, while capital expenditure growth is budgeted to slow to 3.9% y-o-y from 20.9% in FY16, which suggests less budgetary support for capital expenditure and greater reliance on off-budgetary sources. 
  4. Key expenditure announcements: There were no major steps to rationalise subsidies in the near term, except a plan to move to direct cash transfer to curtail leakages. Subsidies remain elevated at Rs2.5 trillion in FY17 (1.7% of GDP), compared with Rs2.6 trillion in FY16 (1.9% of GDP). The budget also announced no increase in public sector bank recapitalisation, which has been left unchanged at Rs250 billion in FY17, lower than expected (Nomura: Rs350 billion). 
  5. Gross borrowings: Gross market borrowings are slated to rise to Rs6.0 trillion in FY17 from Rs5.85 trillion in FY16, while net market borrowings are pegged at Rs4.25 trillion, up from Rs4.0 trillion in FY16, lower than expected.
  6. Key focus areas:  On the reform side, key focus areas were
    (1) agriculture (irrigation, e-platform for unifying wholesale markets, crop insurance);
    (2) rural infrastructure and employment (rural roads, R-URBAN clusters, rural electrification, subsidised cooking gas to households below the poverty line, higher allocation for rural employment scheme);
    (3) health (Rs1 lakh health cover per family);
    (4) education and skill creation (Higher Education Financing Agency);
    (5) infrastructure (higher allocation to roads, modernisation of ports and airports); and
    (6) financial sector reforms (bankruptcy bill, RBI Act amendment to set up a monetary policy committee, amendments to the SEBI Act to introduce new products in commodity markets).
  7. Key tax changes:
    (1) new tax amnesty scheme to improve tax compliance (45% tax on declaring undisclosed income);
    (2) lowering the corporate tax rate from 30% currently to 29% for small companies and 25% for new manufacturing companies;
    (3) GAAR implementation from 1 April 2017;
    (4) long-term capital gains on unlisted companies reduced to two years; and
    (5) infra cess on car sales.

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Jaitley opens coffers for rural India, unveils another tax amnesty
New Delhi : Focusing on rural economy and infrastructure with minor rebate for small taxpayers but amnesty for defaulters, Finance Minister Arun Jaitley on Monday unveiled a Rs.19.78 lakh crore ($300 billion) budget for 2016-17, earmarking more money for health, literacy and roads.
 
The direct impact on taxpayers from the proposals announced during the 100-minute budget speech will be a Rs.3,000 rebate, benefiting 20 million assessees. Those living in rented homes will get a higher exemption of Rs.60,000 now, against Rs.24,000 earlier. But the tax slabs remain unchanged.
 
At the same time, withdrawal of provident fund and pension upon retirement are partially taxable.
 
Jaitley also announced an amnesty for those with disputed tax claims, with a waiver of penalty on amounts up to Rs.10 lakh. He said 300,000 such cases were pending before appellate authorities, for an amount totalling Rs.5.5 lakh crore.
 
Similarly he also unveiled a limited tax compliance window from June 1 to September 30 for people to declare their undisclosed incomes, with a tax liability of 45 percent of value, including the surcharge and penalties -- together with immunity from scrutiny, enquiry and prosecution.
 
His other steps include a pilot project to extend the direct cash benefit transfers, currently in areas like cooking gas to the fertiliser sector, as also Rs.25,000 crore for the recapitalisation of state-run banks that are under financial stress on account of mounting bad loans.
 
While there were misgivings over money set aside for additional capital for banks, Jaitley told a press conference later that more money will follow as and when warranted. "The budget is not the last word on this," he said, adding he was also open to consolidation of commercial banks.
 
On cutting subsidies, he promised a bill soon to use Aadhaar for direct transfer of cash.
 
Prime Minister Narendra Modi was quick to appreciate the budget and said its focus on development of agriculture, farmers, women and rural areas will give a major push to India's agrarian economy. "It will also help the poor man realise the dream of owning a house," he said.
 
Jaitley also said the government will meet its fiscal targets but said that from next year he proposed to do away with the classification of plan and non-plan expenditure -- a move bound to stir up a controversy.
 
"I have weighed the policy options and decided that prudence lies in adhering to fiscal targets. Consequently, the fiscal deficit in revised estimated 2015-16 and budget estimates 2016-17 have been retained at 3.9 percent and 3.5 percent of GDP, respectively," he said.
 
Jaitley also enhanced the total expenditure for this fiscal to Rs.19.78 lakh crore from Rs.17.85 lakh crore in the revised estimates for this fiscal -- a hike of 10.7 percent -- while the plan expenditure component was revised upward by 15.3 percent.
 
"A broad understanding over years has been plan expenditures are good and non-plan expenditures are bad. This results in skewed allocations in the budget," he said, adding this would be dispensed with from 2017-18 to focus on revenue and capital classification of expenditure.
 
This move is likely to face stiff opposition.
 
Jaitley, a lawyer by profession, decided to bring his fellow practitioners under the service tax net of 14 percent. He also imposed an across-the-board cess of 0.5 percent on services towards farmer welfare, which will add 50 paise for every Rs.100 one spends on food to mobile bills.
 
He also left the market mood sullen by proposing to hike securities transaction tax for options to 0.05 percent from 0.017 percent, levy an additional dividend distribution tax of 10 percent payable by recipients in excess of Rs.10 lakh per annum and 1 percent surcharge on luxury cars.
 
This was enough to sully the market mood. The sensitive index of the BSE dipped sharply to a 52-week low soon after the finance minister read out these proposals, but eventually recovered slightly towards the end of the day, but still down 152.30 points, or 0.66 percent, at 23,002.00 points.
 
Jaitley said the bulk of his tax plan was in nine categories: Relief to small assessees, boosting growth and employment, incentivising "Make in India", encouraging pension, promoting affordable housing, pushing rural economy, reducing litigation, taxation simplification and accountability.
 
Among the various sectors, the allocation for the ministry of agriculture and farmers' welfare was enhanced by 93 percent to Rs.44,485 crore, for rural development by 10.7 percent at Rs.87,765 crore and for health and family welfare by 13 percent to Rs.39,533 crore.
 
A major boost was also given to infrastructure including energy with a 11.3 percent hike in the outlay to Rs.246,246 crore, as also for human resource development with allocation up by 7 percent at Rs.72,394 crore.
 
The budget also used the opportunity to send out signals to the global investor, seeking to ease the foreign equity norms. Notably, 100 percent such equity will now be permitted in multi-brand retailing where the produce sold has been processed and sourced locally.
 
In a bid to boost entrepreneurship, a lower corporate tax rate has been proposed for small firms with a turnover of below Rs.5 crore, to 29 plus surcharge and cess, and 100 percent deduction of profits for three out of five years for start-ups set up between April 2016 and March 2019. 
 
Similarly to boost "Make in India", changes were proposed in customs and excise levies on certain inputs to reduce costs and improve competitiveness in sectors such as IT hardware, capital goods, defence, textiles, minerals fuels, chemicals and petrochemicals, and aircraft and ship repair.
 
Jaitley opened his speech saying while the global economy was in stress, India was still going strong. "The risks of further global slowdown and turbulence are mounting. This complicates the task of economic management for India," he said.
 
"We see these challenges as opportunities." 
 
He also used the opportunity to make a political statement. "Our initiatives in the last 21 months have not only placed the economy on a faster growth trajectory but have bridged the trust deficit, created by the previous Government."
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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