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How is this budget challenging ?
• Fiscal Deficit Targets• External headwinds• Submissive agricultural growth • lower revised GDP projections.
• Stress on the public sector banks’ (PSBs’) balance sheets, (with gross NPAs crossing Rs. 4 trillion as on December 31, 2015).
• Tier I capital requirement for FY 2017 (Rs. 400-600 billion1 as against the GoI’s current plan of Rs. 250 billion).
• With rising bad debts and large capital needs to meet Basel III norms, the PSBs would need to recover significantly from bad loans as well as mop up external capital so as improve their earning and solvency profile and to support credit growth.
Governments success so far
• Implementation of Direct Benefit Transfer (DBT) scheme for LPG
• The pilot for DBT for kerosene • Implementation of the Jan Dhan Yojana.
• Scope of the same would need to be expanded aggressively especially in the more contentious and difficult to implement areas like fertiliser and kerosene subsidy.
Expectations
• The most important expectation from the Union Budget for 2015-16 would be the manner in which it focuses on reviving investments, without deviating from the medium-term fiscal consolidation agenda.
• GoI is expected to strengthen PSBs’ balance sheets through direct equity infusion.
• A clear roadmap for reduction in corporate tax rate from 30% to 25% as well as rationalization of exemptions is awaited in the Budget.
• . To provide impetus to the ‘Make in India’ programme, the Union Government is also expected to continue to focus on the ease of doing business and skill development initiatives.
• The Budget is expected to give additional focus on paring of leakages and better targeting of subsidies, particularly through widening direct transfer of benefits to the intended beneficiaries, a trend that has already gained momentum with the Government’s ambitious Jan Dhan Yojana.
• A detailed roadmap for roll out of DBT in fertilisers and kerosene are also expected. DBT for kerosene has been rolled out on a pilot basis in 26 districts from January 2016, aimed at reducing the widespread leakage of subsidised kerosene, which is used for adulteration of the higher priced auto-fuels (especially diesel).
• introduce a hike in the service tax rate to 16.0% from the prevailing 14.5% and pare exemptions as part of the transition to the GST regime.
• Increases in minimum support prices (MSPs) for crops have been limited in recent years. Additionally, rural wage growth has not kept pace with rural CPI inflation. As a result, disposable incomes and consumer demand for this sector have suffered. Given the challenges faced by the rural economy, enhancing allocations for social sector and agriculture-focused schemes as well as infrastructure projects for rural areas, including rural roads, irrigation etc. may assume greater precedence in the Union Budget for 2016-17.
• Additional 1-2 % environmental tax on all diesel vehicles likely to be introduced.
• Excise duty on milk & milk products@ 12.5 % to be levied, a step taken in preparation to shifting towards GST.
Favourableities
• The sharp drop in oil prices since late 2014 has permitted the Union Government to step up excise duty on petrol and diesel has reduced the fuel subsidy allocation by Rs. 300 billion, augmenting fiscal space for infrastructure spending.
• Crude import bill is lower by 45 % YOY.• Commodity slump favorable as India is a consumer of the
same, hence it lowers import bill of Govt. & increases consumers purchasing power & country's bargaining strength.
Union Budget 2016-17: Top 5 issues that can improve economic environment
• First, it is extremely important to return to the path of fiscal consolidation.
• Second, it is important to increase capital expenditures from the prevailing level of 1.7% of GDP and this has to be done by reprioritising its expenditures and finding additional resources.
• Third, one of the important recommendations of the Fourteenth Finance Commission is to have an independent agency to monitor the implementation of fiscal rules by the government.
• Fourth, on the taxes side, the process of phasing out tax preferences will have to be initiated as was promised in the last budget. It is also important to do away with the difference in the tax rate between domestic and foreign companies. The government should not postpone the issue of instituting GAAR any longer.
• Finally, on indirect taxes front, major initiatives are necessary to rationalise the structure of excise duty and service tax in keeping with the objective of introducing GST. This entails, increasing the threshold of service tax and reducing that of the excise duty, merging cesses and surcharges with the base rates, pruning the exemption list and reducing the number of tax rates, particularly by pushing the commodities taxed at lower rates to the general rate, and putting the administrative action plan for implementing GST including the transitional measures.
ICRA’s VIEWS
• In our view, it may be more appropriate to avoid a fiscal slippage and make additional funding available for capital expenditure through extra-budgetary sources such as the NIIF, particularly given the emphasis placed by the Reserve Bank of India (RBI) on fiscal consolidation in recent monetary policy statements
India VIX• India VIX is India’s volatility Index which is a key measure of market
expectations of near-term volatility conveyed by NIFTY stock index option prices. This volatility index is computed by NSE based on the order book of NIFTY Options. For this, the best bid-ask quotes of near and next-month NIFTY options contracts which are traded on the F&O segment of NSE are used. India VIX indicates the investor’s perception of the market’s volatility in the near term i.e. it depicts the expected market volatility over the next 30 calendar days. Higher the India VIX values, higher the expected volatility and vice-versa. NSE will also start derivatives based on India VIX. Most probably NSE will come out with India Vix Futures first followed by India Vix options as had been done by the CBOE in the past.
• http://vix.co.in/indiavix/vix-and-options/• http://vix.co.in/indiavix/future-of-india-vix-futures/• http://vix.co.in/indiavix/how-india-vix-is-calculated/
