What to expect this Budget, 2016










Under the government's FY17 disinvestment plan, disinvestment receipts may be pegged around Rs 40,000 crore. Sources say that some more clarity in strategic disinvestment policy is likely in the upcoming Budget..


The Reserve Bank of India is approaching the end of its rate-cutting cycle and is expected to go for a final 25-bps repo rate cut at its policy review meet on February 2.


Finance Minister Arun Jaitley would get away with letting his borrowing targets slip when he presents his Annual Budget next month, according to the overwhelming majority of economists in a Reuters poll.


The consensus view was for the 2016/17 fiscal deficit to be raised to 3.7 percent of gross domestic product (GDP) from a previous goal of 3.5 percent. Gross borrowing is predicted at 6.49 trillion rupees (USD 95.2 billion).


To boost waning exports, the Commerce Ministry has suggested that exporters be exempted from payment of service tax in the upcoming Budget. Exemption from the levy could help in reducing transaction cost and boost exports, an official said.


The Finance Ministry is understood to be also considering widening the scope of TDS at source for more transactions. Sources said the Finance Ministry is also hoping for a healthy rise in income tax collections next fiscal on the back of higher salaries and pensions to a sizeable part of the taxpayer base. Initial estimates reveal that tax authorities may project about a 20 per cent rise in personal income tax collections next fiscal.


Faced with a challenging financial scenario in 2016-17, the Union Government is unlikely to dole out any income tax benefits to individual payers. It, however, may consider levying additional measures for revenue mobilisation.

There are expectations of relief from the common man on personal taxes. The government could consider options such as making the tax regime for National Pension System to exempt exempt exempt status (E-E-E). Alternatively, it could also provide relief by hiking the allowance for conveyance, medical expenses or children’s education that have not been revised for long,”


Key demands include the appeal from Health Federation of India for a health budget including tax sops and financial aid for a better infrastructure and medical innovation .An increase in the spending for health from 1.3 per cent to 5 per cent of the GDP has also been sought. Other demands from social spheres include increase in pension amount of widows and senior citizens, greater budgetary allocation for secondary education, ditto for National Mission for Sustainable Agriculture under Krishi Unnati Yojana, provision for a comprehensive crop insurance, enhanced irrigation facilities for alleviating farm woes, construction of shelter homes for single women and destitute and more

Raising public expenditure could be a doorway for inclusive development

Hence, besides boosting public spending, the government should encourage private investment, though any delay in bringing in the Bankruptcy Code could thwart private investments.


Keeping the teething woes of start-ups in mind, such as the load of compliance and the outflow of cash for the gingerly set up businesses, IT body Nasscom has asked for removal of direct and indirect taxes for such companies.


Further anticipation hovering over the existing year’s Budget stems from the manufacturing sector, which seeks a hike in anti-dumping duties, from the government. Since the devaluation of yuan and its consequent inclusion in the IMF basket, the chances of China dumping its pocket-friendlier goods into the Indian market, have risen considerably.


All things considered, bringing uniformity in the import duty for all goods, which would naturally require the government to reduce the same, is another acute need that should be taken up in Budget 2016-17. GST rate on the other hand, has been proposed at 17-18 per cent by the Arvind Subramanian panel, which would mostly result into a lower service tax rate, not to mention the much needed breather for people.


The Finance Ministry is also considering imposing further checks on black money that would also help raise tax revenue. One of the proposals on the discussion board is to review the sources for Annual Information Returns that captures data on high value transactions by taxpayers.

Measures combat issues like black money, mounting NPAs for banks, indebted discoms as also problems thwarting the power industry inhibiting India from achieving self-sufficiency level in power and energy, and other issues too waiting for a definite solution.


(1)Global economic growth will continue to be tepid at 2.5 per cent or less (in contrast to the 2.9 per cent recently forecast by the World Bank's Global Economic Prospects), with the major economies of the United States, Europe and China (which together account for 60 per cent of the world economy) expanding no faster than they did in 2015.

(2)China's $11 trillion economy will grow appreciably slower than the seven per cent officially estimated in 2015. But even if the rate slows to five per cent, the Chinese economy will add more to world growth than any other nation.

(3)Despite this unprecedented economic slowdown and the pushback to the high-level, anti-corruption drive of the past three years, President Xi Jinping and the Communist Party will continue to rule China.

(4)There will be less political stability in Europe, as the backlash to surging refugee inflows from conflict-ravaged West Asia gains momentum and the euro zone comes under renewed economic and financial strain. Germany's towering Angela Merkel may well become a political casualty before the year's end.

(5)Although it will be a close-run thing and Conservative Party backbenchers will scare plenty of Europeans, "Brexit" won't occur; enough sensible Brits will blink at the brink.

(6)The deep fault lines of broken states, the Sunni-Shia schism, Islamic State of Iraq and Syria and the implacable Israeli opposition to a two-state solution will ensure that West Asia continues to be unstable and a threat to world order.

(7)Predicting international oil prices is a mug's game; certainly there is no dearth of pundits who failed to forecast the post-mid-2014 crash in prices. Still, here goes: Brent crude will be trading at $50 per barrel (or higher) by December.

(8)Ten months before the next American presidential election, most of the world is scared witless by the slate of leading Republican candidates; and perhaps most Americans are too. Barring accidents and health setbacks, Hillary Clinton will be the first woman to be elected US President in November.

(9)Big commodity exporters will have another very bad year, including major oil exporters, Australia and the B(razil), R(ussia) and S(outh Africa) of the now tottering BRICS. But this won't prevent Russian President Vladimir Putin from projecting military power against Western hubris and being popular amongst Russians in the bargain.

(10)Technological advances will continue apace, disrupting quite a few industries worldwide


(1)"real underlying economic growth" is likely to be only five-six per cent.

(2)Consumer price inflation will stay below six per cent annual rate throughout the year, and probably below five per cent in the second half of the year.

The Reserve Bank of India (RBI) will reduce the policy rate by 25-50 basis points, but this will have little impact on investment and growth.

(3)The previous year's poor export performance will persist, The rupee to US dollar rate is likely to be in the range of 70-75 by December.

(4) Union Budget will succumb to the temptation to extend the "pause" in fiscal consolidation into the coming financial year, with a deficit projection of around four per cent of gross domestic product or GDP. In a context of single digit nominal GDP growth, this will worsen future debt dynamics and place upward pressure on medium-term interest rates. THIS MAY PULL DOWN ALL PAST EFFORTS TO REIGN IN DEFICIT

(5)The Constitution Amendment Bill ushering in the new goods and services tax will finally pass both houses of Parliament and the required minimum of state legislatures. Making it work productively and efficiently will remain a challenge for several years.

(6)In spite of the very creditable efforts of the RBI to pressure public sector banks to clean up their balance sheets, these banks will continue to be highly stressed throughout the year and will seek larger injections of capital support from the government.

(7)Five years after her rocky start as chief minister of West Bengal, Mamata Banerjee and her Trinamool Congress will win a second term in the forthcoming elections in the state.(8)In Tamil Nadu, despite all the political-legal turbulence of past years, as well as the recent, devastating floods in Chennai, J Jayalalithaa will secure a second consecutive term in the state elections later this year. (9)In Kerala, it is notoriously hard to predict which of the Democratic Fronts (Left or United) will win the next election. The usual thumb rule is that winner will be the non-incumbent. If that happens, it is the turn of the Left Democratic Front, anchored by the Communist Party of India (Marxist).

(10)Pakistan-sponsored terrorism will continue to thwart any serious improvement in bilateral relations. The even more worrying prospect is of a major terror action comparable in scale to the ghastly 26/11 attack on Mumbai…and the virtually inevitable counter-action.

Indian investors have experienced a washout during the last nine months.

(1)Market indices have fallen about 15 per cent from the all-time highs hit after the Budget.(2)Corporate revenue and earnings growth have been negligible.(3)Exports have fallen even though the rupee has lost ground.(4)Sentiment has been hit as the impasse on the legislative front has continued, with session after parliamentary session ending without movement on the goods and services tax bill, among other things.(5) Technically, the Nifty has held at support at 7,550.It may range-trade for a while between 7,700-8,100


Population Growth

India ranks second after China in total population. Its population is growing 20% per decade, leading to problems that include food deficits, sanitation deterioration and pollution.

Over 30% are living below the international poverty line, and there are not enough jobs to change that condition.

The food and nutrition deficit has created a 20% death rate due to malnutrition. 8% of India's population has no access to toilets, and 75% of surface water is contaminated by human waste.Moreover, 60% of India's GDP is lost to health-related costs..

Crumbling Infrastructure

India has not been able to improve its deteriorating infrastructure in business, education and health care. In business, a study found that China manufacturing is 1.5 times more efficient than India. In terms of economic freedom, India ranks as the 128th freest economy in the world.

Public transportation and roadways have not kept pace with population growth. Housing, sanitation and power facilities are woefully inadequate. The education infrastructure is backward, and over 280 million adults are illiterate. India's health care infrastructure is also abysmal, ranking 112th of 190 countries. More than 70% of the population has limited or no access to health care services.

Graft and Corruption

The problem costs India's economy 6.3% of GDP per year.

A recent survey found that 60% of respondents point to corruption, bad business practices and delays as the biggest problems that entrepreneurs face, inhibiting growth of their businesses. The reasons for this damaging practice include competing government bureaucracies, a complex and opaque tax system and a lack of clear laws and procedures.


(1)Indian Railways is being turned around (even if the proposed Mumbai-Ahmedabad bullet train doesn’t make much sense).(2)Coal supplies from Coal India Limited have improved perceptibly, which has helped in power generation (though state discoms are in such a mess that they can’t buy power).(3)The 'ease of doing business' indices also suggest some red-tape reduction.


(1)India is now facing deflationary conditions and that changes the paradigm for lenders and borrowers.(2) Deflation implies low or negative nominal growth.(3)This makes it hard for debtors to generate the income required to service loans.(4)If the nominal growth rate drops below the rate at which interest on outstanding loans is payable, defaults start to rise, and rising default can cause a vicious cycle.(5)The state, meaning central and state governments taken together, is the biggest borrower.(6)As of now, the interest rate on sovereign debt is quite a bit higher than nominal gross domestic product growth rate.(7)This means tax collections are unlikely to grow fast enough to service debt comfortably. Raising tax rates, as this government has already done, runs into other problems.(8)The approved method of dealing with this is to generate primary Budget surpluses. Given relatively low growth in tax collections, this means cutting expenditure for the Centre.

(9)The Pay Commission handout is also due and that makes expenditure cuts look unlikely.(10)This situation also implies by the way that the GST (which will probably not happen anyway) could trigger chaos if it leads to an initial drop in government revenues.(11)This situation hurts corporate borrowers too. Nominal revenues for India Inc have stagnated in the past 18 months. (12)Operating profits have not grown quickly enough to allow easy debt service.(13)The latest Financial Stability Report flags problems in terms of deteriorating debt-service ratios.(14)If debtors are hurting, creditors start to have problems and the Indian banking sector may now be looking into a deep, dark abyss.(15)The net worth of many of India’s banks could be wiped out if stressed assets go sour at the rates the FSR considered in its latest stress tests.


(1)The corporate sector has to cross its collective fingers and hope demand picks up.(2) There’s plenty of slack with 30 per cent of manufacturing capacity is lying idle.(3)Investments won’t pick up until a large part of that slack is absorbed by growing demand.(4)Perhaps the Pay Commission hikes will spark some revival in consumption?(5)Overseas demand is not likely to be very high -- exports show declining trends and global GDP projections for 2016 are muted.(6)Higher H-1 visas will hurt the information technology industry’s margins.(7)Foreign direct investment commitments will translate into actual movement at a stately pace.(8)Foreign institutional investors have been net sellers of Indian equity through this fiscal and they have been sellers of rupee debt in the past two months.


(1)In an era of cut-throat competition, new technologies are disrupting and playing game-changer for a whole host of industries, from IT to telecom to banking. (2) Banking: The banking space is seen by many as one of the sectors most vulnerable to disruptions in calendar 2016, mainly due to the emergence of payments banks and increased focus on mobile wallets and the like (3) Retail: "Retail will continue to be the hotbed of disruptions in 2016, much in the way it has been for quite a while," Retailers have had a happy 2015 with their shares rallying as much as 91 per cent this year till date, led by Future Retail (up 91 per cent), V Retail (up 76 per cent) and Future Lifestyle (up 4 per cent).(4) Information technology: Market watchers expect this space to go through some strong changes in the coming years, as the Big IT firms or Goliaths of the industry continue their transition from legacy products towards digitisation and automation."There is a growing urgency among the companies to position themselves for the twin trends of rising automation in the 'run' or legacy business and the growth of digital technologies in the 'change' business



risk Currency

risk Banking

sector risk Political

risk Economic

structure risk Country


January 2016 BBB BBB BB BBB BB BB

SOVEREIGN RISK The sovereign risk score has improved from 39 to 38, resulting in a rating upgrade to BBB, from BB previously. This was driven by rising levels of foreign-exchange reserves and foreign direct investment.

CURRENCY RISK The currency risk score remains steady at 39 and the rating is unchanged at BBB. We expect the rupee to continue to depreciate against the US dollar in 2016-17. The currency risk rating will remain supported by healthy levels of inter national reserves, which are expected to provide an average of 8.3 months' worth of import cover in 2016-17.

BANKING SECTOR RISK The score for banking sector risk has worsened from 47 to 48 on the back of rising non-performing loans. However, the rating for banking sector risk remains unchanged at BB. A past lending spree has burdened India's banks with distressed assets, which will affect their profitability in 2016-17.

POLITICAL RISK The majority held by the centre-right Bharatiya Janata Party in the Lok Sabha (the lower house of parliament) will help to underpin political stability in 2016 17. However, the party's weak presence in the Rajya Sabha (the upper house) will restrict the rapid implementation of reforms. Risks to social stability will prevent a significant improvement in the political outlook.

ECONOMIC STRUCTURE RISK A large budget deficit, the substantial public debt and low levels of income per head constrain the country’s rating for economic structure risk. However, low global commodity prices will help to keep the current-account deficit relatively low as a proportion of nominal GDP.

PER CAPITA INCOME /GDP According to International Monetary Fund World Economic Outlook (April-2015), GDP (nominal) per capita of India in 2014 at current prices is $1,627 compared to $1,508 in 2013.

India is the ninth largest economy of the world. But, due to its huge population of more than 1.26 billion, India is at 145th position in term of GDP (nominal) per capita.

The Economic Risks of India’s Wealth Inequality“

The top 1 percent of wealthy individuals in the world now own more than the next 99 percent combined; Furthermore, other measures indicate that India’s income inequality (measured by consumption) has risen since the 1990s.

First, India’s fertility rate is higher among lower-income and uneducated rural populations than higher-income populations. There are simply too many people, and the resulting unemployment and underemployment exacerbate the inequality gap.

Second, India’s high-income population enjoys better opportunities, and its top talent can compete with the world’s best (many leave to do so)..

Further, the mechanisms for compounding wealth (e.g. property and securities) are largely unavailable to struggling middle and low-income groups.

Finally, decades of political influence have balanced the economic scales towards the wealthy..

India should examine its collective soul to ask whether an economy by and for the obscenely wealthy is just.

So what is driving India’s economy?

Manufacturing grew by a 9.3%. Trade, hotel, transport, communication & services related to broadcasting grew by 10.6%. And financial, insurance, real estate and professional services grew by 9.7%.These three segments which formed 62.6% of the total economy between July to September 2014, helped the economy grow by 7.4%. Agricultural, forestry and fishing grew by just 2.2%.

The GDP growth rate means that India comfortably retains its position as the world’s fastest-growing major economy. The uptick is partly due to an increase in domestic demand. Curiously, Indian manufacturing sector activity fell to its lowest level in 25 months in November 2015, suggesting that the increase in GDP growth is largely independent of the manufacturing sector.

When strategies are in place, growth can't be far behind. A dazzling array of companies rocketing up the growth curve, in sectors as diverse as(1) hybrid seeds to(2) feed for shrimps(3) defence component manufacturing to (4)multiplexes to(5) ports and (6)vaccine manufacturing.

At the same time, the Indian economy has benefited from a windfall due to falling commodity prices.

1) Exports have been falling eleven months in a row. In fact, between April and October 2015, exports have fallen by 17.6% to $154.29 billion, in comparison to the same period last year. Between April and October 2014, the exports had stood at $187.29 billion. A greater than 7% economic growth rate with falling exports is a little difficult to believe.

2) Corporate profitability continues to remain subdued. As a recent news-report in the Business Standard points out regarding the profitability for the period July to September 2015: “It was another muted quarter for India Inc, with aggregate profit growth at both the operating and net level growing at only under one per cent over a year-ago period. ,where operating and net profit are down between three-five per cent over the year-ago quarter, with aggregate numbers below expectations.”

3) Passenger vehicles sales, another good measure of economic recovery, have been subdued through most of this financial year, though there has been some recovery in October 2015, which doesn’t come under the July to September 2015 period, for which the economic growth number has been reported. Between September 2015 and September 2014, passenger vehicles sales went up by only 3.85%.. The commercial vehicle sales have been robust during the first six months of the financial year. At the same time consumption of petroleum products has also gone up by 8.5% between April and September 2015.

4) Motorcycle sales, a very good economic indicator in the Indian context, have fallen for most of the financial year, only to have recovered a little in October due to festival season sales. It remains to be seen whether the sales can be sustained for November 2015

5) Tractor sales have been falling for thirteen months in a row. Data from the Tractor Manufacturers Association shows that sales have fallen by 20% during the first six months of this financial year (i.e. April to September 2015). This is a clear example of weak agricultural growth.

6) The loan growth of banks continues to remain subdued. The sectoral deployment of credit data released by the Reserve Bank of India (RBI) shows that bank loans grew by 8.4% between September 2014 and September 2015. In fact, they grew by an even slower 8.1% between October 2014 and October 2015.

7) The bad loans of banks continue to pile up. As a recent report in The Indian Express points out: “Already burdened by bad loans, 37 banks, led by public sector ones, have reported a 26.8 per cent rise in non-performing assets (NPAs) over the 12-month period ending September this year.”The overall non-performing assets of banks as of September 2015 stood at Rs 3,36,685 crore. This was an increase of Rs 71,000 crore, according to numbers put together by credit rating firm CARE.

8) The number of stalled industrial projects went up during the period July to September 2015. The bulk of the stalled projects belong to the manufacturing and infrastructure sectors. Further, there is a good anecdotal evidence to suggest that small and medium enterprises, a major source of job growth, continue to struggle.

9) The Reserve Bank of India governor Raghuram Rajan recently pointed out that factories were running 30% below capacity as of now. A research report by DBS points out that the capacity utilisation rate was at 80% in 2011-2012. This suggests a significant slack in the economy. How is manufacturing then growing by 9%, as suggested by the data released by the ministry of statistics and programme implementation?

10) The real estate sector, a major employer of people, continues to be in the doldrums, with new launches coming down and the number of unsold homes going up.

11) Further, for two years in a row India has had a deficient monsoon. In its end of season report, the India Meteorological Department (IMD), the nation’s weather forecaster, stated that “rainfall over the country as a whole was 86% of its long period average (LPA). Thus years 2014 & 2015 was the fourth case of two consecutive all India deficient monsoon years during the last 115 years.”

(12)On the positive side a lot has been written on the 36% jump in indirect tax collections. However, of all these additional measures, indirect tax collections increased by 11.6% during April-October 2015 as compared to April-October 2014.”


(1)India will not rescue the global economy in 2016. The subcontinent’s expanding GDP is one of next year’s few economic bright spots. But Indian output is still too small. Any negative shocks from the sluggish United States and decelerating China will reverberate more widely.

(2)For now, however, the country’s economic progress has relatively little impact on the rest of the world – although it is enormously important to India’s 1.3 billion citizens. The economy accounts for little more than 3 percent of global output,. China is almost four times as large, while the United States is still responsible for more than a fifth of all economic activity.

(3)On current projections, India will produce about 7 percent of global growth in 2016 while the United States and China will together be responsible for about 45 percent of GDP expansion. Put another way, India’s growth rate would need to rise by about 3 percentage points in order to add 0.1 percentage point to next year’s expected global growth rate of 3.3 percent.

(4)With Europe stuck in the doldrums and Japan struggling to recover, the world economy still depends heavily on its two largest growth engines, both of which are sputtering. A severe slowdown in China or a stalled recovery in the United States would be felt around the world. By comparison,

(5) India’s economic performance, no matter how impressive, will barely register


That India, foreign investors have long taken notice of India’s promise amid poorly performing major emerging economies. Notably, India’s growth rate is outpacing China; Similarly, India is outperforming Russia, Brazil, and South Africa, the three other members of the BRICS, along with China.

It’s not a great time for major emerging economies right now, but India remains a bright spot.

10 February, 2016