2. How is this budget challenging ?
• Fiscal Deficit Targets
• External headwinds
• Submissive agricultural growth
• lower revised GDP projections.
abhishek.nagori@jlnus.com
3. • 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.
abhishek.nagori@jlnus.com
4. 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.
abhishek.nagori@jlnus.com
5. 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.
abhishek.nagori@jlnus.com
6. • . 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).
abhishek.nagori@jlnus.com
7. • 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.
abhishek.nagori@jlnus.com
8. • 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.
abhishek.nagori@jlnus.com
9. 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.
abhishek.nagori@jlnus.com
10. 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.
abhishek.nagori@jlnus.com
11. • 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.
abhishek.nagori@jlnus.com
12. 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
abhishek.nagori@jlnus.com
21. 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.
abhishek.nagori@jlnus.com
