Did India’s 2016 Budget Live Up to its Promises?

Posted by Reading Time: 4 minutes
By Dezan Shira & Associates 

As Finance Minister Arun Jaitley delivers the 2017-2018 union budget speech today, we look at the performance of the 2016-2017 Union Budget. Ease of doing business was at the forefront of last year’s agenda, while digitalization, job creation, infrastructure, and investments were some of the other key budgetary priorities.

How did the government do? This article briefly assesses the impact of the 2016-2017 budget and what it means for businesses in India.

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Key takeaways from the 2016-2017 budget
  • Ease of doing business: The government introduced a slew of legal, tax, administrative, and investment reforms in last year’s budget to make India a more business friendly destination. However, India’s overall ranking in the 2016-2017 Doing Business survey by the World Bank did not improve much, moving just one spot to 130.
  • Digital economy: India’s digital consumer base and mobile-savvy population influenced key budgetary decisions last year, particularly in the imposition of a digital equalization levy of six percent on foreign e-commerce companies and tax incentives for homegrown startups. The latter policy produced mixed results as tax authorities announced a new levy for startups with a marked down valuation and the taxation of Indian internet based services. However, the digital economy changed significantly after November’s shock demonetization, and the government has had to double-down its efforts to support the cashless economy, visible in the incentives and institutional push for online transactions, digital payments banks, and technology startups.

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  • Startups: Job creation is a constant theme of the current government and motivated the 2016 budgetary promises of regulatory easing, tax breaks, and funding for startups, which were identified as a key component of job creation. The government defined eligible startups and offered direct tax incentives early on; however, it has been late in responding to the sector’s funding concerns and regulatory needs. The future is promising for startups in India as digitalization, skills development, and employment generation assume greater urgency in the post-demonetization economy, but there is some distance to travel; the country’s jobless growth was a hot topic in the pink pages throughout 2016.
  • Infrastructure: Last year’s federal vision promised an expansive outlay of US$33 billion (Rs 2212.46 billion) for building infrastructure. The government is on course with implementation in this sector, as building roads and highways, ensuring greater air connectivity, modernization of railways, ports development, ramping up renewable energy capacities are all active priorities. While the government’s support for infrastructure was well received, India’s manufacturing ambitions demand the government stay invested and continue to improve logistics; any success can only be gauged over the long-term.

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Importance of staying informed

Last year’s budget was positive for the business community. However, last year’s budget also shows that while the government set the right priorities, it has been less successful in implementing policies and executing goals. What does this mean for foreign investors? Decision-makers should take note of the pro-business agenda of the current government, but plan to stay updated with the new regulations and sectoral policies that might ease their entry, investment, and expansion of business operations in India.

About Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email india@dezshira.com or visit www.dezshira.com.

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