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Union Budget 2016-17: Key Takeways - Views on News from Equitymaster
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Union Budget 2016-17: Key Takeways
Feb 29, 2016

It was hard not to miss the emphasis on the rural poor and the farmer in the Union Budget 2016-17 that was tabled in the parliament today. Having said that, there were important announcements for the other key sectors as well. Here are the key takeways.

Sticking to the Fiscal Deficit target: The Finance Minister (FM) has chosen to adhere to the fiscal targets. Consequently, the deficit has been retained as 3.9% of GDP in the current fiscal and 3.5% of GDP in 2016-17. While doing so, the FM has ensured that the development agenda has not been compromised.

Agriculture and Farmers' welfare:Target of doubling farmers' income in five years. Total allocation for Agriculture and farmers' welfare is close to Rs 360 bn. Additional 28.5 lakh hectares of arable land to be brought under irrigation.

Allocation under Pradhan Mantri Gram Sadak Yojana increased to Rs 190 bn. Will connect remaining 65,000 eligible habitations by 2019.

Rural employment and infrastructure: A huge Rs 2.9 lakh crore to be given in aid to Gram Panchayats and Municipalities as per the recommendation of the 14th Finance Commission. To be noted that this is a whopping 2 lakh crore more than the recommendation of the 13th Finance Commission.

Nearly all of this money could go towards improving basic services. A target of 100% village electrification by 1st May, 2018 and a new Digital Literacy Mission Scheme for rural India to cover around 6 crore additional households in the next 3 years are the other important announcements.

Welfare and health services: New health protection scheme to provide health cover up to Rs 1 lakh per family. Allocation for social sector including education and health care stands at Rs 1.5 lakh crore.

Education, skills and job creation: 1,500 Multi Skill Training Institutes will be set up in the country. 100 Model Career Centres to be operational by the end of 2016-17 under National Career Service.

Infrastructure and Investment: The total outlay for infrastructure for 2016-17 stands at Rs 2.2 lakh crores.

Comprehensive plan, spanning next 15-20 years, to augment the investment in nuclear generation to be drawn up.

Reforms in FDI policy in the areas of Insurance and Pension, Asset Reconstruction Companies, Stock Exchanges

Financial Sector Reforms: Allocation of Rs 250 bn towards recapitalization of PSU Banks. Target of amount sanctioned under Pradhan Mantri Mudra Yojana increased to Rs 1.8 lakh crores.

Ease of doing business: Bill for targeted delivery of financial and other subsidies, benefits and services by using the Aadhar framework to be introduced.

Amendments in Companies Act to improve enabling environment for start-ups.

Tax reforms: No big relief to small tax payers except raising the ceiling of tax rebate under section 87A from Rs 2,000 to Rs 5,000 for people with income up to Rs 0.5 m.

Change in customs and excise duties on certain inputs to reduce costs and improve competitiveness of domestic industry in sectors like IT, capital goods, defense production, textiles etc.

Key Negatives

No path breaking reforms: People who were expecting some big bang reforms this time around, were in for a disappointment as the FM chose conservatism over aggression.

No major relief for individual tax-payers: The budget neither increased the tax slabs nor there was any increase in deductions for home purchases.

Bank recapitalization amount lower than expected: Rs 250 bn that have been set aside for bank recapitalization, may prove to be way less. However, the Government did talk about increasing the outlay if need be.

While the budget may not have exactly been path breaking, we don't think it was a disappointment either. We like the Government's focus on the rural poor, its emphasis on investment and infrastructure and its efforts at trying to improve people's skill sets and create more jobs.

Last, but not the least, that the Government chose to remain on the path of fiscal prudence despite temptation to the contrary is also worth highlighting.

We have never believed in the concept of 'Budget investing' and so we continue to re-iterate our stance of investing in good quality companies that have solid businesses and are available at reasonable valuations. These alone can add to the long term wealth of shareholders.

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