Union Budget 2017
VI. FINANCIAL SECTOR
95. I now turn to the Financial Sector. The focus of TEC India agenda in this sector is on building stable and stronger institutions. We will continue with our reform agenda with several new measures.
96. Our Government has already undertaken substantive reforms in FDI policy in the last two years. More than 90% of the total FDI inflows are now through the automatic route. The Foreign Investment Promotion Board (FIPB) has successfully implemented e-filing and online processing of FDI applications. We have now reached a stage where FIPB can be phased out. We have therefore decided to abolish the FIPB in 2017-18. A roadmap for the same will be announced in the next few months. In the meantime, further liberalisation of FDI policy is under consideration and necessary announcements will be made in due course.
97. The Commodities markets require further reforms for the benefits of farmers. An expert committee will be constituted to study and promote creation of an operational and legal framework to integrate spot market and derivatives market for commodities trading. e-NAM would be an integral part of such framework.
98. The draft bill to curtail the menace of illicit deposit schemes has been placed in the public domain and will be introduced shortly after its finalisation. There is an urgent need to protect the poor and gullible investors from another set of dubious schemes, operated by unscrupulous entities who exploit the regulatory gaps in the Multi State Cooperative Societies Act, 2002. We will amend this Act in consultation with various stakeholders, as part of our ‘Clean India’ agenda.
99. The bill relating to resolution of financial firms will be introduced in the current Budget Session of Parliament. This will contribute to stability and resilience of our financial system. It will also protect the consumers of various financial institutions. Together with the Insolvency and Bankruptcy Code, a resolution mechanism for financial firms will ensure comprehensiveness of the resolution system in our country.
100. I had stated in my last Budget speech that a Bill will be introduced to streamline institutional arrangements for resolution of disputes in infrastructure related construction contracts, PPP and public utility contracts. After extensive stakeholders’ consultations, we have decided that the required mechanism would be instituted as part of the Arbitration and Conciliation Act 1996. An amendment Bill will be introduced in this regard.
101. Cyber security is critical for safeguarding the integrity and stability of our financial sector. A Computer Emergency Response Team for our Financial Sector (CERT-Fin) will be established. This entity will work in close coordination with all financial sector regulators and other stakeholders.102. I have also proposed several other measures in the financial sector which are listed in Annex I.
103. Listing of Public Sector enterprises will foster greater public accountability and unlock the true value of these companies. The Government will put in place a revised mechanism and procedure to ensure time bound listing of identified CPSEs on stock exchanges. The disinvestment policy announced by me in the last budget will continue.
104. The shares of Railway PSEs like IRCTC, IRFC and IRCON will be listed in stock exchanges.
105. We see opportunities to strengthen our CPSEs through consolidation, mergers and acquisitions. By these methods, the CPSEs can be integrated across the value chain of an industry. It will give them capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders. Possibilities of such restructuring are visible in the oil and gas sector. We propose to create an integrated public sector ‘oil major’ which will be able to match the performance of international and domestic private sector oil and gas companies.
106. Our ETF, comprising shares of ten CPSEs, has received overwhelming response in the recent Further Fund Offering (FFO). We will continue to use ETF as a vehicle for further disinvestment of shares. Accordingly, a new ETF with diversified CPSE stocks and other Government holdings will be launched in 2017-18.
107. The focus on resolution of stressed legacy accounts of Banks continues. The legal framework has been strengthened to facilitate resolution, through the enactment of the Insolvency and Bankruptcy Code and the amendments to the SARFAESI and Debt Recovery Tribunal Acts. In line with the ‘Indradhanush’ roadmap, I have provided ` 10,000 crores for recapitalisation of Banks in 2017-18. Additional allocation will be provided, as may be required.
108. Listing and trading of Security Receipts issued by a securitization company or a reconstruction company under the SARFAESI Act will be permitted in SEBI registered stock exchanges. This will enhance capital flows into the securitization industry and will particularly be helpful to deal with bank NPAs.
109. The Pradhan Mantri Mudra Yojana has contributed significantly to funding the unfunded and the underfunded. Last year, the target of ` 1.22 lakh crores was exceeded. For 2017-18, I propose to double the lending target of 2015-16 and set it at ` 2.44 lakh crores. Priority will be given to Dalits, Tribals, Backward Classes, Minorities and Women.
110. The Stand Up India scheme was launched by our Government in April 2016 to support Dalit, Tribal and Women entrepreneurs to set up greenfield enterprises and become job creators. Over 16,000 new enterprises have come up through this scheme in activities, as diverse as food processing, garments, diagnostic centres, etc.
VII. DIGITAL ECONOMY . Promotion of a digital economy is an integral part of Government’s strategy to clean the system and weed out corruption and black money. It has a trans formative impact in terms of greater formalization of the economy and mainstreaming of financial savings into the banking system. This, in turn, is expected to energise private investment in the country through lower cost of credit. India is now on the cusp of a massive digital revolution.
112. A shift to digital payments has huge benefits for the common man. The earlier initiative of our Government to promote financial inclusion and the JAM trinity were important precursors to our current push for digital transactions.
113. Already there is evidence of increased digital transactions. The BHIM app has been launched. It will unleash the power of mobile phones for digital payments and financial inclusion. 125 lakh people have adopted the BHIM app so far. The Government will launch two new schemes to promote the usage of BHIM; these are, Referral Bonus Scheme for individuals and a Cashback Scheme for merchants.
114. Aadhar Pay, a merchant version of Aadhar Enabled Payment System, will be launched shortly. This will be specifically beneficial for those who do not have debit cards, mobile wallets and mobile phones. A Mission will be set up with a target of 2,500 crore digital transactions for 2017-18 through UPI, USSD, Aadhar Pay, IMPS and debit cards. Banks have targeted to introduce additional 10 lakh new PoS terminals by March 2017. They will be encouraged to introduce 20 lakh Aadhar based PoS by September 2017.
115. Increased digital transactions will enable small and micro enterprises to access formal credit. Government will encourage SIDBI to refinance credit institutions which provide unsecured loans, at reasonable interest rates, to borrowers based on their transaction history.
116. The digital payment infrastructure and grievance handling mechanisms shall be strengthened. The focus would be on rural and semi urban areas through Post Offices, Fair Price Shops and Banking Correspondents. Steps would be taken to promote and possibly mandate petrol pumps, fertilizer depots, municipalities, Block offices, road transport offices, universities, colleges, hospitals and other institutions to have facilities for digital payments, including BHIM App. A proposal to mandate all Government receipts through digital means, beyond a prescribed limit, is under consideration.
117. Government will strengthen the Financial Inclusion Fund to augment resources for taking up these initiatives.
118. Government will consider and work with various stakeholders for early implementation of the interim recommendations of the Committee of Chief Ministers on digital transactions.
119. The Committee on Digital Payments constituted by Department of Economic Affairs has recommended structural reforms in the payment eco system, including amendments to the Payment and Settlement Systems Act, 2007. Government will undertake a comprehensive review of this Act and bring about appropriate amendments. To begin with, it is proposed to create a Payments Regulatory Board in the Reserve Bank of India by replacing the existing Board for Regulation and Supervision of Payment and Settlement Systems. Necessary amendments are proposed to this effect in the Finance Bill 2017.
120. As we move faster on the path of digital transactions and cheque payments, we need to ensure that the payees of dishonoured cheques are able to realise the payments. Government is therefore considering the option of amending the Negotiable Instruments Act suitably.
VIII. PUBLIC SERVICE
121. I now turn to Public Service. Our focus here is on effective government and efficient service delivery.
122. We have made a strong beginning with regard to Direct Benefit Transfer (DBT) to LPG and kerosene consumers. Chandigarh and eight districts of Haryana have become kerosene free. 84 Government schemes have also boarded on the DBT platform.
123. The Government e-market place which is now functional for procurement of goods and services, has been selected as one of the winners of the South Asia Procurement Innovation Awards of the World Bank.
124. Our citizens in far flung regions of the country find it difficult to obtain passports and redress passport related grievances. We have decided to utilise the Head Post Offices as front offices for rendering passport services.
125. Our defence forces keep the country safe from both external and internal threats. A Centralised Defence Travel System has now been developed through which travel tickets can be booked online by our soldiers and officers. They do not have to face the hassle of standing in queues with railway warrants.
126. A comprehensive web based interactive Pension Disbursement System for Defence Pensioners will be established. This system will receive pension proposals and make payments centrally. This will reduce the grievances of defence pensioners.
127. At present our citizens, especially those belonging to the poor and unprivileged sections, go through cumbersome procedures of Government recruitment. There are multiplicity of agencies and examinations. We propose to introduce a system of single registration and two tier system of examination.
128. Over the years, the number of tribunals have multiplied with overlapping functions. We propose to rationalise the number of tribunals and merge tribunals wherever appropriate.
129. In the recent past, there have been instances of big time offenders, including economic offenders, fleeing the country to escape the reach of law. We have to ensure that the law is allowed to take its own course. Government is therefore considering introduction of legislative changes, or even a new law, to confiscate the assets of such persons located within the country, till they submit to the jurisdiction of the appropriate legal forum. Needless to say that all necessary constitutional safeguards will be followed in such cases.
130. Our Government will continue to remain committed to improve the standards of public service and transparent governance. Service to the people was the life-long commitment of the Father of the Nation, Mahatma Gandhi. As we approach, the 150th Birth Anniversary of the Mahatma, we will take all steps to celebrate it in a befitting manner. A High Level Committee under the Chairmanship of Honourable Prime Minister is proposed to be set up for the same. We will also commemorate the centenary year of Champaran Satyagrah this year. Government of India will support Government of Gujarat to commemorate 100 years of Sabarmati Ashram in 2017, in a befitting manner. 200 years ago in 1817, a valiant uprising of soldiers led by Buxi Jagabandhu took place in Khordha of Odisha. We will commemorate the same appropriately.
IX. PRUDENT FISCAL MANAGEMENT
131. I now turn to the fiscal situation in the context of the Budget for 2017-18.
132. The total expenditure in Budget for 2017-18 has been placed at`21.47 lakh crores. With the abolition of Plan-Non Plan classification of expenditure, the focus is now on Revenue and Capital expenditure. I have stepped up the allocation for Capital expenditure by 25.4% over the previous year. This will have multiplier effects and lead to higher growth. The total resources being transferred to the States and the Union Territories with Legislatures is ` 4.11 lakh crores, against ` 3.60 lakh crores in BE 2016-17. Details of allocations for important sectors and schemes and transfer of resources to States are given in Annex II of my Speech.
133. I have made a provision of ` 3,000 crores under the Department of Economic Affairs to implement various Budget announcements and other new schemes in 2017-18. For Defence expenditure excluding pensions, I have provided a sum of ` 2,74,114 crores including ` 86,488 crores for Defence capital. I have increased the allocation for Scientific Ministries to` 37,435 crore in 2017-18.
134. For the first time, a consolidated Outcome Budget, covering all Ministries and Departments, is being laid along with the other Budget documents. This will improve accountability of Government expenditure.
135. The FRBM Review Committee has given its report recently. The Committee has done an elaborate exercise and has recommended that a sustainable debt path must be the principal macro-economic anchor of our fiscal policy. The Committee has favoured Debt to GDP of 60% for the General Government by 2023, consisting of 40% for Central Government and 20% for State Governments. Within this framework, the Committee has derived and recommended 3% fiscal deficit for the next three years. The Committee has also provided for ‘Escape Clauses’, for deviations upto 0.5% of GDP, from the stipulated fiscal deficit target. Among the triggers for taking recourse to these Escape Clauses, the Committee has included “far-reaching structural reforms in the economy with unanticipated fiscal implications” as one of the factors. Although there is a strong case now to invoke this Escape Clause, I am refraining from doing so. The Report of the Committee will be carefully examined and appropriate decisions taken in due course.
136. Nevertheless, I take note of the fiscal deficit road map of 3% recommended by the Committee for the next three years. I have taken into consideration the need for higher public expenditure in the context of sluggish private sector investment and slow global growth. I have kept in mind the recommendation of the Committee that a sustainable debt should be the underlying basis of prudent fiscal management. Considering all these aspects, I have pegged the fiscal deficit for 2017-18 at 3.2% of GDP and remain committed to achieve 3% in the following year. With this gradual approach, I have ensured adherence to fiscal consolidation, without compromising the requirements of public investment.
137. I have taken due care to limit the net market borrowing of Government to ` 3.48 lakh crores after buyback, much lower than ` 4.25 lakh crores of the previous year. More importantly, the Revenue Deficit of 2.3% in BE 2016-17 stands reduced to 2.1% in the Revised Estimates. The Revenue Deficit for next year is pegged at 1.9% , against 2% mandated by the FRBM Act.
138. It will be our endeavour to improve upon these fiscal numbers, especially the fiscal deficit, in the next year, through greater focus on quality of expenditure and higher tax realisation from the huge cash deposits in Banks, triggered by demonetization.
PART B Madam Speaker,
139. I shall now present my tax proposals:
140. India’s tax to GDP ratio is very low, and the proportion of direct tax to indirect tax is not optimal from the view point of social justice. I place before you certain data to indicate that our direct tax collection is not commensurate with the income and consumption pattern of Indian economy. As against estimated 4.2 crore persons engaged in organised sector employment, the number of individuals filing return for salary income are only 1.74 crore. As against 5.6 crore informal sector individual enterprises and firms doing small business in India, the number of returns filed by this category are only 1.81 crore. Out of the 13.94 lakh companies registered in India upto 31st March, 2014, 5.97 lakh companies have filed their returns for Assessment Year 2016-17. Of the 5.97 lakh companies which have filed their returns for Assessment Year 2016-17 so far, as many as 2.76 lakh companies have shown losses or zero income. 2.85 lakh companies have shown profit before tax of less than ` 1 crore. 28,667 companies have shown profit between ` 1 crore to ` 10 crore, and only 7781 companies have profit before tax of more than ` 10 crores.
141. Among the 3.7 crore individuals who filed the tax returns in 2015-16, 99 lakh show income below the exemption limit of ` 2.5 lakh p.a., 1.95 crore show income between ` 2.5 to ` 5 lakh, 52 lakh show income between ` 5 to ` 10 lakhs and only 24 lakh people show income above ` 10 lakhs. Of the 76 lakh individual assesses who declare income above ` 5 lakh, 56 lakh are in the salaried class. The number of people showing income more than ` 50 lakh in the entire country is only 1.72 lakh. We can contrast this with the fact that in the last five years, more than 1.25 crore cars have been sold, and number of Indian citizens who flew abroad, either for business or tourism, is 2 crore in the year 2015. From all these figures we can conclude that we are largely a tax non-compliant society. The predominance of cash in the economy makes it possible for the people to evade their taxes. When too many people evade taxes, the burden of their share falls on those who are honest and compliant.
142. After the demonetisation, the preliminary analysis of data received in respect of deposits made by people in old currency presents a revealing picture. During the period 8th November to 30th December 2016, deposits between ` 2 lakh and ` 80 lakh were made in about 1.09 crore accounts with an average deposit size of ` 5.03 lakh. Deposits of more than 80 lakh were made in 1.48 lakh accounts with average deposit size of ` 3.31 crores. This data mining will help us immensely in expanding the tax net as well as increasing the revenues, which was one of the objectives of demonetisation.
143. Madam Speaker, one of the main priorities of our Government is to eliminate the black money component from the economy. We are committed to make our taxation rates more reasonable, our tax administration more fair and expand the tax base in the country. This approach will change the colour of money.
144. The net tax revenue of 2013-14 was ` 11.38 lakh crores. This grew by 9.4% in 2014-15 and 17% in 2015-16. As per the RE of 2016-17, we will end the year with a high growth rate of 17% for the second year in a row. Because of the serious efforts made by the Government, the rate of growth of advance tax in personal income tax in the first three quarters of the current financial is 34.8%.
145. Madam Speaker, the thrust of my tax proposals in this Budget is stimulating growth, relief to middle class, affordable housing, curbing black money, promoting digital economy, transparency of political funding and simplification of tax administration.Measures for Promoting Affordable Housing and Real Estate Sector
146. In my budget proposals last year, I had announced a scheme for profit-linked income tax exemption for promoters of affordable housing scheme which has received a very good response. However, in order to make this scheme more attractive, I propose certain changes in the scheme. First of all, instead of built up area of 30 and 60 sq.mtr., the carpet area of 30 and 60 sq.mtr. will be counted. Also the 30 sq.mtr. limit will apply only in case of municipal limits of 4 metropolitan cities while for the rest of the country including in the peripheral areas of metros, limit of 60 sq.mtr. will apply. In order to be eligible, the scheme was to be completed in 3 years after commencement. I propose to extend this period to 5 years.
147. At present, the houses which are unoccupied after getting completion certificates are subjected to tax on notional rental income. For builders for whom constructed buildings are stock-in-trade, I propose to apply this rule only after one year of the end of the year in which completion certificate is received so that they get some breathing time for liquidating their inventory.
148. We also propose to make a number of changes in the capital gain taxation provisions in respect of land and building. The holding period for considering gain from immovable property to be long term is 3 years now. This is proposed to be reduced to 2 years. Also, the base year for indexation is proposed to be shifted from 1.4.1981 to 1.4.2001 for all classes of assets including immovable property. This move will significantly reduce the capital gain tax liability while encouraging the mobility of assets. We also plan to extend the basket of financial instruments in which the capital gains can be invested without payment of tax.
149. For Joint Development Agreement signed for development of property, the liability to pay capital gain tax will arise in the year the project is completed.