Argentina offered a U.S.$6.5 billion cash payment to creditors suing the country over defaulted bonds, seeking to end a festering 14-year legal battle that transformed the country into a financial markets pariah.
Two out of six leading bondholders have already accepted the offer, the U.S. court-appointed mediator said, hailing the proposal by Argentina’s new, business-friendly government as an “historic breakthrough”. The offer, if accepted by all litigating bondholders, would represent a roughly 25 per cent discount or so-called haircut for creditors who filed claims of about U.S.$9 billion.
The turning point in the legal fight stemming from Argentina’s record default on around U.S.$100 billion in 2002 comes less than two months after President Mauricio Macri took office and expressed his commitment to a deal. If Mr Macri manages to clinch an agreement, the cash-strapped country will be able to emerge from default and return to global capital markets to finance badly-needed infrastructure such as new roads and railways. Lower borrowing costs would also be a boon for corporate and regional finances in Latin America’s third largest economy.
Mr Macri’s focus on reaching a deal with holdouts contrasts starkly with the hostile stance of his predecessor Cristina Fernandez, who refused to settle with the creditors she referred to as “vultures”. The Argentine Government said negotiations would continue with the four leading holdout investors that had not accepted the deal.
If a settlement is reached, Mr Macri’s next challenge will be to push it through Argentina’s left-leaning Congress, where no party holds a lower house majority. A deal would likely further bolster investor confidence in Mr Macri’s government, which has already won market approval for ending capital controls, unifying Argentina’s multiple exchange rates and cutting export taxes in a bid to provide a more business-friendly framework.
The offer contained two separate proposals. The first offers holders of defaulted debt who never joined the U.S. lawsuit full payment on the principle value of their bonds plus 50 per cent, mirroring a deal reached with 50,000 Italian creditors earlier. The second proposal applies to all creditors who have sued Argentina through the U.S. law courts. It offers a 30 per cent reduction on a creditor’s total claim. If the investor agrees within two weeks, the haircut will be trimmed to 27.5 per cent.
Prime Minister Narendra Modi has constituted a five-member task force to rationalise central government staff and ensure their maximum optimisation. The task force will be headed by Establishment Officer and Additional Secretary in Department of Personnel and Training (DoPT) Rajiv Kumar and it will submit its report in April 2016.
The Prime Minister has approved the proposal to constitute a task force to examine the issues of rationalisation and optimisation of human resource in various ministries to align them with financial resources and focus areas of the government.
Minister of State for Personnel Jitendra Singh said rationalisation of staff is of paramount importance for good governance. “This decision has been taken keeping in line with the Modi government’s commitment of maximum governance and minimum government. We are also considering restructuring existing tribunals, autonomous bodies and central public sector undertakings to ensure better optimisation of human resource,” he said.
The task force has two joint secretaries from Cabinet Secretariat, one each from the DoPT and Department of Expenditure as members.
In his budget speech for 2016–17, Finance Ministry Arun Jaitley had said a task force has been constituted for rationalisation of human resources in various ministries. As per its Terms of Reference (ToR), the task force will take stock and recommend measures to optimise senior positions in the Government of India, covering the posts in the secretariat and outside the secretariat including Chief Vigilance Officers – who act as a distant arm of Central Vigilance Commission to check corruption, various autonomous bodies, regulatory bodies, attached and subordinate offices.
It will also review roles and requirements of these posts, including eligibility criteria and recommend measures to achieve synergy and convergence of purposes and resources. The task force will review the processes involved in filling these posts and recommend rationalisation and is required “to examine and incorporate global best practices in this regard”, it said. There are about 50 lakh central government employees working in various ministries.
Highlights of Rail Budget 2016-17
Theme of the Budget
v Overcoming challenges – Reorganize, Restructure, Rejuvenate Indian Railways: Chalo, Milkar Kuch Naya Karen
v Three pillars of the strategy: Nav Arjan – New Revenues, Nav Manak – New Norms, Nav Sanrachna – New Structures.
v 2015–16 – Savings of 8,720 crore, neutralizing most of the revenue shortfall, expected Operating Ratio (OR) 90%;
v 2016–17 – Targeted Operating Ratio (OR) – 92%, restrict growth of Ordinary Working Expenses by 11.6% after building in immediate impact of Seventh Pay Commission (SPC), reductions planned in diesel and electricity consumption; Revenue generation targeted at 1,84,820 crore.
Investments and Resources
v Process bottlenecks overhauled including delegation of powers to functional levels; average capital expenditure over 2009–14 is 48,100 crore, average growth of 8% per annum. 2015–16 investment would be close to double of the average of previous five years. 2016–17 CAPEX pegged at 1.21 lakh crore; implementation through joint ventures with states, developing new frameworks for PPP, etc.
v By 2020, long–felt desires of the common man to be fulfilled, i.e., reserved accommodation on trains available on demand, time tabled freight trains, high end technology to improve safety record, elimination of all unmanned level crossings, improved punctuality, higher average speed of freight trains, semi high speed trains running along the golden quadrilateral, zero direct discharge of human waste.
Achievements in 2015–16
v Action initiated on 139 budget announcements of 2015–16.
v Assured funding through LIC; commissioning of 2,500 km Broad Gauge lines; commissioning of 1,600 km of electrification, highest ever. In 2016–17, targeted commissioning 2,800 km of track; commissioning Broad Gauge lines at over 7 km per day against an average of about 4.3 km per day in the last six years. Would increase to about 13 km per day in 2017–18 and 19 km per day in 2018–19; will generate employment of about 9 crore man days in 2017–18 and 14 crore man days in 2018–19. Outlay for railway electrification increased in 2016–17 by almost 50%; target to electrify 2,000 km.
Dedicated Freight Corridor
v Almost all contracts for civil engineering works to be awarded by March 31st 2016; 24,000 crore worth of contracts awarded since November 2014 as against 13,000 crore contracts awarded in last six years; propose to take up North–South, East–West & East Coast freight corridors through innovative financing including PPP.
v Tuna Port commissioned and rail connectivity projects to ports of Jaigarh, Dighi, Rewas and Paradip under implementation; implementation of rail connectivity for the ports of Nargol and Hazira under PPP in 2016–17.
v BG Lumding–Silchar section in Assam opened thus connecting Barak Valley with rest of the country; Agartala brought on to the BG network. States of Mizoram and Manipur shortly to come on BG map of the country with commissioning of the Kathakal–Bhairabi and Arunachal–Jiribam Gauge Conversion projects.
Jammu and Kashmir
v Work on Katra–Banihal section of Udhampur–Srinagar–Baramulla Rail Link Project progressing satisfactorily – 35 km of tunneling out of total of 95 km completed; Decongestion work on Jalandhar–Jammu line in full swing and doubling of two bridges to be commissioned by March 2016, while the other two bridges will be completed by 2016–17.
v Make in India: Finalised bids for two loco factories; proposed to increase the current procurement of train sets by 30%.
Capacity Building for the Future through:
v Transparency: initiated recruitments online in 2015–16, process now being replicated for all positions, social media being used as a tool to bring in transparency, all procurement including procurement of works moved to the e–platform, completed trial of process leading to award of tender electronically and to be rolled out on a pan–India basis in 2016–17.
v Governance: Delegation led to compression of project sanction time to 6–8 months from two years earlier, key result areas identified to judge performance of GMs and DRMs, performance related MOUs signed with few zones, to be replicated for all zones.
v Internal audit measures: specialised teams mandated to screen railway operations in specific areas to detect inefficiencies and prevent wastages, every zone preparing two reports by March 31, 2016.
v Partnerships: Cabinet approval for JVs with state governments, 17 consented and 6 MOUs signed with state governments. 44 new partnership works covering about 5,300 km and valuing about 92,714 crore have been indicated in the Budget documents.
v Interaction and feedback through social media & dedicated IVRS system. Making travel comfortable by generating over 65,000 additional berths, installing 2,500 water vending machines; introducing ‘Mahamana Express’ with modern refurbished coaches; 17,000 bio–toilets in trains; world’s first bio–vacuum toilet developed.
v Improving punctuality: Operations audit for Ghaziabad to Mughalsarai section.
v Ticketing: Introduced 1,780 Automatic Ticket Vending Machines, mobile apps & GoIndia smartcard for cashless purchase of UTS and PRS tickets, enhanced capacity of e–ticketing system from 2,000 tickets per minute to 7,200 tickets per minute and to support 1,20,000 concurrent users as against only 40,000 earlier.
v Social initiatives: One–time registration for availing concessions while booking tickets online, online booking of wheelchairs & Braille enabled new coaches introduced for the Divyang, increased quota of lower berths for senior citizens and women, middle bays reserved in coaches for women. Wi–fi provided in 100 stations, to be provided in 400 more. Stations being redeveloped – financial bid received for Habibganj, Bhopal; Cabinet approval for stations to be taken up under PPP. Securitythrough helplines & CCTVs.
v Safety: 350 manned level crossings closed, eliminated 1,000 unmanned level crossings, 820 ROB/RUB completed in the current year and work going on in 1,350 of them.
Other major achievements
v Energy: annualized savings of 3,000 crore to be achieved in the next financial year itself, a year earlier than announced; achieved by procuring power directly at competitive rates using IR’s status as Deemed Distribution Licensee.
v Rail University: initially identified the National Academy of Indian Railways at Vadodara.
v Digital India: application of Track Management System (TMS) launched, inventory management module of TMS has resulted in inventory reduction by 27,000 MT resulting in saving of 64 crore and scrap identification of 22,000 MT equivalent to 53 crore.
The Way Ahead
Improving quality of travel
For the unreserved passenger:
v Antyodaya Express – unreserved, superfast service.
v Deen Dayalu coaches – unreserved coaches with potable water and higher number of mobile charging points. For the reserved passenger.
v Humsafar – fully air–conditioned third AC service with an optional service for meals.
v Tejas – will showcase the future of train travel in India. Will operate at speeds of 130 kmph and above. Will offer onboard services such as entertainment, local cuisine, wi–fi, etc., through one service provider for ensuring accountability and improved customer satisfaction
v Humsafar and Tejas to ensure cost recovery through tariff and non–tariff measures
v UDAY – overnight double–decker; Utkrisht Double–Decker Air–conditioned Yatri Express on the busiest routes, has the potential to increase carrying capacity by almost 40%.
v Ticketing: Sale of tickets through hand held terminals; e–ticketing facility to foreign debit/credit cards; bar coded tickets, scanners and access control on a pilot basis. Expansion of Vikalp – train on demand to provide choice of accommodation in specific trains to waitlisted passengers. E–booking of tickets facility on the concessional passes available to journalists; facility of cancellation through the 139 helpline post verification using ‘One Time Password’ sent on registered phone number, to improve tatkaal services, CCTV cameras on windows and periodic audit of PRS website.
v Cleanliness: ‘Clean my Coach’ service through SMS, ranking of A1 and A stations based on periodic third party audit and passenger feedback; waste segregation and recycling centres; ‘Awareness campaigns’; additional 30,000 bio–toilets; providing portable structures with biotoilets at all platforms of select stations for senior citizens, Divyang and women travelers, plan to explore innovative means of providing and maintaining toilets such as advertisement rights, CSR, voluntary support from social organizations.
v Catering and stalls at stations: IRCTC to manage catering services in a phased manner; explore possibility of making catering services optional, adding 10 more IRCTC operated base kitchens; to build local ownership and empowerment, weightage will be given to district domicile holders for commercial licenses at stations.
v Stoppages: Convert all operational halts into commercial halts for the benefit of the common man.
v Rail Mitra Sewa: Expanding Sarathi Seva in Konkan Railway to help the old and disabled passengers, strengthening the existing services for enabling passengers to book battery operated cars, porter services, etc., on a paid basis in addition to the existing pick up and drop, and wheel chair services.
v Measures for Divyang: All stations under redevelopment accessible by Divyang; to provide at least one Divyang friendly toilet at each platform in A1 class stations during the next financial year and also ensure availability of wheelchairs in sufficient numbers at these stations.
v Travel Insurance to passengers: to offer optional travel insurance for rail journeys at the time of booking.
v Hourly booking of retiring rooms: Will be handed over to IRCTC.
v Janani Sewa: Children’s menu items on trains, baby foods, hot milk and hot water would be made available.
v SMART (Specially Modified Aesthetic Refreshing Travel) Coaches: Design and layout of our coaches to ensure higher carrying capacity and provision of new amenities including automatic doors, bar–code readers, bio–vacuum toilets, water–level indicators, accessible dustbins, ergonomic seating, improved aesthetics, vending machines, entertainment screens, LED lit boards for advertising, PA system.
v Mobile Apps: integrate all facilities into two mobile apps dealing with ticketing issues and for receipt and redressal of complaints and suggestions.
v Improving customer interface: Skilling our front–end staff and those we employ through our service providers, information boards in trains enumerating the on–board services and also GPS based digital displays inside coaches to provide real time information regarding upcoming halts. Work underway on installation of a high–tech centralized network of 20,000 screens across 2000 stations for enabling real time flow of information to passengers and also unlock huge advertising potential. All A1 class stations will be manned with duly empowered Station Directors supported by cross functional teams; to make one person accountable for all facilities on trains.
v Pilgrimage centres: To take up on priority the provision of passenger amenities and beautification on stations at pilgrimage centres including Ajmer, Amritsar, Bihar Sharif, Chengannur, Dwarka, Gaya, Haridwar, Mathura, Nagapattinam, Nanded, Nasik, Pali, Parasnath, Puri, Tirupati, Vailankanni, Varanasi and Vasco; also intend to run Aastha circuit trains to connect important pilgrim centres.
v Porters: Intend providing them with new uniforms and train them in soft skills, henceforth, to be called ‘sahayak’.
v High Speed Rail: Passenger corridor from Ahmedabad to Mumbai being undertaken with the assistance of the Government of Japan. SPV for implementing high speed projects will be registered this month. Prime benefit would be providing IR with technology advancements and new manufacturing capability.
v Entertainment: Propose to invite FM radio stations for providing train borne entertainment; extend ‘Rail Bandhu’ to all reserved classes of travelers and in all regional languages.
v Passenger traffic – Suburban traffic: In–principle approval for MUTP III received. Early award of tenders for elevated suburban corridors between Churchgate–Virar and between CSTM–Panvel; revive Ring Railway system in Delhi; launching a new investment framework for developing suburban systems in partnership with state governments, development in Ahmedabad, Bengaluru, Hyderabad, Chennai and Thiruvananthapuram on the anvil.
Winning back the lost modal share
Expanding the freight basket of IR: To start time–tabled freight container, parcel and special commodity trains on a pilot basis, container sector would be opened to all traffic barring coal, specified mineral ores and part–loads during the non–peak season. All existing terminals/sheds would be granted access to container traffic, where considered feasible.
Rationalising the tariff structure: Undertake review of tariff policy to evolve a competitive rate structure vis a vis other modes, permit multi–point loading/unloading and apply differentiated tariffs to increase utilization of alternate routes, explore possibility of signing long term tariff contracts with our key freight customers using
pre – determined price escalation principles.
Building terminal capacity: Proposed to develop Rail side logistics parks and warehousing in PPP mode, 10 goods sheds will be developed by TRANSLOC, the Transport Logistics Company of India, in
2016–17. To soon inaugurate India’s first rail auto hub in Chennai. Encourage development of cold storage facilities on vacant land near freight terminals. Local farmers and fisherman would be given preferential usage of the facility. A policy in this regard would be issued in the next three months.
Nurturing customers: Will appoint Key Customer Managers to liaison with our major freight stakeholders; each Zonal Railway will develop customer commitment charter indicating service level commitments of IR, will explore the feasibility of opening up leasing of general purpose wagons.
Non fare revenues
v Station redevelopment; monetizing land along tracks; monetizing soft assets – website, data, etc.; advertising in 2016–17 target four times the revenue of 2015–16; overhaul of parcel business – liberalize the current parcel policies including opening the sector to container train operators; revenues from manufacturing activity – by 2020, aim at generating annualised revenues of about 4,000 crore.
v EPC projects standard document finalized, will implement at least 20 projects through this mode in 2016–17; by 2017–18, endeavour to award all works valuing above 300 crore through EPC contracts.
v Performance output parameters based contracts to review service contracts to integrate them and make them simpler and outcome focused.
v Leveraging technology for project management intend to use the latest drone and Geo Spatial based satellite technology for remotely reviewing the physical progress across major projects; monitoring of DFC to be operationalised through this mode in 2016–17.
v System–wide IT integration – initiated system wide integration, both horizontal and vertical, akin to an ERP through innovative partnership models.
Rail Development Authority
v To enable fair pricing of services, promote competition, protect customer interests and determine efficiency standards; draft bill to be ready after holding extensive stakeholder consultations.
Undertaking Navarambh – a new beginning
v Navinikaran – Structural Interventions Organisational Restructuring – proposed to reorganize the Railway Board along business lines and suitably empower Chairman, Railway Board. As a first step, cross functional directorates to be set up in Railway Board to focus on areas like non–fare revenues, speed enhancement, motive power and information technology; explore the possibility of unifying cadres for fresh recruitment of officers; strengthen PPP cell to improve ease of doing business with IR.
v Sashaktikaran – Improving our planning practices
To set up a Railway Planning & Investment Organisation for drafting medium (five years) and long (ten years) term corporate plans; identify projects which fulfill the corporate goal. Prepare a National Rail Plan to harmonise and integrate the rail network with other modes of transport and create synergy for achieving seamless multi–modal transportation network across the country
v Aekikaran – Consolidation; forming a holding company of companies owned by IR.
v Shodh aur vikas – Investing in the future: to set up a R&D organization, a Special Railway Establishment for Strategic Technology & Holistic Advancement, SRESTHA. RDSO will now focus only on day to day issues while SRESTHA would drive long term research.
v Vishleshan – Analyzing data: a dedicated, cross functional team called Special Unit for Transportation Research and Analytics (SUTRA) would be set up for carrying out detailed analytics leading to optimized investment decisions and operations
v Navrachna – Innovation: by setting aside a sum of 50 crore for providing innovation grants to employees, startups and small businesses.
Avataran – Seven Missions for the transformation of IR
v Missions will be headed by a Mission Director reporting directly to the Chairman, Railway Board and heading a cross functional team empowered to take all relevant decisions for a timely targeted delivery. Annual outcome based performance targets for the Mission would be announced and the Missions will finalise the implementation plans for short, medium and long terms and proceed accordingly
v Mission 25 Tonne for 25 tonne axle load, Mission Zero Accident for safety, Mission PACE (Procurement and Consumption Efficiency), Mission Raftaar for higher speeds, Mission Hundred for commissioning 100 sidings/freight terminals, Mission Beyond Book–keeping for accounting reforms, Mission Capacity Utilisation to prepare a blueprint for making use of the capacity created once DFC is commissioned.
Sustainability and Social Initiatives: Human Resources/ Skilling, Social initiatives,
v To tie up with the Ministry of Health for ensuring an exchange between Railways hospitals and Government hospitals; to introduce ‘AYUSH’ systems in five Railway hospitals; provide gang men with devices called ‘Rakshak’ for intimating them about approaching trains, also reduce the weight of the tools carried by them while patrolling. To provide toilets and air–conditioning in cabs for our loco pilots.
v Set up two chairs – one C. T. Venugopal chair on strategic finance, research and policy development and another Kalpana Chawla chair on geo–spatial technology. For youth – open our organisation to 100 students across Engineering and MBA schools for 2–6 months’ internships each year. Partnering with Ministry of Skill Development – skill development on IR premises.
v Undertaken energy audits for reducing energy consumption in non–traction area by 10% to 15% – all new light provisions will be LED luminaire and all Railway stations to be covered with LED luminaire in next two to three years.
v Action plan drawn up for environmental accreditation, water management and waste to energy conversion. More than 2,000 locations provided with Rain Water Harvesting facility. In place of steel sleepers on steel bridges environmentally friendly composite sleepers made of recycled plastic waste will be used over all girder bridges.
v 32 stations and 10 coaching depots have been identified for installation of water recycling plants in the coming years.
v Partnering with state governments for operating tourist circuit trains; recent upgradation of National Rail Museum, promotion of tourism through Railway museums and UNESCO World Heritage Railways.
v To spread awareness about our National Animal, the Tiger, complete packages including train journey, safaris and accommodation to cover the wildlife circuit comprising Kanha, Pench and Bandhavgarh will be offered.
Financial Performance 2015–16
v Net reduction in Gross Traffic Receipts by 15,744 crore in RE 2015–16 compared to the BE target of 1,83,578 crore. Passenger earnings scaled down keeping in view the persistent negative growth trend since 2013–14 both in the suburban and non–suburban non–PRS segment of travel. Freight earnings impacted mainly on account of low demand from the core sector resulting in resetting the target in R.E. 2015–16 to 1,11,853 crore.
v Stringent economy and austerity measures adopted to contain the Ordinary Working Expenses (O.W.E.) due to which budgeted Ordinary Working Expenses of 1,19,410 crore decreased in the Revised Estimates 2015–16 to 1,10,690 crore i.e., by 8,720 crore.
v BE provided for an appropriation of 34,900 crore to the Pension Fund. However, based on trend, the pension outgo moderately decreased to 34,500 crore in RE.
v Internal resource generation diminished and appropriation to DRF moderated to 5,500 crore in RE from the BE 2015–16 provisioning of 7,900 crore. Excess of receipts over expenditure in RE 2015–16 stands at 11,402.40 crore.
v Plan size for 2015–16 is currently estimated at 1,00,000 crore, i.e., the BE level.
Budget Estimates 2016–17:
v The intention to improve revenues and ensure appropriate investments which can continue the roadmap of decongestion and enhance line capacity enhancement as detailed in 2015–16. The focus is on enhanced CAPEX with a mix of various sources of funding in order to ensure that the projects are given assured funding.
v Gross Traffic Receipts kept at ,84,820 crore. Passenger earnings growth has been pegged at 12.4% and earnings target budgeted at 51,012 crore. The freight traffic is pegged at incremental traffic of 50 million tonnes, anticipating a healthier growth in the core sector of economy. Goods earnings is accordingly proposed at 1,17,933crore. Other coaching and sundries projected at 6,185 crore and 9,590.3 crore respectively.
v OWE provides for the implementation of the Seventh CPC.
v Pension outgo budgeted at 45,500 crore in 2016–17.
v Higher staff cost and pension liability impacts the internal resource position of the Railways. Accordingly, appropriation to DRF from revenue placed at 3,200 crore and that from Production Units at 200 crore. A withdrawal of 3,160 crore from DRF on net basis proposed though the gross expenditure to be met from DRF in the Annual Plan estimated at 7,160 crore. 5,750 crore proposed to be appropriated to the Capital fund. With a drawdown of 1,250 crore from previous balances in the fund, plan requirement of 7,000 crore for repayment of principal component of lease charges to IRFC met.
v Railways are preparing a Plan size of 1,21,000 crore in 2016–17.
Union Budget 2016–17: Unspectacular but pragmatic
There was a lot of speculation in the run up to the budget that the Finance Minister would abandon the constraints imposed by the Fiscal Responsibility and Budget Management (FRBM) Act. The supporters of this line of thinking felt that it was better to borrow, spend and grow so that the resultant buoyancy in the economy could increase household incomes and help pull many more out of the clutches of poverty. The opponents of this approach pointed out that the international economic environment was hardly conducive to this sort of fiscal adventurism. World economic growth is down to 3.1 per cent in 2015 and international trade is nose diving. Better to be conservative and plan to spend within one’s means so that, in the event of a global economic meltdown, India could rely on domestic markets and resources to mitigate the impact of the resultant chaos.
In the event, the Finance Minister has done a pretty good job of walking the fine line between the two paths. The Union Budget 2016 has shrewdly tapped resources on an incremental basis to generate funds which are being pumped largely into the rural and agriculture sectors and into infrastructure building. There is no big bang or grand idea in this budget – but it does an admirable job of using all available resources to try and tackle the widespread rural and agricultural distress, a result of two successive near-droughts.
The Fiscal Deficit Number
The importance of this number lies in the fact that it provides a signal to the world about the seriousness of the government’s intention to live within its means. Fiscal Deficit as a percentage of GDP for 2015–16 came in at 3.9 per cent (Revised Estimate). That this is bang on target as compared to the Budgetary Estimate made a year ago is undoubtedly important because it tells us that the government is serious about the projections that it made on the fiscal front.
The on-target Fiscal Deficit number also means the government will not need to borrow more than it estimated in order to meet its expenses. This in turn will create the room for a cut in interest rates – something that Indian industry has been demanding ever since this government came to power two years ago. For the consumer it could mean a cut in EMIs – on their home loans, car loans and consumer loans.
If all this happens, a virtuous cycle of lower loan costs, higher spending, more industrial production and greater GDP growth could set in.
The Fiscal Deficit target for 2016–17 is 3.5 per cent of GDP.
The Crude Oil Prices Bonanza
Two years ago crude oil price stood at about U.S.$110 per barrel [One barrel in the oil industry equals 159 litres.]. Today it is in the range of U.S.$35–40 per barrel. This crash in the price of one of India’s largest imports has given a huge, if totally unexpected, boost to the country’s fiscal position. It has had a huge role to play in bringing our Current Account Deficit (CAD) down to a very comfortable 1.4 per cent of GDP.
It has also helped the government balance its books. Even though the international price of crude has dropped by more than 60%, the retail price at which we buy our petrol and diesel has dropped by only about 25% (from about 80 per litre of petrol to about 60 per litre). The government has shrewdly used the cushion to increase excise duties on petrol and diesel, thereby making up for shortfalls in other areas of collection and cutting fuel subsidies significantly. Without this windfall gain, the fiscal situation could have been in pretty poor shape – and the government just would not have had the money to spend on the various welfare and development schemes unveiled in this budget.
Thrust on Agriculture & Rural Sectors
The focus on supporting and developing the agricultural and rural sectors is the cornerstone of this budget. Clearly the government is aiming to send a message.
More than the actual increase in spending on these sectors, it is the language of the budget speech that emphasises the fact that the Narendra Modi government does not want to take any chance with this huge bloc of voters. Gone is the talk of urban development and smart cities; this budget clearly wants you to believe that the government is pro-farmer, pro-villager.
The total allocation for agriculture and farmers’ welfare is 35,984 crore. There is money for irrigation projects to be fast-tracked, money for management of ground water resources and money for improving soil health.
There is also an allocation of 5,500 crore for crop insurance. There is no doubt that the vagaries of nature create acute distress to farmers; in the light of this fact, a strong crop insurance scheme is the need of the hour. The real challenge lies in promoting the schemes successfully at the village level. Most people are seriously under-insured and our farmers would need a lot of counselling to ensure that they spend the money required (toward premium) to come under this safety net.
The budget also increases the target for agricultural credit from 8.5 lakh crore to 9 lakh crore. Here too, the critical factor is how effectively the government is able to implement the credit disbursal – just setting targets is not of much use.
The budget also makes a concerted effort at putting money into road-building for rural connectivity. An allocation of 19,000 crore from the Centre (a total of 27,000 crore including states’ share of the project cost) has been made to the Pradhan Mantri Gram Sadak Yojana. The plan is to connect another 65,000 rural habitations.
The government, committed to achieving 100% village electrification by 1 May 2018, has provided for 8500 crore for rural electrification over the next year.
The previous government’s flagship programme, Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), has continued to find favour with the current dispensation – the budget has an allocation of 38,500 crore.
A significant, if surprising, step in the direction of liberalization that will assist the agriculture sector has come in the form of allowing 100 per cent FDI (Foreign Direct Investment) in the area of multi-brand processed food retailing as long as they are sourced and manufactured within the country. This is a most welcome measure.
In keeping with the theme to ‘Transform India’, the budget provides much needed funds for the development of roads, highways and ports. Poor infrastructure and connectivity to ports and airports mean that our farm produce reaches markets in poor condition, often losing out badly in terms of the price it can fetch. It also adds to the cost of manufactured goods that need to get to their customers. If ‘Make in India’ is to be successful, there is no doubt that it will have be on the back of significant improvement in the quality and quantity of roads, railway tracks, ports and airports in the country. This budget estimates a total capital expenditure of 2,18,000 crore on roads and railways.
Road development, sadly, is one of the worst hit areas in terms of India’s notorious ‘leakages’. The government spends huge sums of money on roads that never come up, or if they do, last for less than a year or two. Unless the government comes down heavily on the rampant corruption that plagues the sector, all the plans will remain on paper and our farm produce and manufactured products will continue to rot.
Recapitalisation of Public Sector Banks
The budget allots a sum of 25,000 crore towards capital for some of India’s ailing public sector banks. On the face of it, this amount seems grossly inadequate in light of the estimated 4,00,000 crore of NPAs (Non Performing Assets) that they carry on their books. However, the Finance Minister has categorically committed that more resources would be found if needed. He has also spoken of a roadmap for the consolidation of these banks. All this only means that interesting times lie ahead for these financial institutions.
This is another flagship programme of the UPA government that has withstood the regime change. In order to ensure that subsidies reach only the really poor (read ‘deserving’), it is necessary to ensure targeted disbursement of government assistance. The Aadhar number will enable the government to do just that but it needs legal backing which was hitherto missing.
The government proposes to introduce a bill (since passed as a Money Bill by the Lok Sabha) for ‘Targeted Delivery of Financial and Other Subsidies, Benefits and Services’. This would indeed be a very important piece of legislation as it would put benefits directly into the hands of those to whom they are intended to reach.
The total expenditure for 2016–17 has been projected at 19.78 lakh crore – consisting of 5.5 lakh crore of Plan expenditure and 14.28 lakh crore of Non–Plan expenditure. Non–Plan expenditure has been projected to grow by a relatively low 9.1 per cent over last year. This suggests that the Finance Minister is aiming to keep a tight control on other expenditure even as he announces large spending plans in major critical areas.
It should be remembered that the Seventh Pay Commission award and the acceptance of the demand for One Rank One Pension will result in a big increase in the salaries and pension bill of the government. The outlay for wages and salaries is estimated to have increased by 55 per cent and that for pensions by 28 per cent.
Where did the money come from?
The large part of the the funds for increased expenditure has come from the anticipated growth in the economy. The budget estimates that the nominal growth (including inflation) in GDP will be about 11 per cent. The tax–to–GDP ratio has been projected to remain more or less constant at around 13 per cent. Thus, a steady growth in government revenue follows from a steady growth in the economy, backed by a stable tax regime – a healthy state of affairs indeed.
Of course, there has been some tinkering to add to the resources. On the Direct Taxes front, while there is an additional relief of 3,000 to those earning upto 5 lakh per annum, there is also a hike in the surcharge (from 12 per cent to 15 per cent) on the tax payable by those whose income exceeds 1 crore per annum. There is also a 10 per cent tax on dividend income exceeding 10 lakh per annum. The reduction in Corporate Income Tax rate from 30 per cent to 25 per cent promised over four years has not yet started its journey downwards, except for companies whose annual turnover is less than 5 crore.
The hike in surcharge on Income Tax and the tax on dividends directly in the hands of the tax payer are both regressive measures in so far as they represent a bit of a flip-flop in taxation philosophy articulated in past budgets. This is unfortunate.
On the Indirect Taxes front, there is one more cess to paid by Service Tax payers, i.e., all of us. This is the Krishi Kalyan Cess levied at 0.5% on all taxable services. This makes the effective Service Tax rate 15% – including the 0.5% Swachh Bharat Cess.
The Spectrum Bonus
An important source of revenue buoyancy has come from an increase in non–tax revenue of 24.8 per cent – large by any standards. A huge component of this is the revenue from the auction of telecom spectrum – estimated to yield 99,000 crore – up by an eye–popping 76% over 2015–16.
Disinvestment has been estimated to fetch 56,500 crore in 2016–17, even though it raised only 25,300 crore in 2015–16 (against a target of of 69,500 crore). With disinvestment being a perennial political hot potato one can never be sure if any of these planned revenues will ever materialize. Clearly, the Finance Minister is a die–hard optimist!
Simplification of Tax Laws
The budget aims to simplify a number of tax laws in our insanely complicated maze of laws, rules and notifications. This is a laudable initiative. One only hopes that it is allowed to work at the ground level. All too often there is a large gap between the intent of the Finance Minister and its implementation by the tax officers who are under ‘target’ pressure.
A Journey of a Thousand Miles Begins with One Step. So said Lao Tzu, a noted Chinese philosopher. As a country, India has many thousand mile journeys to undertake before this huge and still very poor country can claim to be in a position to offer the vast majority of its 1.3 billion citizens a reasonable standard of living and an acceptable quality of life.
This budget is one such first step. It may not be a giant leap, but it is a clear, determined and well directed first step. India’s rural poor clearly need roads to their villages, clean drinking water and insurance from the vicissitudes of fortune. The Union Budget 2016–17 steadfastly aims to address these undeniable needs. It deserves a thumbs up.
Highlights of Union Budget 2016-17
Ø Growth of economy accelerated to 7.6% in 2015–16.
Ø India hailed as a ‘bright spot’ amidst a slowing global economy by IMF.
Ø Robust growth achieved despite very unfavourable global conditions and two consecutive years shortfall in monsoon by 13%.
Ø Foreign exchange reserves touched highest ever level of about U.S.$350 billion.
Ø Despite increased devolution to states by 55% as a result of the 14th Finance Commission award, plan expenditure increased at RE stage in 2015–16 in contrast to earlier years.
CHALLENGES IN 2016–17
Ø Risks of further global slowdown and turbulence.
Ø Additional fiscal burden due to 7th Central Pay Commission recommendations and One Rank One Pension (OROP).
ROADMAP & PRIORITIES
Ø ‘Transform India’ to have a significant impact on economy and lives of people.
Ø Government to focus on:
§ ensuring macro–economic stability and prudent fiscal management;
§ boosting on domestic demand, and
§ continuing with the pace of economic reforms and policy initiatives to change the lives of our people for the better.
Ø Focus on enhancing expenditure in priority areas of farm and rural sector, social sector, infrastructure sector employment generation and recapitalisation of the banks.
Ø Focus on vulnerable sections through:
§ Pradhan Mantri Fasal Bima Yojana;
§ F new health insurance scheme to protect against hospitalisation expenditure, and
§ F facility of cooking gas connection for BPL families.
Ø Continue with the ongoing reform programme and ensure passage of the Goods and Service Tax bill and Insolvency & Bankruptcy law.
Ø Undertake important reforms by:
§ giving a statutory backing to AADHAR platform to ensure benefits reach the deserving;
§ freeing the transport sector from constraints and restrictions;
§ incentivising gas discovery and exploration by providing calibrated marketing freedom;
§ enactment of a comprehensive law to deal with resolution of financial firms;
§ provide legal framework for dispute resolution and re–negotiations in PPP projects and public utility contracts, and
§ undertake important banking sector reforms and public listing of general insurance companies undertake significant changes in FDI policy.
AGRICULTURE AND FARMERS’ WELFARE
Ø Allocation for Agriculture and Farmers’ welfare is 35,984 crore.
Ø ‘Pradhan Mantri Krishi Sinchai Yojana’ to be implemented in mission mode; 28.5 lakh hectares will be brought under irrigation.
Ø Implementation of 89 irrigation projects under Accelerated Irrigation Benefit Programme (AIBP), which are languishing for a long time, will be fast tracked.
Ø A dedicated Long Term Irrigation Fund will be created in NABARD with an initial corpus of about 20,000 crore.
Ø Programme for sustainable management of ground water resources at an estimated cost of 6,000 crore will be implemented through multilateral funding.
Ø Five lakh farm ponds and dug wells in rain fed areas and 10 lakh compost pits for production of organic manure will be taken up under MGNREGA.
Ø Soil Health Card scheme will cover all 14 crore farm holdings by March 2017.
Ø 2,000 model retail outlets of fertilizer companies will be provided with soil and seed testing facilities during the next three years.
Ø Promote organic farming through ‘Paramparagat Krishi Vikas Yojana’ and ‘Organic Value Chain Development in North East Region’.
Ø Unified Agricultural Marketing ePlatform to provide a common emarket platform for wholesale markets.
Ø Allocation under Pradhan Mantri Gram Sadak Yojana increased to 19,000 crore; will connect remaining 65,000 eligible habitations by 2019.
Ø To reduce the burden of loan repayment on farmers, a provision of 15,000 crore has been made in the Budget Estimates (BE) 2016–17 towards interest subvention.
Ø Allocation under Prime Minister Fasal Bima Yojana – 5,500 crore.
Ø Rs850 crore for four dairying projects – ‘Pashudhan Sanjivani’, ‘Nakul Swasthya Patra’, ‘E–Pashudhan Haat’ and National Genomic Centre for Indigenous Breeds.
Ø Allocation for rural sector – 87,765 crore.
Ø 2.87 lakh crore will be given as Grant in Aid to Gram Panchayats and Municipalities as per the recommendations of the 14th Finance Commission.
Ø Every block under drought and rural distress will be taken up as an intensive block under the Deen Dayal Antyodaya Mission.
Ø A sum of 38,500 crore allocated for MGNREGS.
Ø 300 Rurban Clusters will be developed under the Shyama Prasad Mukherjee Rurban Mission.
Ø 100% village electrification by 1 May 2018.
Ø District Level Committees under chairmanship of senior most Lok Sabha MP from the district for monitoring and implementation of designated Central Sector and Centrally Sponsored Schemes.
Ø Priority allocation from Centrally Sponsored Schemes to be made to reward villages that have become free from open defecation.
Ø A new Digital Literacy Mission Scheme for rural India to cover around 6 crore additional household within the next 3 years.
Ø National Land Record Modernisation Programme has been revamped.
Ø New scheme Rashtriya Gram Swaraj Abhiyan proposed with allocation of 655 crore.
SOCIAL SECTOR INCLUDING HEALTH CARE
Ø Allocation for social sector including education and health care – 1,51,581 crore.
Ø 2,000 crore allocated for initial cost of providing LPG connections to BPL families.
Ø New health protection scheme will provide health cover up to 1 lakh per family. For senior citizens an additional top–up package up to 30,000 will be provided.
Ø 3,000 stores under Prime Minister’s Jan Aushadhi Yojana will be opened during 2016–17.
Ø ‘National Dialysis Services Programme’ to be started under National Health Mission through PPP mode
Ø ‘Stand Up India Scheme’ to facilitate at least two projects per bank branch. This will benefit at least 2.5 lakh entrepreneurs.
Ø National Scheduled Caste and Scheduled Tribe Hub to be set up in partnership with industry associations
Ø Allocation of 100 crore each for celebrating the Birth Centenary of Pandit Deen Dayal Upadhyay and the 350th Birth Anniversary of Guru Gobind Singh.
EDUCATION, SKILLS AND JOB CREATION
Ø 62 new Navodaya Vidyalayas will be opened.
Ø Sarva Shiksha Abhiyan to increasing focus on quality of education.
Ø Regulatory architecture to be provided to ten public and ten private institutions to emerge as world–class Teaching and Research Institutions.
Ø Higher Education Financing Agency to be set–up with initial capital base of 1000 crore.
Ø Digital Depository for School Leaving Certificates, College Degrees, Academic Awards and Mark Sheets to be set–up.
Ø Allocation for skill development – 1,804 crore.
Ø 1500 Multi Skill Training Institutes to be set up.
Ø National Board for Skill Development Certification to be setup in partnership with the industry and academia.
Ø Entrepreneurship Education and Training through Massive Open Online Courses
Ø GoI will pay contribution of 8.33% for of all new employees enrolling in EPFO for the first three years of their employment. Budget provision of 1000 crore for this scheme.
Ø Deduction under Section 80JJAA of the Income Tax Act will be available to all assesses who are subject to statutory audit under the Act
Ø 100 Model Career Centres to operational by the end of 2016–17 under National Career Service.
Ø Model Shops and Establishments Bill to be circulated to States.
INFRASTRUCTURE AND INVESTMENT
Ø Total investment in the road sector, including PMGSY allocation, would be 97,000 crore during 2016–17.
Ø India’s highest ever kilometres of new highways were awarded in 2015. To approve nearly 10,000 km of National Highways in 2016–17.
Ø Allocation of 55,000 crore in the Budget for Roads. Additional 15,000 crore to be raised by NHAI through bonds.
Ø Total outlay for infrastructure – 2,21,246 crore.
Ø Amendments to be made in Motor Vehicles Act to open up the road transport sector in the passenger segment
Ø Action plan for revival of unserved and underserved airports to be drawn up in partnership with state governments.
Ø To provide calibrated marketing freedom in order to incentivise gas production from deep–water, ultra deep–water and high pressure–high temperature areas.
Ø Comprehensive plan, spanning next 15 to 20 years, to augment the investment in nuclear power generation to be drawn up.
Ø Steps to revitalise PPPs:
§ Public Utility (Resolution of Disputes) Bill will be introduced during 2016–17;
§ guidelines for renegotiation of PPP Concession Agreements will be issued, and
§ new credit rating system for infrastructure projects to be introduced.
Ø Reforms in FDI policy in the areas of Insurance and Pension, Asset Reconstruction Companies, Stock Exchanges.
Ø 100% FDI to be allowed through FIPB route in marketing of food products produced and manufactured in India.
Ø A new policy for management of government investment in Public Sector Enterprises, including disinvestment and strategic sale, approved.
FINANCIAL SECTOR REFORMS
Ø A comprehensive Code on Resolution of Financial Firms to be introduced.
Ø Statutory basis for a Monetary Policy framework and a Monetary Policy Committee through the Finance Bill 2016.
Ø A Financial Data Management Centre to be set up.
Ø RBI to facilitate retail participation in government securities.
Ø New derivative products will be developed by SEBI in the Commodity Derivatives market.
Ø Amendments in the SARFAESI Act, 2002, to enable the sponsor of an Asset Reconstruction Company (ARC) to hold up to 100% stake in the ARC and permit non institutional investors to invest in Securitization Receipts.
Ø Comprehensive Central Legislation to be bought to deal with the menace of illicit deposit taking schemes.
Ø Increasing members and benches of the Securities Appellate Tribunal.
Ø Allocation of 25,000 crore towards recapitalisation of public sector banks.
Ø Target of amount sanctioned under Pradhan Mantri Mudra Yojana increased to 1,80,000 crore.
Ø General Insurance Companies owned by the government to be listed in the stock exchanges.
GOVERNANCE AND EASE OF DOING BUSINESS
Ø A Task Force has been constituted for rationalisation of human resources in various ministries.
Ø Comprehensive review and rationalisation of autonomous bodies.
Ø Bill for Targeted Delivery of Financial and Other Subsidies, Benefits and Services by using the Aadhar framework to be introduced.
Ø Introduce Direct Benefit Transfer (DBT) on pilot basis for fertilizer.
Ø Automation facilities will be provided in 3 lakh fair price shops by March 2017.
Ø Amendments in Companies Act to improve enabling environment for start ups.
Ø Price Stabilisation Fund with a corpus of 900 crore to help maintain stable prices of pulses.
Ø ‘Ek Bharat Shreshtha Bharat’ programme will be launched to link states and districts in an annual programme that connects people through exchanges in areas of language, trade, culture, travel and tourism.
Ø Fiscal deficit in RE 2015–16 and BE 2016–17 retained at 3.9% and 3.5%.
Ø Revenue Deficit target from 2.8% to 2.5% in RE 2015–16.
Ø Total expenditure projected at Rs19.78 lakh crore.
Ø Plan expenditure pegged at 5.50 lakh crore under Plan, increase of 15.3%.
Ø Non–Plan expenditure kept at 14.28 lakh crore.
Ø Special emphasis to sectors such as agriculture, irrigation, social sector including health, women and child development, welfare of Scheduled Castes and Scheduled Tribes, minorities, infrastructure.
Ø Mobilisation of additional finances to the extent of 31,300 crore by NHAI, PFC, REC, IREDA, NABARD and Inland Water Authority by raising bonds.
Ø Plan/Non–Plan classification to be done away with from 2017–18.
Ø Every new scheme sanctioned will have a sunset date and outcome review.
Ø Rationalised and restructured more than 1500 Central Plan Schemes into about 300 Central Sector and 30 Centrally Sponsored Schemes.
Ø Committee to review the implementation of the FRBM Act.
RELIEF TO SMALL TAX PAYERS
Ø Raise the ceiling of tax rebate under section 87A from 2000 to 5000 to lessen tax burden on individuals with income upto 5 lakh.
Ø Increase the limit of deduction of rent paid under section 80GG from 24,000 per annum to 60,000, to provide relief to those who live in rented houses.
BOOST EMPLOYMENT AND GROWTH
Ø Increase the turnover limit under presumptive taxation scheme under Section 44AD of the Income Tax Act to 2 crore to bring big relief to a large number of assessees in the MSME category.
Ø Extend the presumptive taxation scheme with profit deemed to be 50%, to professionals with gross receipts up to 50 lakh.
Ø Phasing out deduction under Income Tax:
§ accelerated depreciation wherever provided in IT Act will be limited to maximum 40% from 1.4.2017;
§ benefit of deductions for research would be limited to 150% from 1.4.2017 and 100% from 1.4.2020;
§ benefit of Section 10AA to new SEZ units will be available to those units which commence activity before 31.3.2020, and
§ the weighted deduction under Section 35CCD for skill development will continue up to 1.4.2020.
Ø Corporate Tax rate proposals:
§ new manufacturing companies incorporated on or after 1.3.2016 to be given an option to be taxed at 25%+surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.
§ Lower the corporate tax rate for the next financial year for relatively small enterprises, i.e., companies with turnover not exceeding 5 crore (in the financial year ending March 2015), to 29% plus surcharge and cess.
Ø 100% deduction of profits for 3 out of 5 years for startups setup during April 2016 to March 2019. Minimum Alternate Tax (MAT) will apply in such cases.
Ø 10% rate of tax on income from worldwide exploitation of patents developed and registered in India by a resident.
Ø Complete pass through of income–tax to securitization trusts including trusts of ARCs. Securitisation trusts required to deduct tax at source.
Ø Period for getting benefit of long term capital gain regime in case of unlisted companies is proposed to be reduced from three to two years.
Ø Non–banking financial companies shall be eligible for deduction to the extent of 5% of its income in respect of provision for bad and doubtful debts.
Ø Determination of residency of foreign company on the basis of Place of Effective Management (POEM) is proposed to be deferred by one year.
Ø Commitment to implement General Anti Avoidance Rules (GAAR) from 1.4.2017.
Ø Exemption of Service Tax on services provided under Deen Dayal Upadhyay Grameen Kaushalya Yojana and services provided by Assessing Bodies empanelled by Ministry of Skill Development & Entrepreneurship.
Ø Exemption of Service Tax on general insurance services provided under Niramaya Health Insurance Scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability.
Ø Basic Custom and Excise Duty on refrigerated containers reduced to 5% and 6%.
MAKE IN INDIA
Ø Changes in Customs and Excise Duty rates on certain inputs to reduce costs and improve competitiveness of domestic industry in sectors like information technology hardware, capital goods, defence production, textiles, mineral fuels & mineral oils, chemicals & petrochemicals, paper, paperboard & newsprint, maintenance repair and overhauling of aircrafts and ship repair.
MOVING TOWARDS A PENSIONED SOCIETY
Ø Withdrawal up to 40% of the corpus at the time of retirement to be tax exempt in the case of National Pension Scheme (NPS). Annuity fund which goes to legal heir will not be taxable.
Ø In case of superannuation funds and recognized provident funds, including EPF, the same norm of 40% of corpus to be tax free will apply in respect of corpus created out of contributions made on or from 1.4.2016.
Ø Limit for contribution of employer in recognized Provident and Superannuation Fund of 1.5 lakh per annum for taking tax benefit. Exemption from Service Tax for annuity services provided by NPS and services provided by EPFO to employees.
Ø Reduce Service Tax on Single Premium Annuity (insurance) policies from 3.5% to 1.4% of the premium paid in certain cases.
PROMOTING AFFORDABLE HOUSING
Ø 100% deduction for profits to an undertaking in housing project for flats up to 30 sq. meters in four metro cities and 60 sq. meters in other cities, approved during June 2016 to March 2019 and completed in three years. MAT to apply.
Ø Deduction for additional interest of 50,000 per annum for loans up to 35 lakh sanctioned in 2016–17 for first time home buyers, where house cost does not exceed 50 lakh.
Ø Distribution made out of income of SPV to the REITs and INVITs having specified shareholding will not be subjected to Dividend Distribution Tax, in respect of dividend distributed after the specified date.
Ø Exemption from Service Tax on construction of affordable houses up to 60 square meters under any scheme of the central or state government including PPP schemes.
Ø Extend Excise Duty exemption, presently available to concrete mix manufactured at site for use in construction work to ready mix concrete.
RESOURCE MOBILIZATION FOR AGRICULTURE, RURAL ECONOMY AND
Ø Additional tax at the rate of 10% of gross amount of dividend will be payable by the recipients receiving dividend in excess of 10 lakh per annum.
Ø Surcharge to be raised from 12% to 15% on persons, other than companies, firms and cooperative societies having income above 1 crore.
Ø Tax to be deducted at source at the rate of 1% on purchase of luxury cars exceeding value of 10 lakh and purchase of goods and services in cash exceeding 2 lakh.
Ø Securities Transaction Tax in case of ‘Options’ is proposed to be increased from .017% to .05%.
Ø Equalization levy of 6% of gross amount for payment made to nonresidents exceeding 1 lakh a year in case of B2B transactions.
Ø Krishi Kalyan Cess at 0.5% on all taxable services, w.e.f. 1 June 2016. Proceeds would be exclusively used for financing initiatives for improvement of agriculture and welfare of farmers. Input tax credit of this cess will be available for payment of this cess.
Ø Infrastructure cess of 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles and SUVs. No credit of this cess will be available nor credit of any other tax or duty be utilized for paying this cess.
Ø Excise Duty of 1% without input tax credit or 12.5% with input tax credit on articles of jewellery [excluding silver jewellery, other than studded with diamonds and some other precious stones], with a higher exemption and eligibility limits of 6 crore and 12 crore respectively.
Ø Excise Duty on readymade garments with retail price of 1000 or more raised to 2% without input tax credit or 12.5% with input tax credit.
Ø ‘Clean Energy Cess’ levied on coal, lignite and peat renamed to ‘Clean Environment Cess’ and rate increased from 200 per tonne to 400 per tonne.
Ø Excise Duty on various tobacco products other than beedi raised by about 10% to 15%.
Ø Assignment of right to use the spectrum and its transfers has been deducted as a service leviable to Service Tax and not sale of intangible goods.
PROVIDING CERTAINITY IN TAXATION
Ø Committed to providing a stable and predictable taxation regime and reduce black money.
Ø Domestic taxpayers can declare undisclosed income or such income represented in the form of any asset by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. Declarants will have immunity from prosecution.
Ø Surcharge levied at 7.5% of undisclosed income will be called Krishi Kalyan surcharge to be used for agriculture and rural economy.
Ø New Dispute Resolution Scheme to be introduced. No penalty in respect of cases with disputed tax up to 10 lakh. Cases with disputed tax exceeding 10 lakh to be subjected to 25% of the minimum of the imposable penalty. Any pending appeal against a penalty order can also be settled by paying 25% of the minimum of the imposable penalty and tax interest on quantum addition.
Ø High Level Committee chaired by Revenue Secretary to oversee fresh cases where assessing officer applies the retrospective amendment.
Ø One–time scheme of Dispute Resolution for ongoing cases under retrospective amendment.
Ø Penalty rates to be 50% of tax in case of underreporting of income and 200% of tax where there is misreporting of facts.
Ø Disallowance will be limited to 1% of the average monthly value of investments yielding exempt income, but not exceeding the actual expenditure claimed under rule 8D of Section 14A of Income Tax Act.
Ø Time limit of one year for disposing petitions of the tax payers seeking waiver of interest and penalty.
Ø Mandatory for the assessing officer to grant stay of demand once the assesse pays 15% of the disputed demand, while the appeal is pending before Commissioner of Income Tax (Appeals).
Ø Monetary limit for deciding an appeal by a single member Bench of ITAT enhanced from 15 lakh to 50 lakh.
Ø 11 new benches of Customs, Excise and Service Tax Appellate Tribunal (CESTAT).
SIMPLIFICATION AND RATIONALIZATION OF TAXES
Ø 13 cesses, levied by various ministries in which revenue collection is less than 50 crore in a year to be abolished.
Ø For non–residents providing alternative documents to PAN card, higher TDS not to apply.
Ø Revision of return extended to Central Excise assesses.
Ø Additional options to banking companies and financial institutions, including NBFCs, for reversal of input tax credits with respect to nontaxable services.
Ø Customs Act to provide for deferred payment of customs duties for importers and exporters with proven track record.
Ø Customs Single Window Project to be implemented at major ports and airports starting from beginning of next financial year.
Ø Increase in free baggage allowance for international passengers. Filing of baggage only for those carrying dutiable goods.
TECHNOLOGY FOR ACCOUNTABILITY
Ø Expansion in the scope of e–assessments to all assessees in seven mega cities in the coming years.
Ø Interest at the rate of 9% p.a. against normal rate of 6% p.a. for delay in giving effect to appellate order beyond 90 days.
Ø ‘e–Sahyog’ to be expanded to reduce compliance cost, especially for small taxpayers.