Union Budget 2016 was presented amid a complex political situation arising out of the intolerance debate, elections in Bihar and recent incidents related to the Jawaharlal Nehru University. In addition, India will hold several state elections this year, including in the farming state of West Bengal, with the country’s most populous state, Uttar Pradesh, going to polls in 2017. A strong showing will be Prime Minister Modi’s chances of a second term.Further, due to a drought-like situation in most parts of the country, the agriculture sector, being a major employment provider and being politically sensitive, continues to be a cause of major concern for the government. Most of the economies were adversely affected by nearly bottoming of prices, turbulent financial markets and volatile exchange rates. Even for India, it has been a cause of considerable stress.

On a positive note, with a revised increased estimated growth rate of 7.6 percent, India is looking to become a fast growing major economy surpassing even China. The indicator also suggests that economic growth was due to enhanced performance of the manufacturing and service sector.

Given this backdrop, it was a mixed bag of expectation from different sections. While in the political section it was expected to be a populist budget, the economists and industrialists expected that public spending would get a boost to pump economy.

The Hon’ble Finance Minister chose for a prudent and populist budget keeping the fiscal deficit target for 2016-17 at 3.5 percent, despite many calls for relaxing this in the interests of higher growth.

The budget has a transformative agenda built on nine distinct pillars of agriculture welfare, rural sector, social sector, education, skills and job creation, infrastructure and investment, financial sector reforms, governance and ease of doing business, fiscal disciple and tax reforms.

The greater emphasis on improving rural incomes to the extent of doubling them in five years, improving rural infrastructure including irrigation facilities and roads, improving access to the market and processing of farm produce are all well thought out actions.

The proposals in the infrastructure are good as it is generally agreed that the trigger to start the investment cycle has to come from government spending on basic infrastructure construction. The proposed changes in the Motor Vehicles Act to facilitate passenger movement are welcome. However, extending this, the movement of goods also would have helped make manufacturing more competitive.

Improving the quality of life of those below the poverty line is essential, and the steps proposed are welcome, as is the intention to raise the quality of some higher education institutions. The proposals for strengthening public sector banks are also a step in the right direction.

The proposal to provide a reduced tax rate for new manufacturing companies, extending the benefit of deduction for employment of new regular workmen and changes to the customs and excise duty rates on inputs can be expected to have a significant impact on the revival of growth and investment and promote domestic manufacturing and ‘Make in India’.

Further, a number of tax proposals has been made in the budget towards providing relief to small taxpayers, measures to boost growth and employment generation, incentivising domestic value addition, reducing litigation and providing certainty, and for simplification and rationalisation of taxation.
To reflect India’s commitment towards implementing Base Erosion and Profit Shifting (BEPS), the budget seeks to implement a new three-tier approach for TP documentation, an equalisation levy to address BEPS risks which stand exacerbated by the digital economy and a nexus-based patent box regime. As mentioned by the experts, the regime may prove to be a catalyst to progress from ‘Make in India’ to ‘Innovate in India’.

The FM reiterated that General Anti-Avoidance Rules would be implemented with effect from April 1, 2017. However, implementation of place of effective management as a test for corporate residency has been deferred.

Further, though nothing significant has been said in terms of goods and services tax, the preparation and lack of policy-related changes indicate the keenness on part of the government to implement this as soon as possible. There are some negatives like the imposition of cess, but considering the federal compulsion, that can’t be ignored.

14th Floor, Dr Gopal Das Bhawan , 28, Barakhamba Road, New Delhi 110 001 India
Tel: (91) 11 4213 0000 / Fax: (91) 11 4213 0099

Related Articles by Firm
Foreign Banks Allowed to Operate in Myanmar
After more than 50 years of banning, the Central Bank of Myanmar has issued the first final licenses allowing four foreign banks to operate in Myanmar.
Tanzanian Draft National Energy Policy of 2015
Highlights on the ongoing and upcoming industry developments with focus on the transition of the energy sector since the introduction of the Big Results Now! campaign
Mineral Rights Available in Tanzania
Overview of the mineral rights available in Tanzania, with specific focus on the various categories of mineral rights
The Legal Framework of the Aviation Sector in Tanzania
As attention turns to Tanzania’s trade and energy opportunities, the spotlight has fallen upon the nation’s infrastructure. This update focuses on the capabilities and issues of the Tanzanian aviation sector.
Oil price volatility - Offshore oil storage
Are there any legal concerns with tankers being used for floating storage?
Oil price volatility - risks and opportunities in 2015
While many companies can weather the oil price slide and volatility, some industry players face a real risk of insolvency.
India: Union Budget 2015
A bullet-point overview of changes in Direct Tax, Indirect Tax and Goods and Service Tax in India in light of Finance Minister Arun Jaitley’s first full-year Budget…
Prohibition against transfer of personal data outside Hong Kong
Section 33 of the Personal Data (Privacy) Ordinance (PDPO) prohibits the transfer of personal data to places outside Hong Kong, except in circumstances specified in the PDPO.
Security of payment under FIDIC contracts: more secure, for now
The High Court of Singapore recently handed down an important judgment in relation to the enforceability of Dispute Adjudication Board (DAB) decisions under the FIDIC forms of contract.
Insurance Laws (Amendment) Bill passed as Ordinance in India
The long-awaited Insurance Laws (Amendment) Bill has become a provisional law in India. The Bill amends the Insurance Act (1938), the General Insurance Business (Naturalisation) Act (1972), and the Insurance Regulatory and Development Act (1999).
SICC: now open for business
On Monday 5 January 2015, the Singapore International Commercial Court ("SICC") was officially opened...
Myanmar insurance update
Clyde & Co partner Michael Horn recently visited Myanmar's commercial capital Yangon and reports on the current state of the insurance market...
Launch of the online mining cadastre transactional portal
Plus, a summary of the key mineral rights available in Tanzania; and, a look at the manner in which mineral rights can be transferred.
Restrictions imposed on holders of mineral rights
This briefing looks at some of the restrictions imposed on holders of mineral rights in Tanzania by the Mining Act 2010
Draft local content policy for the oil & gas industry in Tanzania
The first draft of the long-awaited local content policy for the oil & gas industry in Tanzania has now been published by the Ministry of Energy and Minerals ...
Tanzania: Revocation of mining licences
The Tanzanian government recently announced the cancellation of a total of 174 mining licences. This mining update examines the key continuing obligations imposed by the Mining Act upon mining licence holders.
Mining Development Agreements
In this month’s mining briefing we look at Mining Development Agreements (MDAs) and the role that they play in the mining sector in Tanzania.
The Tanzanian railway system: current legal framework
The railway system of mainland Tanzania has a total track length of 3,676 kilometers (km) with two separate networks, run by two separate organisations ...
Related Articles
The Novel Coronavirus: Anatomy of key employment issues in Mainland China, Hong Kong and The Middle East
Information for employers in Mainland China, Hong Kong and the Middle East.
Privy Council confirms that fair value in Cayman merger appraisal is different from fair value in Delaware appraisals
Fair value is to be determined by the Cayman Courts based on the overall scheme of the Companies Law.
Indonesian government simplifies outsourcing requirements
But users and providers still need to be aware of their restrictive and far-reaching breadth and scope.
Related Articles by Jurisdiction
Initial Coin Offerings: Another brainteaser in the virtual currency bandwagon
The position of virtual currencies and ICOs in India remains murky.
Dispute Resolution Special Report
In the latest issue of Asian-Counsel, we uncover the lofty aims of several arbitration centres in the region. We also receive comprehensive updates from a host of leading law firms, and the SIAC, as to the state of dispute resolution ...
Latest Articles
The Novel Coronavirus: Anatomy of key employment issues in Mainland China, Hong Kong and The Middle East
Information for employers in Mainland China, Hong Kong and the Middle East.
Virtual arbitration comes of age as CoVid19 spreads
Interest in virtual proceedings is on the rise as the coronavirus outbreak spreads to more countries.
Privy Council confirms that fair value in Cayman merger appraisal is different from fair value in Delaware appraisals
Fair value is to be determined by the Cayman Courts based on the overall scheme of the Companies Law.