INDIA Budget 201718 Economic Diplomacy Division Ministry of

INDIA Budget 201718 Economic Diplomacy Division Ministry of External Affairs February 2017

Budget 2017 -18: A path breaker • Presentation of the Budget has been advanced to 1 st Feb to enable the Parliament to avoid a Vote on Account and pass a single Appropriation Bill for 2017 -18. • Merger of the Railways Budget with the General Budget is a historic step. • Plan and non- plan classification of expenditure for optimal allocation of resources done away with

The overarching agenda for 2017 -18 • Transform the quality of governance and quality of life of our people. • Energize various sections of society, especially the youth and the vulnerable, and enable them to unleash their true potential. • Clean the country from the evils of corruption, black money and non- transparent political funding.

Transformational Shift in Governance • From a discretionary administration to a policy and system based administration. • From favoritism to transparency and objectivity in decisionmaking. • From blanket and loose entitlements to targeted delivery; and • From informal economy to formal economy.

The World Economy • Considerable uncertainty, in the aftermath of major economic and political developments of the past year. • However, the IMF estimates that world GDP will grow by 3. 1% in 2016 and 3. 4% in 2017 • The advanced economies are expected to increase their growth from 1. 6% to 1. 9% and the emerging economies from 4. 1% to 4. 5%.

Emerging Economies: 3 Major Challenges • Monetary policy stance of the US Federal Reserve, to increase the policy rates more than once in 2017, may lead to lower capital inflows and higher outflows from the emerging economies. • Commodity prices uncertainty, especially that of crude oil, has implications for the fiscal situation of emerging economies. • Pressures for protectionism on goods, services & people building up in

India: A bright spot • Macroeconomic stability ~ foundation of India’s economic success • CPI inflation declined from 6% in July 2016 to 3. 4% in Dec 2016 • Current Account Deficit declined from about 1% of GDP last year to 0. 3% of GDP in the first 2016 -17 from Rs. 1, 07, 000 crores ($16 Bn) in the first half of 2016 -17 to • half FDI of increased Rs. 1, 45, 000 crores ($22 Bn) in the first half of 2016 -17. • FOREX reserves: $361 billion (20 th Jan 2017) ~ cover for about 12 months of imports. • India has become the 6 th largest manufacturing country in the world. • 2 Major policy initiatives: GST and Demonetization.

Effects of Demonetization • Long-term benefits: – Reduced corruption – Greater digitization of the economy, – Increased flow of financial savings and – Greater formalization of the economy…Higher GDP growth and tax revenues. • Early evidence of a huge shift towards digitization among all sections of society. • Pace of re-monetization has picked up. Effects of demonetization not expected to spill over into the next year. • Surplus liquidity in the banking system, will lower borrowing costs and

Transform, Energize & Clean Agenda Budget schemes under 10 distinct themes: 1. Farmers 2. Rural Population 3. Youth 4. Poor & Unprivileged 5. Infrastructure 6. Financial Sector 7. Digital Economy 8. Public Service 9. Prudent Fiscal Management 10. Tax Measures to Stimulate Growth

1. Farmers • The target for agricultural credit in 2017 -18 has been fixed at a record level of Rs 10 lakh crores ($150 Bn). • The coverage of Fasal Bima Yojana or Crop Insurance Scheme will be increased from 30% of cropped area in 2016 -17 to 40% in 2017 -18 and 50% in 2018 -19. • New mini labs in Krishi Vigyan Kendras (KVKs) and ensure 100% coverage of all 648 KVKs in the country for soil testing. • Additional allocation for National Bank for Agricultural & Rural Development (NABARD): q. Long Term Irrigation Fund: Rs. 40, 000 crores ($6 Bn) q. New Micro Irrigation Fund: Rs. 5, 000 crores ($751 Mn) q. Dairy Processing and Infrastructure Development Fund: Rs. 8, 000 crores ($1. 2 Bn) • Coverage of Electronic National Agricultural Market (e-NAM) will be

2. Rural Population • Poverty Alleviation Mission: q. To bring 10 million households out of poverty. q. Make 50, 000 villages poverty free by 2019. • Rural Employment Guarantee Scheme (MGNREGA): q. Budget increased to Rs. 48, 000 crores ($7. 2 Bn) in 2017 -18. q. Will use space technology for effective implementation of scheme. • Prime Minister Village Roads: q. To connect habitations with more than

• Prime Minister’s Housing Program for Rural Areas: q. Allocation in 2017 -18 @ Rs. 23, 000 crores ($3. 4 Bn) q. Complete building 10 million houses by 2019 for the homeless. • Rural Electrification: q 100% village electrification by 1 st May 2018. q Increased allocation of Rs 4, 814 crores ($723 Mn) has been proposed under the Rural Electrification Program in 2017 -18.

3. Youth • Emphasis on Science Education & flexibility in curriculum to promote innovation. • Innovation Fund for Secondary Education: To encourage local innovation for ensuring universal access, gender parity and quality improvement. • SWAYAM platform: Will offer at least 350 online courses. • National Testing Agency: To be set up as an autonomous and selfsustained premier testing organization to conduct all entrance examinations for higher education institutions. • Prime Minister Skill Training Centers: For skilling in more than 60 districts. • SANKALP program: To train 35 million youth. • 100 International Skill Centers will be established across the

4. Poor and Underprivileged • Women Empowerment Centers will be set up at village level with an allocation of 500 crores ($75 Mn) in 1. 4 Million Integrated Child Development Scheme Centers. • Affordable housing will now be given “infrastructure” status…enabling low-cost housing to avail associated benefits. • Additional 5, 000 post graduate medical seats; two new All India Medical Science (AIIMS) to be set up in Jharkhand Gujarat. • Amendment of the Drugs and Cosmetics Rules to ensure availability of drugs at reasonable prices and promote use of generic medicines. • Aadhar (National Identification) based Smart Cards

5. Infrastructure Total allocation for Infrastructure development in 2017 -18 stands @ Rs. 3, 96, 135 crores ($59. 5 Bn). Railways: • Capital & Development Expenditure @ Rs 1, 31, 000 crores ($19. 6 Bn). • Rail Passenger Safety Corpus of Rs 1, 000 crores over 5 years to be created ($15 Bn). • Railway lines of 3, 500 kms will be commissioned in 2017 -18. • 500 stations ~ to be made differently abled friendly by providing lifts and escalators. • 25 station redevelopment projects ~ to be awarded during 2017 -18 • 7, 000 stations to be powered with solar power in medium term. • By 2019, all coaches to be fitted with bio toilets. • New Metro Rail Act ~ Will involve greater Private investment in construction & operation.

Roads • Budget allocation for highways @ 64, 900 crores ($9. 7 Bn) in 2017 -18. • 2, 000 km of coastal connectivity roads identified for development. Airports: • Airports in Tier 2 cities – To be operated and maintained in PPP mode. Broadband: • End 2017 -18, high speed broadband connectivity on optical fibre will be available in more than 150, 000 villages under

Energy • Solar energy: 20, 000 MW capacity will be taken up in Phase 2 for Solar Park development. • Strategic Crude Reserves: In Phase-1, 3 Reserve facilities have been set up. q In Phase-2, caverns at 2 more locations - Chandikhole in Odisha and Bikaner in Rajasthan, will be set up. q Phase 1 + Phase 2 = Increase the strategic reserve capacity to 15. 33 MMT. Manufacturing • Rs. 745 crores ($111 million) worth incentives for Electronics Manufacturing under M-SIPS and EDF schemes. • New Rules to be formulated to attract investments in the Medical Devices sector. • Legislative reforms to simplify, rationalize & amalgamate existing labor laws into 4 Codes on Wages, Industrial Relations, Social Security &

6. Financial Sector • >90% of the total FDI inflows are now through Automatic route. • Foreign Investment Promotion Board (FIPB) to be abolished in 2017 -18. • Expert Committee for reforms in Commodities Market to be constituted. • Bill for curtailing the menace of illicit deposit schemes & Bill relating to resolution of financial firms will be introduced. • Listing of PSEs on stock exchanges to be done in a time-bound manner.

• Computer Emergency Response Team for Financial Sector (CERTFin) will be established. • New Exchange Traded Fund (ETF) with diversified CPSE stocks & other Govt. holdings to be launched. • Rs. 10, 000 crores ($1. 5 Bn) for recapitalization of Banks provided in 2017 -18. • One PSU ‘oil and gas major’ comparable to international standards to be set up. • Amendment to the Arbitration & Conciliation Act 1996: To streamline arrangements for resolution of disputes in construction contracts, PPP and public utility contracts.

7. Digital Economy • Demonetization - A movement for promotion of digital economy. – BHIM App adopted by 12. 5 million people so far. – 2 new schemes to promote the usage of BHIM: Referral Bonus Scheme for Individuals and Cash Back Scheme for Merchants. – Steps to improve digital payment infrastructure. • Aadhar Pay, a merchant version of Aadhar (National Identification Card) enabled payment system to be launched…benefitting those without debit cards, mobile phones. • Reforms in the Payment ecosystem including amendments to the Payment and Settlement Systems Act, 2007 will be undertaken.

8. Public Service • Direct Benefit Transfer gaining ground: 84 Govt. schemes now on DBT platform. 9. Prudent Fiscal Management • Total Expenditure for 2017 -18: Rs. 21. 47 lakh crores; • Capital expenditure allocation increased by 25. 4% over 2016 -17. • Fiscal Deficit for 2017 -18 pegged at 3. 2 % ~ planned high public expenditure. • Fiscal Deficit target for next 3 years fixed @ 3% • Debt-to-GDP ratio target fixed @ 60% by 2023. • Net market borrowing to be reduced.

10. Tax Measures to Stimulate Growth • Concessional tax rate of 5% withholding tax being charged on interest earned by foreign entities in ECBs /Government securities extended till 30. 6. 2020 and also extended to Masala bonds. • Start Ups: – The condition of continuous holding of 51% of voting rights has been relaxed subject to the condition that the holding of the original promoter/s continues. – Profit (linked deduction) exemptions for Start-ups available to 3 years out of 7 years (earlier it was 3 years out of 5 years). • Minimum Alternate Tax (MAT) credit allowed to be carried forward up to a period of 15 years (10 years at present). • Corporate tax for smaller companies with annual turnover of up to

• Tax measures for promoting affordable housing and real estate sector: q. Under profit-linked income tax exemption scheme, carpet area instead of built up area to be counted. q. Holding period for capital gains reduced to 2 years from 3 and the base year for indexation of assets shifted to 1. 4. 2001 from 1. 4. 1981. Personal Income Tax • Personal Income Tax Rate reduced for persons with income between Rs. 250, 000 and Rs. 500, 000 from 10% to 5%. • Surcharge of 10% for those with income between Rs. 5 million and Rs. 10 million • Existing surcharge of 15% of tax for persons with income> 1 crore continued.

Measures for Ease of Doing Business • The scope of domestic transfer pricing restricted to only those cases if one of the entities involved in related transaction enjoys profit-linked deduction. • Threshold limit of companies opting for presumptive income scheme increased from Rs. 10 million to Rs. 20 million. • Under scheme of presumptive taxation for professionals with receipt up to Rs. 5 million per annum, advance tax can be paid in one installment instead of four. • Exemption of FPI Category I (Foreign central banks, sovereign wealth funds, pension funds and government agencies) & Category II (corporate bodies, trusts and family offices) from indirect transfer provision.

Promoting Digital Economy • Scheme of presumptive income for SME payers whose turnover is up to Rs. 20 million, 8% of their turnover which is counted as presumptive income is reduced to 6% in respect of turnover, which is by non-cash means. • No transaction above Rs. 300, 000 will be permitted in cash; except, in exceptional circumstances. • Exemption of Customs and Excise on the following: – Micro ATMs as per standards version 1. 5. 1 – Fingerprint reader / scanner – Iris Scanner. – Miniaturised POS card reader for m-POS (other than Mobile phone or Tablet Computer) – Parts and components for manufacture of the above mentioned

Benefits for Renewable Sector Basic Customs Duty / Excise Exempted on the following: • Catalyst and Resin for use in the manufacture of cast components of Wind Operated Electricity Generator subject to actual user condition. • Solar tempered glass for use in the manufacture of the following: – solar photovoltaic cells or modules – solar power generating equipment or systems, – flat plate solar collectors, or – solar photovoltaic module and panel for water pumping and other applications, is being withdrawn • Excise duty reduced from 12. 5% to 6% on parts/raw material for use in the manufacture of solar tempered glass.

• Demonstration Projects involving Fuel Cell based power generating systems levied BCD @ 5% and CVD @ 6%. • Machinery operating on biogas / bio-methane / by-product hydrogen are levied BCD @ 5% and CVD @ 6%. • Parts used in the manufacture of LED lights or fixtures, including LED lamps levied BCD @ 5% and CVD @ 6%. • BCD exemption for Solar tempered glass for use in the manufacture of solar cells / panels / modules. • Parts / raw materials used in the manufacture of Solar Tempered Glass levied CVD @ 6%. • Resin and catalyst for use in the manufacture of cast components for Wind Operated Energy Generators levied BCD @ 5% but exempt from CVD and SAD.

Measures for Transparency in Electoral Funding a. Maximum amount of individual cash donation: Rs. 2000/b. Amendment proposed under RBI Act for issuance of electoral bonds. c. All political parties to file Income Tax returns.

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