The Union Budget presented by Finance Minister Arun Jaitley in Parliament on February 29, 2016 shows a clear focus-shift towards agriculture, rural and social sectors. Undoubtedly, the agriculture sector was both needy and deserving of the significant attention as the largest employer in India’s. Two successive poor monsoons make its case even stronger. Nearly 70 per cent of Indians live in villages; therefore, enhanced focus on rural economy is logical. Priority to social sector is also explicable, given the vast economic diversity of the country.
However, as the budget focuses on the above, it left the urban middle-class (UMC), which is one of the key drivers of the ‘great Indian growth story’, a bit high and dry. The UMC are not deep-pocketed but are indeed aspirational. Now they will have to shell out more on products like branded apparel, jewellery, CDIT, furniture, etc; and services like beauty & fitness, mobile, restaurant, movies, etc. Already juggling their kitchen budget, they will cut back on consumption. 1 per cent tax at source on luxury goods exceeding Rs 2 lakh and car purchases exceeding Rs 10 lakh is a dampener for luxury space as well. The manufacturers and retailers will tend to pass on the price hike to the consumers. A distressed consumer and low consumption is every business’ nightmare. Besides, the budget proposals to uplift the rural economy will start bearing fruit, maybe, only after a few years.
Consumption drives economic growth and it’s even better if it comes from all quarters. So, did the Budget 2016 miss the plot? Perhaps the well-intentional Finance Minister could have done a bit more to uplift the overall consumer sentiment and business prospects.
The budget has evoked mixed reactions from the industry. The overall non-litigious attitude and support to start-ups has been appreciated but manufacturers feel a bit let down. The announcement to impose excise duty has been dubbed as “negative move” for the apparel industry. However, proposed cut in basic customs duty on specified textiles (including yarns and fibers) has been hailed by both exporters and importers of these items. The jewellery sector has expressed disappointment over the hike in excise duty. Footwear industry has welcomed reduction in excise duty on rubber sheets and resin rubber sheets for soles and heels. Even the upcoming starts ups have a reason to cheer as the budget proposes tax exemption on profits, one-day registration of companies and exemption of capital gains tax on startup investments. The budget proposes a 100 per cent tax deduction for three years over a period of five years for startups approved before FY2019 under the Startup India scheme.
Read quotes of industry leaders have on the Budget 2016: