Union Budget - 2016Navigating global turbulences

‘Every dark cloud has a silver lining’, and for the dark cloud of the current global economic condition,

Indian economy appears to be the silver lining. In these looming times, when the world-wide

economies are fighting recession and slow down fears, India is shining with a promise of stable and

growing economy for the investors. Coupled with key initiatives like Make in India, Digital India, Start-

up India and the ray of certainty on the taxation front has brought in global confidence and changed

the way how world looked at Indian business environment. Being the fastest growing economy in the

world, it is now the time for this country to prove and showcase its true potential, the tone for which

has been set right by this Budget 2016. A clear indication on priority areas and growth path, along with

transparency in implementation and results is the way to go.

A Union budget is often looked from a taxation perspective that could provide us an insight in to the

impact that such tax proposals may have on an individual or body corporate. However, such tax

proposals are an outcome of the state of economy which needs detailed analysis of past performance

and implementation of future strategies for development of sustainable economy.

Through this document we have analyzed the economic results and decoded the impact of budget

proposals on sectors as well as summarized the direct and indirect tax proposal implications on you

and your business.

Trust you will find the publication useful. Happy reading!!

In case you need any further clarification please feel free to e-mail me at akshaykenkre@transprice.in.

Thanks a lot.

Best Regards,

Akshay KenkreDirectorTransPrice

Preface

2

3

Table of Content

Indian Economic Highlights 4

- Economy Overview

- The Growth Story

- Fiscal Overview

Taxation Proposals 9

Budget Allocations 14

- Agriculture and Farmer’s Welfare

- Railways

- Infrastructure & Investment

- BFSI

- Service Sector

- Indirect Tax Proposals

- Direct Tax Proposals

- Reforms and Measures

- Inflation

- Introduction

Sectoral Analysis 16

Key Initiatives and Reforms 22

- Key Initiatives

Glossary 26

About TransPrice 273

4

Economic Highlights

Economic Indicators

Performance

FY 2015-16

Targets

FY 2016-17

% %

GDP Growth 7.60 8.00

Fiscal Deficit to GDP 3.90 3.50

Inflation CPI terms 4.90 4.75

0

2

4

6

8

10

12

Growth rate Inflation (CPI) Fiscal Deficit

Interplay - Economic Indicators

Economy Overview

With unusual volatility in the international economic environment, the global markets have begun

to swing on fears that global recovery might not be on cards soon, while the risks of extreme

events are intensifying. Despite this global slowdown, India stands out as a haven of stability and

land of opportunities. Such a stability is reflected in the growth of 7.6% in GDP, reduction of

inflation and commitment to stick to the patch of fiscal consolidation target of 3% by FY 2017-18.

With India hailed as a ‘bright spot’ by IMF amidst a slowing global economy, foreign investments

are eyeing India for its next move. It has therefore become imperative to provide road-map to

various initiatives announced earlier, bring down the litigation environment with stable and certain

environment in taxes for the investors and the businesses. These pathways have to be backed

with a push to the finance and insurance sector, which is considered as a backbone for every

successful economy. The Budget 2016 has attempted to address the above with various

innovative proposals.

A snapshot of current performance and targets for the Indian economy is as follows:

%

FY

5

While the global economic ocean is facing turbulent times, the Indian economy is sailing smooth

with a 7.6% GDP growth pace, thus climbing to the top of charts as the fastest growing major

economy in the world. While the growth in advanced economies has improved modestly the

emerging economies have witnessed a consistently declining trend in growth rate since year 2010.

As a result, the global growth is averaged at 3.1% in 2015, declining from 3.4% in 2014.

The decline in the global growth could be aggravated by:

i. Decline in crude prices

ii. Turbulent equity markets

iii. Volatility in exchange rates

The weak growth in the advanced and emerging economies have reduced the global demand for

products and services, thereby negatively affecting the Indian exports. Simultaneously, the imports

have also seen a decline due to reduction of crude oil prices, thereby maintaining the current

account deficit at moderate levels. The global economy – in particular the global powerhouse,

China- is rebalancing, leading to an increasing role for India.

The rupee has seen volatility in last few months, that has resulted in to depreciation against USD

in line with most other currencies of the world, however, it has appreciated against number of

other major currencies. The impact could be due to global developments including contraction in

exports portfolio outflows on concerns about outlook, deterioration of Chinese currency and

growth, gradual process of normalization of monetary policy in the US and global bond market

sell-off.

The government being optimistic on the reforms undertaken, aided by macroeconomic stability, it

would be realistic to expect an 8% or higher growth in the coming years. At the same time the

growth in FY 2016-17 may not pick up drastically from the previous years, as the cloud of slow

down on global front would hover around the Indian economy.

India’s BoP position remained comfortable due to (i) lower CAD (ii) increase in FDIs and NRI

deposits (iii) net outflow on portfolio investment ; with a CAD of USD 14.4 billion (Apr-Sep 15),

approx. 20% lower than the similar period for the last year.

Among the major economies with CAD, India ranks second after Brazil with respect to foreign

exchange reserves at USD 351.5 billion with foreign currency assets of about 93.4% of such

reserves.

The risks of further global slowdown and turbulence are mounting. It is therefore important to

manage the economics of India in the most efficient ways. The three pillars of ideology to be

followed are:

1. Ensuring macro-economic stability and prudent fiscal management

2. Boosting domestic demands

3. Continuing with the pace of economic reforms and policy initiatives

With this background the budget has set a tone of growth and development for future years to

come.

The growth story

6

Fiscal consolidation continues to be vital, and will be needed to maintain credibility and reduce

debt, in an uncertain global environment, while sustaining growth. This measure was planned to be

achieved through control of expenditure (subsidies and leakages), investment in public projects

and increase in tax revenues.

From a revenue perspective, such a consolidation required a 15.8 % growth in gross tax revenue.

The collection on account of indirect taxes played an important role in achieving the same, with

measures like increase in excise duty on petrol and diesel in lieu of falling international crude oil

prices. Further, the expenditure registered a growth of 33.5% in capital projects, mainly leady by

planned expenditure. Given this fact the fiscal deficit target of 3.9% of GDP seems achievable for

FY 2015-16.

Further, the commitment to achieve the fiscal roadmap is one of the priorities, with the fiscal deficit

targeted to be at 3.5% of the GDP for FY 2016-17. It would be important to note how the

development agenda would balance with this backdrop. The total expenditure for FY 2016-17 has

been pegged at Rs. 19.78 lakh crore, out of which Rs. 5.50 lakh crore is under planned and Rs.

14.28 lakh crore is considered under unplanned. Taking recommendations from the finance

committees, the bifurcation of plan and non plan expenditure would be done away with effect from

FY 2017-18 and a greater focus would be placed on capital and revenue expenditure.

Fiscal Overview

0

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4

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8

10

12

14

Direct Tax Indirect Tax Total Tax

Tax to GDP Ratio

%

FY

7

Inflation

The year 2015-16 experienced moderate level of general prices. The substantial decline of

global crude prices along with government measures to improve supply and storage of food

products, helped to keep prices under control

WPI inflation moved to a negative territory to -2.8% during Apr 15 –Jan16 as compared to 2 %

during FY 2014-15. This was mainly due to reduction of crude prices globally , while the WPI

food inflation remained moderate at 2.2% despite of below average monsoon

Unlike sharp dip in WPI inflation , the CPI inflation moderated at 4.8 % (Apr 15- Jan 16) as

against 5.9% in FY 2014-15. Although fall in crude prices has impacted WPI inflation

significantly, the impact on CPI is minimal. This is mainly due to difference in the commodities

and their weights included in the CPI and WPI baskets. Diesel and petrol whose prices are

directly liked to global crude prices constitute around 40% of the WPI fuel and power basket.

Petroleum products have negligible weight in CPI basket

Continued uncertainty over the outlook for China, expected spurt in Iranian crude supply and

moderation in demand from the rest of the world are likely to keep crude prices subdued in the

near future. Prospects of lower oil prices over the medium term are likely to dampen the

inflation expectations

Although no specific derivatives have been mentioned in the budget regarding inflation, certain

features such as improvement in supply chain management and new reforms for the APMC

markets will help curb inflation in agro-products. Similarly, the benefits extended to low-cost

housing will lure developers to venture into low-cost housing space which in turn will

rationalize the housing sector & create investment opportunities

7.4

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-3

10.29.5

5.94.8

-4

-2

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12

2012-13 2013-14 2014-15 2015-16

Headline inflation – WPI and CPI

WPI CPI (Combined)

%

8

Taxation Proposals

Direct Tax proposals

International taxation:

Commitment to implement GAAR by FY 2017-18, as a part of comprehensive regime to deal

with Base Erosion and Profit Shifting and aggressive tax avoidance

Determination of residency of foreign company on ‘Place of Effective Management’ (POEM) to

be applicable for FY 2016-17 (earlier applicable from FY 2015-16) along with detailed

notification of transitional provision

Proposed to insert ‘Equalization Levy’ at 6% for the payment made by a resident to a non-

resident (other than those having Permanent Establishment) for transactions in digital space or

economy. Detailed administrative mechanism and procedure to be notified. Applicable for B2B

transactions and not for retail transactions

Mandatory furnishing of PAN under Section 206AA to be relaxed for non-residents other than

company or a foreign company, for income other than interest on bonds

The position on non –applicability of MAT for non-residents/ foreign companies, not having a PE

in India is clarified and amended retrospectively with effect from 1 April 2001

Exemption of income of foreign company from storage and sale of crude oil as a part of

strategic reserve, by not including such activity of a foreign company to create a business

connection under Section 9 of the Act.

Transfer Pricing: Going by the recommendations of the BEPS Action plan 13, a three tiered

structure for transfer pricing documentation has been mandated, consisting of :

I. A Masterfile, containing standard information about MNE group

II. A local file specifically relating to transactions with associated enterprises

III. A Country by Country (CbC) report, providing global allocation of income and taxes along

with other economic indicators

Heavy penalties for non maintenance and furnishing of documentation in above –mentioned

form. The CbC reporting requirement apply if the consolidated revenues of the preceding year

of the entire MNE group, exceeds Euro 750 million ( approx. Rs. 5,300 crores)

Individual taxation:

Surcharge increased to 15% for individuals, HUF, AOP, BOI for income above Rs. 1 crore

To eliminate vertical inequality amongst the taxpayers as those who have high dividend income,

subjected to tax @ 15% under DDT, it is proposed to tax dividend income in excess of Rs. 10

lakhs for an individual, HUF or a firm at a rate of 10%

Increased deduction of rent paid under Section 80GG of the Act from Rs. 24,000 p.a. to Rs.

60,000 p.a. for those who stay in rented houses

Shares received by individual and HUF in consequence of demerger or amalgamation to be

excluded from the ‘gift tax’ provision of Section 56(viii) and considered exempt

Redemption of Sovereign Gold Bond under the scheme not treated as transfer for CG 10

Direct Tax proposals

Corporate tax proposals:

A. Rate of taxes:

New companies incorporated after 1 April 2016, to be taxed @ 25% ( plus surcharge and

education cess), if such company is in manufacturing or production of any article and is not

claiming any investment linked exemption or profit based deductions

Small taxpayers with turnover lesser than Rs. 5 crores in FY 2014-15 to be taxed at 29% (plus

surcharge and education cess)

B. Initiatives:

Patent box: With an aim to promote research & development and make India R&D hub, a

concessional tax at 10% of royalty income through exploitation of patents developed and

registered in India. No expenditure or allowance in respect of such income to be allowed. Such

a benefit would be allowed to a resident who is a first inventor of the invention and whose name

is entered on the patent register as the patentee

Start-up profits: Deduction of 100 percent of profits and gains for 3 out of 5 years to an eligible

start-up from a business involving innovation development, deployment or commercialization of

new products, processes, services driven by technology or IP. MAT to apply.

Start-up CG: Exemption from CG under Section 54GB of the Act, if a house property is sold

and CG arising from such sale of residential property are invested in subscription of shares of a

company which qualifies as eligible start-up, where such individual or HUF holds more than 50

percent of such company

CG on rupee denominated bond due to appreciation of rupee to be exempt for a non resident

investor

C. Audits and presumptive taxes

Limit for applicability of tax audits under Section 44AB of the Act to the professionals increased

from Rs. 25 Lakhs to Rs. 50 Lakhs

Limit for eligible business for presumptive taxation under Section 44AD increased to Rs. 2

crores from Rs. 1 crore

Introduction of presumptive taxation scheme for professionals with a gross receipts up to Rs. 50

lakhs, where a sum equal to 50% of such receipts would be considered as presumptive profits

D. Taxation of REITs and Invits

In order to further rationalize taxation regime for business trust (REITs and Invits) and their

investors, it is proposed to provide a special dispensation and exemption from levy of dividend

distribution tax

11

Corporate tax proposals:

E. Phasing out of exemptions:

The following exemptions and deductions are proposed to be phased out:

F. The Income Declaration Scheme, 2016

Opportunity provided to persons who have not paid full taxes in past to pay tax @ 30% on the

declared income (plus surcharge @ 25% and penalty @ 25% of taxes)- i.e. Total tax 45%

G. The Direct Tax Dispute Resolution Scheme, 2016

Pending cases against assessment order or penalty order have an option to settle by paying tax

and interest up to date of assessment.

No penalty in case of disputed tax up to Rs. 10 lakhs; cases with disputed tax exceeding 10 lakhs

are subject to 25% penalty

H. Other Proposals

Providing a legal framework for automation of various processes and paperless assessments

TCS provisions @ 1% on purchase of luxury cars exceeding Rs. 10 lakhs and purchase of goods

in cash and services exceeding Rs. 2 lakhs

STT in case of ‘Options’ proposed to be increased from 0.017% to 0.05%

Penalty provisions rationalized and certainty provided

Direct Tax proposals

Section Manner of phase out

10AA- Profits on export for SEZ No deduction available for units

commencing operation on after 1 April 2020

35AC- Expenditure on eligible

projects

No deduction w.e.f 1 April 2017

35CCD- Expenditure on skill

development

Deduction restricted to 100% from 1 April

2020

80IA,IAB,IB – development, operation

and maintenance of infrastructure

facility, SEZ and production of mineral

oil & mineral

No deduction available if the specified

activity commences on or after 1 April 2017

Accelerated Depreciation – Sec 32 Depreciation would be restricted to 40%

w.e.f 1 April 2017

Sec 35- Expenditure on scientific

research

Weighted deduction in various sub-sections

reduced since FY 2017-18

12

Indirect Tax proposals

Make in India

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, defense production, textiles, mineral fuels & mineral oils, chemicals & petrochemicals,

paper, paperboard & newsprint, Maintenance repair and overhauling of aircrafts and ship

repair.

Service Tax:

Exemption of Service tax on general insurance services provided under ‘Niramaya’ Health

Insurance Scheme or the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation

and Multiple Disability

Service tax reduced on Single Premium Annuity (Insurance) Policies from 3.5% to 1.4% of the

premium paid in certain cases

Exemption from service tax on construction of affordable houses up to 60 sq.m under any

scheme of the Central or State Government including PPP Schemes

Krishi Kalyan Cess @ 0.5% on all taxable services, w.e.f. 1 June 2016 and proceeds would be

exclusively used for financing initiatives for improvement of agriculture and welfare of farmers

Custom and Excise:

Basic custom and excise duty on refrigerated containers reduced to 5% and 6%

Extend excise duty exemption, presently available to Concrete Mix manufactured at site for

use in construction work to Ready Mix Concrete

Excise duty of 1% without input tax credit or 12.5% with input tax credit on articles of jewelry

(excluding silver jewelry, other than studded with diamonds and some other precious stones),

with a higher exemption and eligibility limits of Rs. 6 crores and Rs. 12 crores respectively

Excise on readymade garments with retail price of Rs.1000 or more raised to 2% without input

tax credit or 12.5% with input tax credit

Excise duties on various tobacco products other than beedi raised by about 10 to 15%

‘Clean Energy Cess’ levied on coal, lignite and peat renamed to ‘Clean Environment Cess’ and

rate increased from Rs. 200 per ton to Rs. 400 per ton

11 new benches of Customs, Excise and Service Tax Appellate Tribunal (CESTAT)

13

Budget allocations

Introduction

The FYs 2015-16 and 2016-17 have been and will be extremely challenging for the government

expenditure. With a priority on fiscal consolidation, it is important to emphasis on quality of

expenditure than the quantity. The 14th Finance Commission has reduced the Central share of

taxes to 58% from 68%. The next FY will cast an additional burden on account of the

recommendations of the 7th Central Pay Commission and the implementation of Defense OROP.

Therefore, it is important to prioritize the expenditure. Enhancement of expenditure in the farm &

rural sector, the social sector, the infrastructure sector and provide for recapitalization of the banks

would be at utmost priority. Once these are addressed, other areas could be focused.

The focus is clearly to provide additional resources for vulnerable sections, rural areas and social

and physical infrastructure creation. It would be an endeavor to continue with the ongoing reform

program and ensure the passage of constitutional amendments to enable the implementation of

the GST, the passage of Insolvency and Bankruptcy law and other important reforms.

Further, significant reforms such as enactment of a law to ensure that all government benefits are

conferred upon persons who deserve it, by giving a statutory backing to the AADHAR platform;

bringing significant changes in the legislative framework relating to the transport sector so as to

free it from constraints and restrictions; incentivizing gas discovery and exploration by providing

calibrated market freedom; enactment of comprehensive to deal with resolution of financial firms;

providing legal framework with respect to PPP projects and public utility contracts; undertaking

important banking sector reforms and public listing of general insurance companies and

undertaking significant changes in FDI policies.

Therefor the agenda to transform India has 9 distinct pillars:

1. Agriculture and farmer’s welfare: With focus on doubling farmer’s income in 5 years;

2. Rural sector: With emphasis on rural employment and infrastructure;

3. Social sector including healthcare: To cover under all welfare and healthcare services;

4. Educational, skills and job creation: To make India a knowledge based and productive

society;

5. Infrastructure and investment: To enhance efficiency and quality of life;

6. Financial sector reforms: To bring transparency and stability;

7. Governance and ease of doing business: To enable the people to realize their full potential;

8. Fiscal discipline: Prudent management of government finances and delivery of benefits to the

needy; and

9. Tax reforms: To deduce compliance burden with faith in the citizenry (discussed above)

With these 9 points in consideration, accordingly the next sections are created and analyzed upon

15

Sectoral Analysis

Agriculture and farmer’s welfare

Agricultural sector comprises 17.4% share in GDP in FY 2014-15. The twelfth five year plan (

2012-2017) envisaged a growth target of 4% for agriculture and allied sectors necessary for 8%

growth rate for Indian economy. As per February 2016 stats, growth in the agriculture, forestry

and fishing sector is estimated at 1.1% in 2015-16

It is important to scale up investment to expand water efficient irrigation to achieve ‘more crop

per drop’

Effective use of fertilizers, quality seeds and pesticides. There is a need to rationalize fertilizer

subsidy, as excessive use of fertilizer is not resulting in to productivity but depletion of soil,

fertility and salination of soil in many areas

Tremendous potential to increase production by reducing wastage in the post-harvest value

chain through investment in storage facilities and drying facilities

Budget Highlights:

Allocation for Agriculture and Farmers’ welfare is Rs. 35,984 crore

Bring 28.5 lakh hectare to be brought under irrigation and implementation of 89 irrigation

projects under AIBP

A provision of Rs. 12,517 crore has been made through budgetary support and market

borrowings to achieve a dedicated Long Term Irrigation Fund , to be created in NABARD with

an initial corpus of about Rs. 20,000 crore

Promotion of organic farming schemes

Sustainable ground water management program with an estimated cost of Rs. 6,000 to be

implemented through multilateral funding

2,000 model retail outlets of Fertilizer companies to provide soil and seed testing facilities

Provision of Rs. 15,000 crore made towards interest subvention

Allocation for rural sectors – Rs 87,765 crore

Grants to Gram Panchayats and Municipalities amounting to Rs 2.87 lakh crore to be provided

A sum of Rs. 38,500 crore allocated for MGNREGS

100% village electrification by 1st May 2018

A new digital literacy mission scheme for rural India to cover around 6 crore additional

household within next 3 years

Allocation for social sector including education and healthcare Rs. 1.51 crore

Rs. 2,000 crore allocated for initial cost of providing LPG connections to below poverty line

families

New health protection scheme would provide health cover up to Rs. 1 lakh per family and

additional Rs. 30,000 for senior citizens

17

Railways

The budget focused on improving rail infrastructure, safety and upgrading the current rolling stock.

Some of the key thrust areas are:

Railway and economic growth: For FY 2016-17, the capital plan has been pegged at Rs.

1.21 lakh cr, which is close to double of the average of previous years - a feat never achieved

earlier

Freight corridor - Key to development: Three new freight corridors have been announced in

Budget 2016 to link key metro cities to improve freight traffic. One of the policy initiatives

introduced in the budget is to increase East-West freight corridor which may be extended by 5

kms

Innovation fund: Government to set up Rs. 50 cr innovation fund for startups, SMBs for

working on technologies that could benefit the Railways

Make in India: Finalized bids for two loco factories to be set up with order book of Rs 40,000

cr; proposed to increase the current procurement of train sets by 30%. LIC has agreed to

invest Rs 1.5 lakh cr to fund railway projects

Digital India: Indian Railways to shift to paperless contact management system. IRCTC

website to consider e-commerce initiatives because of huge number of hits

Electrification: In the next financial year, the outlay for railway electrification has been

increased by almost 50% and it has been proposed to electrify 2,000 kms

Broad Gauge lines: The commissioning of Broad Gauge lines at over 7 kms per day against

an average of about 4.3 kms per day in the last 6 years. It is expected to surpass the ambitious

target of commissioning 2,500 km Broad Gauge lines which will be almost 30% higher than last

year. In the next year, the plan is to commission 2,800 kms of track

Port connectivity: For the year 2016-17, it is proposed to undertake implementation of rail

connectivity for the ports of Nargol and Hazira under PPP. Considering the urgent need to

provide connectivity to ports on India’s 7,517 km coastline, the Budget positively considers

undertaking of any offer of partnership

Station redevelopment to tap additional revenues: Station redevelopment, monetizing land

along tracks, monetizing soft assets such as website, data, etc. was highlighting factors of

railway budget. Advertising in 2016-17 targets 4 times the revenue of 2015-16

18

Infrastructure & Investment

Budget Highlights:

Total outlay on infrastructure – Rs. 2.21 lakh crores in FY 2016-17

Out of 70 pending road projects at beginning of the year, 85% projects have been put back on

track which involved investment of more than Rs. 1 lakh crore

Budget has allotted Rs. 55,000 crores for roads and Rs. 15,000 crores through NHAI bonds

Opening up of road transport sector in passenger segment through amendment in Motor

Vehicles Act

Acceleration of work carried out on National Waterways and continuation of Sagarmala

project for delivering best quality cargo through developed greenfield ports in eastern and

western coasts of India

Action plan for reviving about 160 unserved and underserved airports at Rs. 50 crores to Rs.

100 crores each

Three initiatives announced to strengthen PPPs:

Introduction of Public Utility (Resolution of Disputes) Bill with focus on arbitration in

construction contracts, PPP and public utility contracts

Mechanism for renegotiation of PPP Concession Agreements

New credit rating system for infrastructure projects to be introduced

Boost to food processing industry through 100% FDI enabled through FIPB mode

100% FDI now permitted in ARCs through automatic route

Prior approval of Government no longer needed for increasing FPI investment in CPSEs with

investment limit increased from 24% to 49%

Focus is to make investments in new projects by releasing value of assets like land,

manufacturing units divested by CPSEs

Job Creation and other initiative:

GOI will pay the Employee Pension Scheme contribution of 8.33% for all new employees

enrolling in EPFO for the first three years of their employment

Propose to make 100 Model Career Centres operational by the end of 2016-17

Model Shops and establishments bill can be adopted by the State governments on voluntary

basis

Introduce of Bill of Targeted Delivery of Financial and Other Subsidies, Benefits and Services by

using the AADHAR framework

Introduction of Direct Benefits Transfer on pilot basis for fertilizer in few districts

Amendment to the Companies Act, 2013 to improve the enabling environment for start-ups 19

BFSI Bank credit is an important indicator of economic activity. Since year 2003-08, the bank credits

growth usually exceeded the 20 % mark year on year, which came down to 5% till year 2014,

and in the current fiscal year the growth has declined to 10%

Such a sluggish growth could be attributed to

i. Non passing of benefit of reduction in interest rates to the borrowers

ii. Rising non-performing assets

iii. Worsening of corporate balance sheets

iv. Attractive interest rates in bond markets

The performance of SCBs during FY 2015-16 remained subdued. The asset quality of SCBs

have come under stress in recent times. Gross NPAs has as a proportion of gross advances

have increased to 5.1% from 4.6% between Mar-Sep 15. PSBs had highest level of stressed

assets at 14% of total advances

PMJDY : The number of new basic saving bank deposit accounts rose considerably to 441

million till September 2015, which was 398 million till March 2015

The life insurance premium registered a growth of 4.4% whereas general insurance business

grew by 9%. Three schemes for insurance and pension sectors for promoting social security to

poor and underprivileged were established

Budget Highlights:

Code on Resolution of Financial Firms - Specialized resolution mechanism to be set up for

bankruptcy conditions in banks, insurance companies and financial sector entities

Amendment in RBI Act 1934 to add value and transparency to monetary policy decisions

Facilitation of integrated data and analysis through arrangement of Financial Data

Management Centre

RBI to improve and facilitate retail participation in Government securities

Creation of new derivative instruments by SEBI in Commodity Derivatives market

Solution to the problem of stressed assets in banking sector:

SARFAESI Act 2002 amended to allow a sponsor to hold 100% stake in ARC and non-

institutional investors to invest in Securitization receipts

De-stressing PSBs through continued efforts on INDRADHANUSH without interfering

bank’s operational activities

Debt Recovery Tribunals to incorporate computerized processing for arbitration of

stressed assets

Recapitalize PSBs with proposal of Rs. 25,000 crores in FY 16-17 to support credit growth

Protection for poor and financially illiterate people from illicit deposit taking schemes through

proposal of comprehensive Central Legislation in FY 2016-17

Provision for more members and benches of the Securities Appellate Tribunal20

Service Sector

India’s service sector accounts for 61.50% of India’s GDP growing at approx. 9% over the last

year to maintain the growth level

High growth of FDI inflows due higher growth of three major categories i.e. R&D sector, Software

& Hardware and Trading sector

FDI related liberalization has taken place in number of sectors like constructions, broadcasting,

civil aviation, wholesale trading, single brand trading and private sector banking

India constitutes 3.2% share of exports in global services which makes it 8th largest service

exporter in the world

Share and Growth of India Service Sector (Provisional Estimate for FY 2015-16)

Budget Highlights:

A. Education

62 new Navodaya Vidyalayas will be opened with increased focus on quality of education

Higher Education Financing Agency to be set-up with initial capital base of Rs. 1,000 crores

It is proposed to establish a Digital Depository for School Leaving Certificate, College Degrees,

Academic Awards and Mark Sheet to be set up

B. Skill Development

National Skill Development Mission to bring entrepreneurship through PMKVY

National Board for Skill Development Certification to be set up in Partnership with the industry

and academia

Top Sectors % Share

Trade, hotels & restaurants 18.60

Financing, insurance, real estate & business services 20.60

Public administration and defence 14.10

Constructions 8.2

Total Services GDP 61.50

Total GDP 100.00

Services

Others

India GDP composition FY 2014-15

21

8

Key Initiatives and Reforms

Key initiatives

Make in India:

Initiative to boost entrepreneurship in manufacturing sector, infrastructure and service sectors

‘Make in India’ and ‘Making One India’- To initiate the first step towards discovering a single

market price for power around the country

Investment Facilitation Cell has been set up under Invest India as a national investment

promotion and facilitation agency

SME Sector

India Aspiration Fund has been set up for venture capital financing under Small Industries

Development Bank of India (SIDBI)

Special focus on Micro Units Development Refinance Agency (MUDRA) Bank for giving loans

to micro-units via refinancing activities and spreading financial literacy skills

Smart cities

Targets core infrastructure of cities and harnesses technology using ‘smart solutions’ leading

to smart outcomes

Premised on an area-based planning for city improvement, city renewal and city extension

through greenfield development for cities with large populations

The Mission plans to cover 100 cities on an equitable basis through a Centrally Sponsored

Scheme with an aim to deploy smart solutions and reforms

Green Finance

Green finance is slowly gaining traction with focus on green development through green

economic policies for banking sector, bond market and institutional investment

Such finance is needed on fulfilling various solar energy targets, development of solar cities,

smart cities projects, wind power projects, green infrastructure activities and ‘Clean India’ or

‘Swach Bharath Abhiyan’

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Shipping

Government has implemented several measures which include making fuel tax free for all Indian

flag coastal vessels in container trade

The shipping sector recognizes need to encourage growth of Indian tonnage and higher

participation of Indian ships in Indian EXIM trade

Smooth implementation of India Controlled Tonnage (ICT) scheme which have allowed Indian

companies to directly own ships in foreign flags

Compliance of ship registration made simple and payment of charter fees made online

Prime Minister’s Krishi Sinchai Yojana (PMKSY) [agriculture]

The initiative looks to enhance on-farm Water-Use-Efficiency (WUE) to reduce wastage by

promoting precision irrigation like sprinkler, dip

Pradhan Mantri Jan Dhan Yojana

Considerable increase in opening of basic savings bank deposit accounts to create a universal

social security system

Financial inclusion is increasingly progressively

New Gold Investment Schemes

Gold Monetisation Scheme: Gold Saving Account can be opened where banks have a tripartite

agreement with refiners and CPTCs

Tax exemption are same as those available under GDS 1999

Key initiatives

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Reforms and measures – FY 16

Hits:

Transparency brought in the functioning of government decision making and auction of public

assets

Reforms in FDI reflecting a paradigm shift in approach and philosophy

Efforts to ease the cost of doing business, thereby encouraging multifarious start ups and e-

commerce businesses in the interest of large employment- generating companies

Bringing in tax certainty and stability by clarifying tax established tax positions (MAT)

Major impetus to public investment programs to strengthen the country’s infrastructure and

bridge the deficiency in private investment

Introducing crop insurance programs for protection of farmers and limiting far intervention

thereby moderating overall inflation

Giving a major flip to the financial inclusion agenda via the Jan Dhan Youjna and further

licensing of 11 payment banks and 10 small banks

Advancing the game-changing JAM trinity agenda, thereby extending the benefit under various

government programs and subsidies

Misses and challenges:

Approval for the game changing GST bills has proved illusive so far

Disinvestment program fell short of targets

Promotion of entrepreneurship has to be complimented with end of exemption-raj and

corporate subsidies to helps competitive business environment

Important to address exit problems in Indian economy with new bankruptcy law, rehabilitation

of stalled projects and promoting public, private partnerships

Important to invest in the health of people, especially the mother and child development

Impetus to agriculture sector by increasing productivity and better irrigation facilities

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GlossaryAct – Income-Tax, 1961 MAT – Minimum Alternate Tax

AIBP - Accelerated Irrigation Benefits

ProgrammeMGNREGA - Mahatma Gandhi National Rural

Employment Guarantee Act, 2005

AOP – Association Of Persons MNE – Multinational Enterprise

APMC - Agricultural Produce Marketing

Corporation

NABARD - National Bank for Agriculture and

Rural Development

ARCs – Asset Reconstruction Companies NHAI - National Highway Authority of India

BEPS – Base Erosion And Profit Shifting NPA - Non-Performing Assets

BFSI - Banking Financial Service Insurance NRI - Non-Resident Indian

BOI – Body Of Individuals OROP – One Rank, One Pension

BOP - Balance of Payments PAN – Permanent Account Number

CAD - Current Account Deficit PMJDY - Pradhan Mantri Jan Dhan Yojna

CG - Capital GainsPMKVY – Pradhan Mantra Kaushal Vikas

Yojana

CPI - Consumer Price Index PPP – public private partnership

CPSE – Central Public Sector Enterprise PSB - Public Sector Bank

CPTC - Collection, Purity Testing Centres REIT - Real Estate Investment Trust

DDT – Dividend distribution TaxSARFAESI – Securitization And Reconstruction

Of Financial Assets And Enforcement Of

Security Interest

EPFO – Employees’ provident fund SCBs - Scheduled Commercial Banks

FDI - Foreign Direct Investment SEBI – Securities And Exchange Board Of India

FIPB - Foreign Investment Promotion Board SEZ – Special Economic Zone

FY – Financial Year SMB - Small Medium Business

GAAR – General Anti Avoidance Rules SPV - Special Purpose Vehicle

GDP - Gross Domestic Product ST/SC- Scheduled Tribes and Scheduled Caste

GDS - Gold Deposit Scheme STT - Securities Transaction Tax

GST - Goods and Service Tax TCS – Tax Collected At Source

HUF – Hindu Undivided Family US – United States

IMF- International Monetary Fund USD - U.S Dollar

INVITs - Infrastructure investment Trust W.E.F - With Effect From

IP- Intellectual Property WPI - Wholesale Price Index

IRCTC – India Railway Catering And Tourism

Corporation

JAM – Jan Dhan Aadhar Mobile

LIC – Life Insurance Corporation

LPG- Liquid Petroleum Gas

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