Is the budget a bellwether or a Cassandra for reforms?

With the last throes of the demonetization saga closely nipping at the government’s heels, much theatre and fanfare accompanied the introduction of its 2017-18 budget. Tension was heightened as the union budget was merged with the railway budget, reportedly for the first time in 92 years.

Expectations were wide ranging. While banks expected a proposal to establish a “bad bank” to alleviate the non-performing asset (NPA) crisis, the manufacturing and industrial sector expected a significant reduction in corporate income tax rates. Similarly, capital markets’ investors expected an end to the securities transaction tax. Also predicted were various sops to give a fillip to the government’s aim of moving towards a cashless economy.

Although the budget didn’t introduce any radical reforms or measures, neither did it leave the economy disheartened or dejected. For starters, while banks didn’t get the “bad bank” they had been hoping for, the budget proposed that interest for NPAs would be taxed on an actual receipt basis rather than an accrual basis, thereby removing the burden of paying tax on unrealized income for some banks. The proposal to increase allowable (i.e. tax deductible) provision on NPAs from 7.5% to 8.5% was also well received.