What the Super Bowl is to the Americans, the presentation of the “Union Budget”, the annual budget publication in February, is to India. The budget is one of the most important events in the Indian annual cycle (at least for the media), along with the major cricket championships. The audience ratings skyrocket and hundreds of millions of people mutate into economists and economic analysts for a day. This year the budget was published by Indian Finance Minister Arun Jaitley on February 1st, four weeks earlier than before.
Impact on Indian Economy
Arun Jaitley, Indian Finance Minister
The Indian budget affects virtually all departments and sets the course for the political agenda and economic development of the financial year, starting April 1, 2017.
At this point we only want to highlight those announcements that directly affect companies. This includes corporate taxes but also the macroeconomic outlook.
At a planned 3,2%, the budget deficit - by Indian standards - is still within limits despite a massive increase in social spending for the population in rural areas. The economic outlook is rated positively. According to the Finance Minister, India was and is the “bright spot in the world economy”.
Even though the growth rates had to be adjusted slightly downwards in the short term due to the consequences of demonetization, India is expected to return to the old growth figures in 2018. Economists have no doubt that both demonetization and the introduction of a nationwide sales tax (GST, Goods and Services Tax) will have positive effects on growth and tax revenues in the medium term.
The highlights of the Union Budget (from our perspective)
In 2017/2018, the Indian Finance Minister obviously has more to distribute for the “little man” than for companies and investors. The Social spending for rural areas (NREGA) were massively increased. This is intended to stimulate domestic demand and alleviate the negative consequences of currency devaluation (as well as bring in votes). After all, regional elections are coming up in five states.
Investments in transportInfrastructure (road, rail, ports) will be further increased. All suffering companies in particular benefit from this, who suffer from high logistics costs.
For small and medium-sized companies (SMBs with an annual turnover of less than the equivalent of 7 million euros), the profit or corporate income tax rate drops to 25 percent (from 30 percent). Many German medium-sized companies with their own subsidiary in India benefit from the measure.
In addition, it was once again confirmed that the GSTIndia to be introduced on July 1, 2017.
However, the budget did not provide any new incentives for foreign investors (FDI).
Prime Minister Modi published the headlines of “his” budget for reading on social media.
