Union Budget 2017 is the most looked forward issue for everybody associating with the Indian economy. This year budget will be announced one month earlier compared to the traditional practice of declaring it on the last day of February, because, Government wants to complete the spending and tax proposal before starting of new financial year.
Here are the major expectations from NDA’s budget:
- Change in Tax Administration:
Data shows that only 1% of the Indian population pays income tax, whereas only around 2% filed income tax return. So, to take more people into taxpayers’ net, Government might increase the tax level from Rs. 2.5 lakh per annum to Rs. 4 lakh per annum. Along with that corporate tax may get reduced to boost economy. Also, according to the CEO of Mindtree, Rostow Ravanan, Government needs to streamline and update the process of incentives given to individual taxpayers to have more inclusion. GST’s implementation schedule may also be announced in this budget.
- Encouraging Digital Payments and Proper Implementation:
In the process of creating a supposedly cash-less economy, this budget is expected to incentivize digital payments via plastic money. In a country of 1300 million, banking penetration is only 55% (although 19% of them are dormant), which translates to people having 700 million debit cards but only 24.5 million credit cards. So, the budget is expected to address the huge opportunity. To promote cashless transaction, applications are expected to be part of this budget. Benefits of banking through payment banks are also expected. Infrastructures are expected to be more developed to incorporate SMEs in digital India.
- Real Estate:
Due to demonetisation and Real Estate Regulatory Act, 2016 was not smooth for major GDP contributors of India’s real estate sector, because, cash crunch made problem for buying material, construction etc. Relaxation in income tax rate, hike in HRA deduction is expected from this budget.
- Revival of Private Investment:
The government is expected to take major steps to address the issue to decreasing private investment. Demonetisation may not affect the private investment directly, but it has kept the investment in abeyance, which will delay the recovery in private investment. So, domestic consumption, purchasing power and cash-driven transaction in the rural economy need to be boosted by the policies taken by the Government in this budget.
Farmers were not able to sell their khariff crops due to unavailability of notes after demonetisation. So, they are expected to get some benefit from this budget under Pradhan Mantri Fasal Bima Yojana. It is also expected to provide a measure for cashless transactions and digital payments in the farming sector so that seeds, fertilizers, and other necessary equipment can be easily be purchased by farmers. Also, import duty on vegetable oil needs to be increased to help domestic refining industry, which is currently facing a crisis of under-utilization. The government can also think of introducing FDI in the agriculture sector to boost the investments and technical expertise. The budget is expected to introduce a framework for more transparent procurement of grains by official agencies. It may include the system of direct procurement from farmer to prevent exploitation by placing suitable safeguards.
- Housing Loan:
The government announced Pradhan Mantri Awas Yojna (PMAY) aiming for housing for all. Then, it is expected that government would increase the tax deduction on the interest paid on housing loan. An extra benefit is expected beyond the interest payment of Rs. 2 lakhs per annum.
- Social Sector:
Gross enrolment ratio in India is only 23%, which is well below the world average. So, to address that, the government is expected to have more allocation (more than 3% of GDP) in the education sector. Increasing the internet coverage would be an effective step to address this gap to educate the students of rural India. Along with that, the learning gap between academic curriculum and practical arena needs to be addressed by imparting more technology and collaboration in between educational institutes and industries.
This budget may announce a new cess for social security of around 20000 railway coolies. It is expected that every railway ticket would cost 10 paise more to generate around Rs. 4.4 Crores per year to provide the basic minimum facilities like PF, pension etc. for the coolies.
Ending the 92 years-old tradition, the Government decided to merge railway budget with the union budget. Railways is expected to get around . 1.3-1.4 Trillion rupees this year to spend in building over-bridges, under-bridges, track renewal, freight corridors etc.
At last, the share of India in global GDP has increased from 4.8% in 2001-07 to 7.0% in 2014-15 according to the Economic Survey 2016. So, it is very critical for the finance ministry to make a roadmap to achieve the country’s goal – to be a global economic power with sustainable growth rate.
Roopteja Tamatam, a student of Shailesh J. Mehta School of Management, IIT Bombay, is a finance enthusiast and an avid follower of western classical music and is looking to carve a unique career path amalgamating both of his passions.
Sayan Poria, a student of Shailesh J. Mehta School of Management, IIT Bombay, is a finance enthusiast, opinionated and avid follower of recent political and socio-economical affairs.
By Purvee Khandelwal
Over the past few years, providing financial and investment advice has seen a sea of changes. The new Fin-Tech revolution has taken the financial industry by storm. In general, every industry is being affected by technological advancements, especially in automation. Human consultants are being replaced by robo-advisors. They are investment advisory platforms that use automation and algorithms to allocate portfolios and recommend investments to individual clients.
As of 2015-16, Robo-advisors rule over $55 billion Assets under Management (AUM) of the $25 trillion retail investable assets in the United States. With a projected growth of 68%, it is estimated to reach $2.2 trillion by the end of year 2020.
Major players in the US market are Wealthfront, Betterment, LearnVest, Vanguard, Schwab, etc.However, the surge of such players has been seen in India only recently. ArthYatra, OXO Wealth, Wixfi, Unovest and ICICI Securities’ “Track & Tct” are a few examples.
How does it work?
It captures basic information like investment goals (retirement and children’s education) and your comfort level with risk. Users may be classified into various buckets based on parameters such as age, time horizon, quantum of investment, nature of household (single or dual income, dependants) and risk appetite. The platform’s algorithm tells you the amount you may invest indiversified equity (blend of large, mid and small-cap mutual funds), gold or debt. But you are not bound by the recommendations made by the platform. You still have an option to pick a portfolio that is aggressive or passive based on your comfort level. Also, you can review their recommendations periodically.
What’s in it for the consumers?
From a consumer’s perspective, there are a number of reasons fuelling the growth of digital advice.One of them is that it streamlines the process with increased transparency into investment options, low fees and enhanced experience via web and mobile applications. Also it appeals to millennials or less-wealthy investors because exchange-traded funds (ETFs) are used to build diversified portfolios.
What’s in it for the organization?
As robo-advice will have significant affect in the wealth management business, organizations will have to transform their business and operating models- the people, processes and technologies that support it.From an organisation’s perspective, this can provide numerous benefits like faster AUM growth, incredible opportunities in upcoming market segments comprising millennials, a better empowerment of human financial advisors to think innovatively and more opportunity to cross sell high-margin advice.
Digital and advance analytics, automated advice will likely become a standard expectation for the mass-affluent and mass-market segments. It will bring competitive advantage to firms who adopt them in this early wave, which means incorporating financial planning into broader retirement, health and wellbeing plans. Still, there are parts of the client-advisor relationship —such as reassuring clients through difficult markets, persuading clients to take action and synthesizing different solutions—that should remain the province of the financial advisor for the foreseeable future. However, it is clear that Robo-advice is here to stay and poised to evolve into something much more disruptive.
Meaning: Describes human emotion that drives consumer confidence.
A term used by John Maynard Keynes in his 1936 publication (“The General Theory of Employment, Interest and Money”), animal spirits emphasizes the importance of confidence and the ‘gut instincts’ of businessmen on their future business prospects. It also refers to the risk involved in taking decisions which invariably have an element of risk attached to it. The term itself is drawn from Latin – spiritus animales, which may be interpreted as the spirit that drives human thought, feeling and action.
By Abraham Mathew Valliyakalayil
The world GDP stood at nearly 74 trillion in 2015. The worth of the world bond markets was 100 trillion. Where was India at that time? This article attempts to juxtapose the Indian bond market with that of the world. Indian debt market is just 17% of its GDP as compared to the US which is worth 123%. We also lag behind with respect to other emerging markets such as Malaysia, Thailand, and China.
There can be a plethora of reasons for this trend. Firstly, India in contrast to these countries offers much higher interest on fixed deposits. These attractive interest rates discourage retail investment in corporate bonds as term deposits carry lesser risk. Thus, risk-averse retail investors prefer fixed deposits over debt and risk-seeking investors opt for equity.
Break-up of Term-Deposit & Inflation Rates of Asian Countries
|Country||Fixed deposit rate||Headline Inflation|
|India||7.95 %||3.4 %|
|Malaysia||4.33 %||1.8 %|
|China||3.75 %||2.1 %|
|Thailand||2.8 %||1.1 %|
Secondly, institutions which are the major players in the bond market shy away from investing in corporate bonds. The reason being that the secondary market is still underdeveloped, owing to the lack of demand and supply (causing market illiquidity).
Issues on the demand side:
- The first barrier is a high SLR of 21.5% that, places restrictions on various players including banks, insurers, FPI and Provident funds. Also, only 15% of the funds is allowed to be invested in corporate bonds below AA rating. However, for mutual funds, there are no such restrictions.
- Secondly, India lacks a well-functioning derivatives market. This hampers the ability of players to hedge credit and currency risks.
- Lastly, a factor that banks will have to deal with is the ‘mark to market’ aspect. On the balance sheet, corporate bonds will be valued according to the market in contrast to the loans which won’t be valued similarly.
Issues on the supply side:
The institutional restrictions, preference for higher ratings (reason for higher interest rates) and the high cost of issuing (resulting in a high cost of capital, KD) has an adverse impact on number primary issues.
Analyzing the supply and demand aspects, we can say it is analogous to the chicken and egg situation. The above problems can be tackled by an effective implementation of the Insolvency and Bankruptcy Act which was passed on 5th May 2015. This can hasten the liquidation of distressed companies, thereby protecting the value of companies’ assets. It will also aid the asset reconstruction companies by attracting more participation into the NPA market. Furthermore, improved banking governance and adoption of Basel III norms mandating holding of high-quality liquid assets can also act as an elixir. Overall, these measures can improve the investors’ confidence in the corporate bond market.