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Is Budget 2017-18 Unique For Banking Sector?

Thrust on digital economy requires banks to go for digitisation but the banking sector should not be clogged with unnecessary regulations

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The budget 2017-18 is unique in the sense that it is presented after the demonetization which is a great war against corruption since independence of India. The unique feature can be further perceived from the fact that the present budget is an attempt against shadow economy and tries to achieve a transparent economy to a wider scale. Another unique feature is that the budget ensures the sustainability in the ongoing government policy approach towards domestic investment as well as foreign investment and it is a continuous journey from the previous budget aimed at making India a great destination for foreign investment without losing much of the potential economic growth. Yet, another unique feature in this budget is that this budget is the first time presentation of budget by merging Railways Budget along with Union Budget which, in turn, enables the Union government to consider Indian railways as one of the important sectors in the policy towards infrastructure development and expenditure strategies.

One another unique feature in the budget that is widely admired by the people of India is the introduction of 'Electoral bonds' which is an important step towards cleaning up political funding by insisting on cashless transaction. Another noteworthy point is that reduction in 5 percent in income tax in the taxable income bracket 2.5 lakh to 5 lakh is a marked advantage to middle class people and the efforts towards income equality can be better understood from the fact the government levies 10 percent surcharge on income between Rs 50 lack and 1 crore to compensate taxable income lost from the tax payers in the 2.5 lakh to 5 lakh bracket.

Though demonetisation paves the way for tax compliance and wider application of digitalization, demonetization is more likely to defer large no of economic activities which are substantially depend on cash transactions and it will take several months to squeeze such cash crunch in those activities that may retard faster economic growth. Undoubtedly, there are large no of evidences to suggest that very justifiable liberalization in the rules and regulation in the financial sector will lead to faster economic growth since India is endowed with large natural resources and large work force. Demonetization is a well thought out action to confiscate black money in the circulation but however, because of demonetization, India will be losing 1 percent GDP growth rate in 2017-18.

Many countries all over the world are on the verge of fiscal incentives to growth, but India is now pushed into different situation in the efforts towards faster economic growth. The great advantage of demonetization is that apart from providing rapid financial services, it gives immense opportunities to leapfrog into digital economy and to transform the Indian society towards digital economy. The current proposal to create a Payments Regulatory Boards in RBI replacing 'Board for Regulation and Supervision of Payment and Settlement System with a view to bifurcate payment system and Banking Function is a good step towards digital India. Thrust on digital economy necessitates banks to go for digitalization every way but at the same time Indian banking sector should not be clogged with certain unnecessary regulations.

Before the establishment of BIC, the Banks Board Bureau could not do appreciable headway in the operation of Bank Boards. In fact,after the establishment of Bank Investment Company (BIC) to transfer government holdings, it has not brought the desired result. The Indradhanus set of reforms, which is based on P.J. Nayak Committee Report highlighted the importance of reforming the Boards of Public Sector Banks. In spite of the existence of boards of Public Sector Banks, there is an increasing trend in non-performing assets PSB banks. The gross non-performing asset ratio in PSB which was 3.1 in 2013,increased to 3.8 percent in 2015 and 4.8 percent in 2015 and 8.4 percent in 2016.

It is reported by rating agencies that PSB s need about Rs 75000 crores as capital infusion for further two years. The current budget provided only Rs 10,000 crore to recapitalize the PSBs in 2017-18. As far as India is concerned, Indian PSBs are one of the main pillars of investment, sufficient capital adequacy for PSBs is very essential in the present juncture in the race towards high economic growth. In this budget,the Finance Minister announced that the market borrowing of government is estimated at Rs 3.47 lakh in 2017-18 whereas it was Rs 3.48 lakh crore in 2016-17.The small saving schemes bestowed funds to the government as an average of Rs 25000 crore for the last five years but it brought inflow of funds to the extent of Rs 1Lakh crore in 2017-18 as a result of demonetization.

To conclude, this budget 2017-18 is prudent in many aspects encompassing logical reasoning to macroeconomic environment of India. Overall, the budget ensure comforts to middle class and poorer sections of the population in allocating funds, providing concessions in tax and encouraging schemes of various nature. Even though, international and national agencies estimated the little lower economic growth as compared to previous financial year demonetization and other financial and trade issues, our Finance Minister is blessed enough to march towards building India to greater heights provided banking finance is strengthened every way.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


Dr. Hala Raman

The author is a Professor at PSG Institute of Management

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