Arun Jaitley all set to present Budget 2016: 10 key things to look out for

The government led by Prime Minister Narendra Modi is nearing two years in power at the Centre and the economy continues to be sluggish. While overcapacity has hit the industries hard, consumer demand has failed to pick up. The task has become difficult for Finance Minister Arun Jaitley, the jump in bad loans and rural distress caused by frequent droughts are to be blamed. However, the expectations are low, following the fall in stock markets ahead of the budget. 

Here are 10 things to watch out for as Mr Jaitley presents his third budget today: 

1. Fiscal deficit: Balancing the fiscal consolidation and economic revival will be the biggest challenge and a daunting task for Finance Minister, who will have to walk a tightrope in making a decision in this regard. Why? Well, according to experts, funds are required for 7th Pay Commission salary hike, recapitalization of banks and infrastructure development. For this, relaxation in fiscal deficit is must. But, this may not go well with rating agencies and foreign investors.

2. Infrastructure investment: Last year, the fiscal deficit target was set by the government at 3.9 per cent of GDP, which was higher than expected. Finance Minister allocated an extra Rs 70,000 crore for investment in infrastructure, thus winning over investors. According to analysts, like previous year, this budget is also expected to focus on roads and railways.

3. Rural distress: In order to overcome the rural distress, spending towards rural infrastructure and mega irrigation projects is likely to be raised this time. A raise in allocation for Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is also expected.

4. GST: April 1, 2016 was the deadline to implement the Goods and Services Tax (GST), which the government has missed. According to analysts, the Finance Minister may increase the service tax to around 16 per cent, a move that will bring the rate closer to the revenue neutral of 18 per cent under the proposed GST.

5. Subsidies: The subsidy payments will be lower this year due to the crash in global crude oil prices. Finance Minister in this budget is likely to increase the food subsidy bill for implementing the Food Security Act (FSA) across India. The FSA aims at providing rice and wheat at highly subsidized rates to 67 per cent of the population.

6. Disinvestment: Following the sharp fall in domestic stock markets, the government is short of its disinvestment target of nearly Rs 70,000 crore. Analysts believe that disinvestment target in this budget would be more realistic.

7. Corporate tax: The Finance Minister has committed to reduce the corporate tax rate by 5 percentage points over four years and hence India Inc expects him to reduce the rate. A schedule for removal of tax exemptions is also expected to be announced in this budget.

8. Recapitalisation of banks: Last year, the government had announced a revamp plan involving an infusion of Rs 70,000 crore in state-owned banks over four years. According to experts, they expect that this budget will bring more resources in order to boost the lending capacity of state-run banks.

9. Markets: Investors will keep an eye on the tax-related announcements this budget. Stock markets have already been spooked following concerns that in order to raise additional revenues, Finance Minister will tweak rules with regards to capital gains tax, dividend distribution tax and securities transaction tax. 

10. Personal income tax: The previous two budgets have seen an increased tax benefits for common taxpayers. In order to boost consumption, tax exemption limit may be increased. Mr Jaitley may also announce more tax deductions to incentivize savings in budget.