ASG Analysis: India's Union Budget 2017-2018

ASG's South Asia Practice has extensive experience helping clients navigate markets across South Asian markets. For interviews with Anand Shah or Melissa Frakman please contact Mary Clare Rigali at


  • On February 1, India’s government presented the Union Budget, its economic and fiscal policy “blueprint” for the year ahead. This new budget is fairly moderate and contains no major surprises, suggesting a year of business climate predictability.
  • Most notable for businesses with a presence in India is the budget’s announcement to abolish the Foreign Investment Promotion Board (FIPB) - the “last bastion of the license Raj” - effectively creating an automatic and simplified route for all foreign direct investment (FDI) across sectors. 
  • The budget comes in advance of key state elections in which the ruling BJP party faces challenges. In a nod to the widespread voter base across rural India, the budget focuses on doubling farmer income and providing relief to the rural poor most affected by currency demonetization.
  • Heavy infrastructure, agriculture, and digital payments are championed in this budget.

"Relief, Resuscitation, Reforms" as the Government's R³ Theme

India’s Finance Minister Arun Jaitley describes the theme of the 2017 budget as “Relief, Resuscitation, and Reforms,” with a focus on farmers and the rural population. 
This year’s budget follows in the footsteps of two major policies announced in 2016 with widespread impact on India’s economy: the passage of the constitutional amendment for a Goods and Services Tax (GST) and the Indian government’s decision to demonetize 86% of its currency to curb illicit black money in the country.  
While many companies are still grappling with the implications of these developments, the new budget provides insight into India’s path forward over the next fiscal year. This budget comes midway through Prime Minister Narendra Modi’s five-year term and precedes crucial state elections later this year.

What's the Impact?

 Tax: A “big bang” income tax reform was not announced as some analysts predicted. The corporate tax rate for small and medium enterprises was cut by 5%. The budget provides helpful clarifications on capital gains tax and extension of favorable tax concessions for foreign portfolio investors (FPIs) and Masala Bond holders. It also announces an initiative for Indian companies to provide more formal input into Goods and Services Tax (GST) implementation. Employees of Indian companies earning more than $75,000 US now have a 10% surcharge added to their personal tax rates.

 Agriculture: Finance Minister Jaitley renewed the government’s promise to double farmer incomes in five years and bring 10 million new households out of poverty, in part a nod to rural workers hit by currency demonetization. The budget includes tariff cuts on food products, a new dairy processing infrastructure fund, and a 25% funding hike to the world’s largest public works program, the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). Food processing and e-commerce remains a strong opportunity for foreign investors.

 Infrastructure: The budget earmarks an additional $7 billion US for infrastructure to help develop the estimated $1 trillion in infrastructure required to meet the needs of India’s population. The government announced that India is on track to achieve 100% electrification by 2022. The railways announced that it is looking to partner with logistics companies for solutions across the value chain.

 Affordable Housing: Notably, affordable housing has been granted infrastructure status, making it available for significant incentive programs for development and investment. India’s population requires a new Chicago worth of real estate each year to match its urbanization rate.
 Digital Payments: The budget leans strongly toward implementation of the government’s digitization push, including major restrictions on large cash transactions, the announcement of Aadhar Pay for transactions exclusively using India’s biometric ID program, as well as incentives for using BHIM, a new mobile app launched by the government in Q4 2016. Customs duties were fully lifted on the hardware required for these innovations (e.g. scanners) and a new “digital village” initiative for rural household service delivery (i.e. education and healthcare) was announced.