Budget 2017: Implications for HR and talent-related initiatives

Published: 06, Feb 2017

Aon Hewitt empowers organizations and individuals to secure a better future through innovative talent, retirement, and health solutions. We advise, design, and execute a wide range of solutions that enable clients to cultivate talent to drive organizational and personal performance and growth, navigate retirement risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability, and wellness. Aon Hewitt is the global leader in human resource solutions, with over 35,000 professionals in 90 countries serving more than 20,000 clients worldwide across 100+ solutions. For more information on Aon Hewitt, please visit aon.com/india

The enhanced budget of Rs 4,000 crores for the Skill India initiative to touch 3.5 crore youth is testament to a clear focus on ensuring job creation and creating a specialized and skilled workforce (Image: Danish Siddiqui / Reuters)
The enhanced budget of Rs 4,000 crores for the Skill India initiative to touch 3.5 crore youth is testament to a clear focus on ensuring job creation and creating a specialized and skilled workforce (Image: Danish Siddiqui / Reuters)

The Finance Minister, Mr Arun Jaitley, presented one of the most anticipated union budgets of recent times yesterday. The impact of the unprecedented “demonetisation” efforts of the government, the downgrading of the IMF’s India growth outlook and continued challenges with the ease of doing business in India had combined to make the presentation of this year’s budget a much looked forward to event.

Here are the HR/talent related implications.

Three things that we think went well:
1. Emphasis on skill development initiatives:
The enhanced budget of INR 4,000 crores for the Skill India initiative to touch 3.5 crore youth is testament to a clear focus on ensuring job creation and creating a specialized and skilled workforce.

On the skill agenda, setting up a National Testing Agency as an autonomous and self-sustained premier testing body to conduct all entrance exams for higher education will ensure a standardized skill mapping across various sectors. A common assessment platform and creation of a common agency will be key for millennials to get an equal and fair opportunity to become a part of the higher education system.

2. Rewards for honest, low income tax payers: Employees with less than INR 5 lakhs per annum income could effectively pay either zero tax or 50% of their existing tax burden. This move will increase disposable incomes for the low income category.

Given that nearly 70% of the tax payers in the country have incomes less than INR 5 lakhs per annum, this represents a significant gain for these honest tax payers.

3. Flexibility with the NPS: Employees investing in the National Pension System (NPS) through their company will now be allowed to withdraw up to 25% of their contribution without having to pay tax. By including this withdrawal flexibility exempt from tax , the government is trying to bring closer NPS to the EPF. Since NPS is a voluntary scheme, introducing features such as this  will make it more attractive to the employees and induce them to enroll for the scheme.

While the change in NPS for this budget  is not substantial;, what is significant is that in the last three to four  years, the government has brought in many changes to the scheme’ thereby increasing the subscriber base YOY by 100% plus.

Three things that could have been done differently:
1. Surcharge on income tax for incomes between INR 50 lacs and INR 1 crore: People with an annual taxable income between INR 50 lacs and INR 1 crore will now have to pay a surcharge of 10%.

While many will see it as “they earn enough money and should pay more taxes”, this is a move that will disappoint those who fall in this category, given that increasing the tax base doesn’t seem to be receiving much focus. The surcharge represents a significant increase in the annual tax burden. Additionally, effective pay rises for this category for this year will be muted.

2. Not enough for IT-ITeS sector: While the focus on digital payments was as per the expectations in the budget, the expectations of the IT sector remain largely unmet. Given the environment in the US and the proposed changes to the H1B regime, the IT sector would have wanted more. The technology sector’s request for support and incentives for R&D have also been ignored.

We expect people related spends on salary, benefits and other employee initiatives to therefore be muted in the near future

3. Not enough done on corporate tax: The corporate tax rate has been cut from 30% to 25% i.e., for small companies but not for the large ones. A big part of the demand for a tax rate cut was to try and level the playing field for Indian and Asian companies to increase competitiveness and it’s the big companies that compete externally. The lack of a rate cut for the larger companies will also mean that they will have less leeway for spends on employee related programmes.

Our overall view - Demonetisation and the proposed introduction of GST are landmark moves that should have a long lasting impact on the economy. In this context, a budget that builds on consistency in policymaking, that the government has been displaying, is a step in the right direction.

Post Your Comment
Required
Required, will not be published
All comments are moderated
Prev
Budget 2017: An attempt to better 'connect' Bharat with India
Next
Budget 2017: Focus on Digital economy for speed, accountability and transparency