The first set of budget proposals after the world’s biggest demonetisation drive are also the best tabled by Finance Minister Arun Jaitley so far. They are far-sighted, bold, and impressive.
From what construction mogul Ajit Gulabchand called a “joyless enterprise” though he was primarily talking about the state of his industry, these proposals hold out rich promise for the future.
There are several firsts. For the first time there is no bifurcation between plan and non-plan expenditure, now that there are no more five-year plans. It has also merged the Railway Budget with itself and come to table on the first day of February instead of the last. The latter, in order to go operational a full quarter in advance.
The proposals outlined a total spend of Rs 21.47 trillion. But lest one thinks it is all taken up by the gargantuan size of our government, let it be known that capital expenditure is up 25.4%.
To accommodate this ambition, the fiscal deficit has been marginally relaxed from the point target of 3% to 3.2% for 2017-18. The intention, however, is to revert to 3% in 2019-20. This even as the government holds a respectable $361 billion in foreign exchange reserves, representing 12 months in imports. These are not Chinese style reserves, but certainly a far cry from when India had to hawk its gold reserves back in 1991.
This tightness of the fiscal discipline of expanding a fiscal laxmanrekha by a mere 0.2% in this exercise should go down very well with all except the most jaundiced observers. This particularly since other parameters such as inflation, the wholesale and consumer price indexes, and the current account deficit are also well in check as per the Economic Survey tabled on 31 January.
The GDP, though slightly impacted in 2016-17 is expected to go well above 7% in the subject year 2017-18, taking India to the fastest growing major economy in the world spot by at least one percentage point afresh. These parameters should lead, along with all the money currently in the banks, to further interest rate cuts and a boom in both the equity and debt markets.
N.K. Singh, who headed a parliamentary committee on suggestions regarding fiscal policy broadly agrees, and expects a “more accommodative monetary policy”, that in turn should stimulate domestic consumption, business, and industry. That is, if global issues such as the protectionism from the US that is expected to hurt our IT and pharma sectors do not prove too onerous.
Even as it stands, this budget has expanded its allocations in a number of key old and new sectors.
There is primary emphasis on women, children, the poor and underprivileged, skilling, disease eradication, sanitation, alleviation of conditions for Scheduled Castes and Tribes (up 35% at Rs 52,393 crore). All this should play well politically while addressing the needs of the people at bottom of the pyramid.
This government has also made the highest ever allocation for MNREGA at Rs 48,000 crore, enhanced agricultural credit (Rs 10 lakh crore) and crop insurance (coverage extended to 40% by value).
The government formally incorporated the Election Commission’s (EC) suggestion of not allowing any cash donation from a single source of more than Rs 2,000 down from the Rs 20,000 today. It also intends to introduce Political Funding Bonds for those who want to make their donations anonymously, rather than by cheques and online transfers. And the tax exemption that registered political parties enjoy will henceforth depend on conformity to these new norms.
There are bigger allocations for a plethora of headings under farming and the rural sector, including rural roads. However, there is some scepticism about the government’s claim that it will double farm income in five years, given that it would need a compounded 12.5% growth rate instead of the commendable 4.1% this year (2016-17), up from a more usual 1.2% last year (2015-16).
Defence gets Rs 2.74 lakh crore without counting pension allocations.
Infrastructure has a whopping Rs 396,135 crore.
Transportation gets Rs 2.41 lakh crore. Highways have Rs 64,000 crore.
Then there are airways, waterways, railways (to construct 3,500 km of new track, enhance safety, improve accounting processes, modernise and transform 500 stations, turn every carriage toilet into a bio-toilet, etc.).
The objective of 100% rural electrification is on track for 2018. There is to be solar power enhancement by another 20,000MW.
A new composite poverty index will be developed.
A new body will look at public sector asset reconstruction, monetising land banks, and unlocking their value including land belonging to the Airports Authority of India.
Another set of strategic oil reservoirs will be built in Orissa and Rajasthan. Two new AIIMS facilities will come up in Jharkhand and Gujarat.
With the banks flush with the proceeds from demonetised cash, and large tax accruals expected (already up 35% for individuals and 17% overall), the government proposes to only recapitalise banks with a modest sum of Rs 10,000 crore.
There are multiple provisions on digitisation including a major one lakh villages “digi-gaon” push, now that there is ample spectrum issued.
Cash transactions in excess of Rs 3 lakh, as suggested by the N.K. Singh Committee, are henceforth banned.
The government is clearly determined to keep the money forced into the banking system after 8 November 2016, by simultaneously offering a range of convenient digital transaction apps and incentives. These include the BHIM app, already in use by 1.25 crore people, and an even more widespread Aadhar Pay coming up. Some 20 lakh Aadhar based swipe machines will be introduced by 2020.
This budget also notably breaks new ground by encapsulating policy on putting a virtual stop to cash in political funding and charitable institutional donations, often referred to as the mother lode of black money.
The government formally incorporated the Election Commission’s (EC) suggestion of not allowing any cash donation from a single source of more than Rs 2,000 down from the Rs 20,000 today. It also intends to introduce Political Funding Bonds for those who want to make their donations anonymously, rather than by cheques and online transfers. And the tax exemption that registered political parties enjoy will henceforth depend on conformity to these new norms and the fine print such as one single recognised party account that regulates them.
Continuing with the government’s commitment to improve the ease of doing business, the Foreign Investment Promotion Board (FIPB) has been scrapped.
There was a windfall gift for both the depressed real estate sector and the world of equity. For real estate, the eligibility for long term capital gains on property sale has been reduced from three years since purchase to two. And a slew of financial instruments that will be free of capital gains tax altogether
will also be introduced.
For equity and real estate alike, the base year for indexing has been changed from 1.4.1981 to 1.4.2001. This will effectively lead to a much lower incidence of capital gains tax for both.
The bulk of the junior salaried class that has taxable income of between Rs 2.5 and Rs 5 lakh after factoring in the standard deduction, will be taxed at a mere 5% going forward.
A gentle surcharge of 10% was added on taxable incomes of between Rs 50 lakh and Rs 1 crore, which attract 30% tax plus cesses anyway, for the first time. And a similar surcharge on incomes above Rs 1 crore was retained from the last fiscal.
But, alongside this, there was relief provided to numerically 96% of Indian corporate entities, all with a turnover of under Rs 50 crore, with their taxation reduced by 5%, to 25%.
Several other taxes including service tax were left alone for now in view of their expected engulfing by the impending GST roll-out.
The Finance Minister also managed to surprise the stock market pleasantly. He imposed no fresh taxes on capital gains on listed and unlisted stocks, or atop the securities transaction tax, or on foreign institutional investment.
And the Sensex ran up by over 485 points in appreciation, alongside the approbation from most of the captains of business and industry.