Budget 2017: The Best Since This Government Took
Over
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 laxman rekha 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 the 31st of
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.
NK 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 crores). 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 crores, enhanced agricultural credit (Rs 10 lakh
crores), and crop insurance (coverage extended to 40% by value).
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 crores without counting pension
allocations.
Infrastructure has a whopping Rs. 3,96, 135 crores.
Transportation gets Rs.
2.41 lakh crores. Highways have Rs. 64,000 crores.
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 Airport 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 crores.
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 lakhs, as suggested by
the NK Singh Committee, are henceforth banned.
The government is
clearly determined to keep the money forced into the banking system after
November 8th 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 lakhs 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 lakhs 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 crores, 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 pleasantly surprise the
stock market. 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 485 points in appreciation,
alongside the approbation from most of the captains of business and industry.
For: The Sunday Guardian
(1,284
words)
February 1st, 2017
Gautam Mukherjee
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