Budget Proposals 2017-18: Intelligently Positive
Road Map On Basant Panchami
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.
This budget also represents several firsts. It is the first
that does not distinguish between plan and non-plan expenditure. It has merged
the railway budget with itself and come to table on the first day of February
instead of the last.
It outlined proposals for a total spend of Rs. 21.47
trillion. Capital expenditure is up 25.4%.
The fiscal deficit has been marginally relaxed from the
point target of 3% to 3.2% for 2017-18. The intention is to revert to 3% in
2019-20.
This even as the government
holds $361 billion in foreign exchange reserves, representing 12 months in
imports.
This tightness of the fiscal discipline in this exercise should
go down very well with the prospective foreign investor. This particularly
since other parameters such as inflation, the wholesale and consumer price
indexes, and the current account deficit are also well in check.
The GDP,
though slightly impacted is expected to go well above 7% in the subject 2017-18, taking India to the
fastest growing major economy in the world spot by at least one percentage
point.
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.
That is, if
global issues, such as the protectionism from the US, do not prove too onerous.
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.
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).
This Government has 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.
Defence gets Rs. 2.74 lakh crores without counting pension
allocations.
Infrastructure has 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 etc.).
The objective of 100% rural electrification is on track for
2018. There is to be solar power enhancement by another 20,000 MW.
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.
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 to the 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 Rs. 20,000/- . 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, 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%.
The Finance Minister also left the stock market alone. He
imposed no fresh taxes on capital gains on listed and unlisted stocks, the
securities transaction tax, or on foreign institutional investment.
And the Sensex ran up by 485 points in appreciation.
Not something that generally happens after a budget presentation.
(1,028 words)
February 1st, 2017
Gautam Mukherjee
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