Budget 2017: A New Dawn

Budget 2017: A New Dawn

These budget proposals coming  after the world’s biggest demonetisation drive are  far-sighted, bold, and impressive.

There are several firsts. It 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.  

This even as the government holds $361 billion in foreign exchange reserves, representing 12 months in imports.

This tightness of the fiscal discipline should go down very well with all analysts. This particularly since other parameters such as inflation, the wholesale and consumer price indexes, and the current account deficit are also well in check.

 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.

This,  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 20,000MW.

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.

Another set of strategic oil reservoirs will be built in Orissa and Rajasthan. Two new AIIMS facilities will come up in Jharkhand and Gujarat.

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 in the banking system 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 breaks new ground by putting a virtual stop to cash in political funding and charitable institutional donations, often referred to as the mother lode of black money.

It has incorporated the Election Commission’s (EC) suggestion of not allowing any cash donation from a single source of more than Rs. 2,000/- . 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.

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 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 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 96% of Indian corporate entities, all with a turnover of under Rs. 50 crores, with their taxation reduced to 25%.

The Finance Minister 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 485 points in appreciation.

 (844 words)

February 1^st, 2017

Gautam Mukherjee