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Pragmatic and focused

Thursday, 2 February 2017

True to expectations, the Union budget presented by Finance Minister Arun Jaitley seeks to ramp up spending on rural areas and infrastructure while handing out small tax relief to the middle-class and small businesses. The motivation clearly has been to smoothen out the ill-effects of demonetisation in the short run.

A 24 per cent hike in spending on rural India and a 35 per cent raise in allocation for Dalits point to welfare as a driving principle of the budget. Selective intervention where needed without meddling in areas that don’t need it is another basic thrust of this budget. Indeed, in tone and tenor, Budget 2017 is aimed at the most vulnerable sections of the population, in rural as well as in urban areas. It provides tax breaks to the least-paid segment of the working population.

The budget measures should go down well with the general populace and should help in giving the Narendra Modi government a mid-term boost. Overall, capital expenditure is up 25.4 per cent but most of that would be on infrastructure to support the theme of bringing the markets to the under-served. As shown by the abolition of the Foreign Investment Promotion Board, along with the promise of further liberalisation of the foreign direct investment policy, this may be the first few steps in this government’s promise to minimise its role in the economy.

In what should bring succour to the farmers, farmer credit has been fixed at a record level of Rs 10 trillion with the promise that adequate flow to underserved areas will be ensured. The government will set up mini-labs in Krishi Vigyan Kendras for soil-testing and issuance of soil health cards. Another measure is the setting up of a long-term irrigation fund in Nabard with a corpus of Rs 40,000 crore. There will be a dairy processing infra fund with Rs 8,000 crore corpus and a dedicated micro-irrigation fund with Rs 5,000 crore corpus. A model law on contract farming would be framed and circulated. The MNREGA scheme has been given a big boost with a whopping allocation of Rs 48,000 crore. The Finance Minister has also promised 100 per cent village electrification by May 2018.

The middle class has for long been clamouring for a better deal. This time around, there is relief for the salaried class especially at the lower end of the scale. Effectively, there will be no tax for those earning up to Rs 3 lakh per annum. The personal income tax rate has been reduced to 5 per cent from 10 per cent earlier for income bracket of Rs3-5 lakh; all other categories will get uniform benefit of Rs12,500 per person; but for the relatively well-paid there would be a surcharge on income for those earning from Rs 50 lakh to Rs 1 crore.

The normal surcharge for incomes above Rs 1 crore will continue. In the case of senior citizens above 60 years, there will be no tax up to Rs 3 lakh, while the exemption will be up to Rs 5 lakh in case of citizens above 80 years. Both the categories will attract income tax of 20 per cent on income between Rs 5 lakh and Rs 10 lakh and 30 per cent for income above Rs 10 lakh. There would be a simple one-page form for taxable income up to Rs 5 lakh. Companies with annual turnover of Rs 50 lakh will get a 5 per cent reduction in Corporate tax while foreign investors have been exempted from paying tax on offshore funds with Indian assets.

With the abolition of the Foreign Investment Promotion Board (FIPB) — the body which approved all inbound FDI investment proposals — there would predictably be an easing of the process of doing business in India. How much this would actually translate into removing the cobwebs in the system which have rankled foreign investors in the country remains to be seen since the red tape in the system is deeply embedded.

Ostensibly, there are no other major measures in the budget to incentivise capital formation directly. In terms of political funding in which the Narendra Modi government has been promising reforms of late, the limit that political parties can receive in cash has been reduced from Rs 20,000 to Rs 2,000 and to curb black money, general cash transactions above Rs 3 lakh will not be allowed henceforth.

All in all, Jaitley’s budget for 2017-18 is pragmatic though it lacks direct fillips to growth. That it seeks to boost the rural and infrastructure sectors is happy augury. The reliefs for the salaried class at the lower and middle levels are welcome indeed. With the process of digitisation proceeding at a fast pace and the parallel economy through which tax evasion was extensive and rampant being reined in somewhat, there is room for optimism. If the GST finally goes through, the growth process should receive a further shot in the arm.


Mixed for India

Wednesday, 1 February 2017

While the Indian Information Technology (IT) sector is reeling under the likely impact of US President Donald Trump’s H1-B visa reforms bill, which is expected to hit Indian techies and IT firms hard, there is some cheer in this country on the possibility of the new administration coming down hard on Pakistan-based terrorists working against India’s interests.

Hafiz Saeed, the mastermind of the 2008 terror attacks in Mumbai, and four of his associates have been placed under house arrest in Pakistan and the Jamaat ud-Dawa of which Hafiz Saeed is chief is all set to be banned. If the new administration carries forward its intent, it could well deal a death blow to the training, arming and financing of terrorists who operate against India. Indeed, India would have much to gloat about if Trump drills fear into the Pakistan government and that leads to cessation of terror activities. Thus far, India’s entreaties to the US to use its influence on Islamabad to contain terror had fallen on deaf ears under Barack Obama’s relatively passive administration.

Recently, Pakistani Punjab’s Ministry of Interior had included names of Saeed and four others — Abdullah Ubaid, Zafar Iqbal, Abdur Rehman Abid and Qazi Kashif Niaz — in the Watch List as per UN Security Council sanctions and ordered their preventive detention. Hafiz Saeed, who is also the founder of the Lashkar-e-Taiba, carries a $10-million bounty on his head.

The JuD has started discreetly working under the name of ‘Tehreek-e-Azadi-e-Kashmir’ (Kashmir Freedom Movement). The outfit is expected to enter politics with a new name in 2017, which Saeed had declared as “the year for Kashmir”. Evidently, the house arrest of Hafiz Saeed is the result of the Trump administration’s tough approach. In pursuit of that broad stance, Trump has fired Acting Attorney General Sally Yates after she announced she would not defend his controversial immigration and refugee ban covering seven Muslim countries.

As a sequel to the ban order, President Donald Trump has reportedly drafted an executive order to revamp the H1-B visa, which allows thousands of Indians to work at tech giants like Google and Microsoft in the US. If implemented, the order could force Indian companies like Infosys and Wipro, and affect the hiring process of US companies like Microsoft, Amazon and Apple. Indian IT companies generate around 55-60 per cent of the revenue from the US. The Trump activism is, therefore, a mixed bag for India which would need to be watched with a degree of wariness.



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