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.