NEW DELHI: The government unveiled a fire-fighting budget on Monday that seeks to win back support among rural voters for Prime Minister Narendra Modi’s government and sustain growth against a grim global backdrop – all without borrowing more.
Finance Minister Arun Jaitley’s third budget marked a strategic shift by addressing rural distress in a country of 1.3 billion, where two-fifths of families rely on farming and are reeling from two years of drought.
At the same time it hiked public investment in India’s woeful infrastructure by 22.5 percent, while taking further steps to revive corporate investment that Modi needs to create new jobs for India’s burgeoning workforce.
“We have a shared responsibility to spend prudently and wisely for the people, especially for the poor and downtrodden,” the 63-year-old finance minister told lawmakers in his 100-minute address.
India holds several state elections this year, including in the farming state of West Bengal, with the country’s most populous state, Uttar Pradesh, going to the polls in 2017. A strong showing will be vital to Modi’s chances of a second term.
Despite commanding a large majority in parliament’s lower house, Modi’s government has failed to pass several key measures since sweeping to power almost two years ago, raising doubts over the impact of its reform agenda.
Jaitley called Asia’s third-largest economy a bright spot in a gloomy global landscape, and reiterated a forecast that it would grow by 7.6 percent in the fiscal year that is drawing to a close.
But, despite hefty commitments on rural welfare and health, Jaitley managed to stick to his fiscal deficit target of 3.5 percent of gross domestic product for the 2016/17 fiscal year that starts on April 1 – a pledge that may open the way for an early interest rate cut by the Reserve Bank of India.
“At first sight, it’s a good budget, a fire-fighting budget,” said Amitabh Dubey, director of India research at Trusted Sources.
Union Budget 2016
KEY HIGHLIGHTS
— GDP growth at 7.6% despite slowdown in global economy from 3.4% to 3.1%. CPI inflation down to 5.4%
— CAD from $18.4 billion in first half of last year to $14.4 billion this year
— To double income of farmers by 2022, sets aside Rs 35,984 crore for the purpose; to bring 28.5 lakh hectare under irrigation at a cost of Rs 17,000 crore
— Only 46% of 141 hectares of net cultivable area is irrigated, target to bring 28.5 lakh ha under irrgation, at Rs 17,000 cr next year
— Rural Sadak Yojana allocation at Rs 19,000 cr for FY17 representing 60% of central funding, rest 40% to come from states, taking total allocation to Rs 27,000 cr; 100 km road construction per day currently to be stepped up
— Provision of Rs 15,000 crore to ease burden on loan repayment in form on interest subvention for farmers
— Proposed Rs 5,500 cr for crop insurance scheme
— Rs 2.87 lakh crore as aid to Gram Panchayats, as recommended by Finance Commission; quantum jump of 228%
— Rs 38,500 cr allocated for MGNREGA, highest amount ever under the scheme
— Rs 25,000 crore allocated for recapitalisation of PSU Banks
— Fiscal deficit to be retained at 3.9% of GDP; FY17 fiscal deficit target at 3.5%
— 15.3% increase in Plan Expenditure to Rs 5.5 lakh crore, this is the last year of the 12th Plan.
— Plan vs non-plan distinction to be erased in FY2017. Every new scheme to have sunset date and outcome review
— Relief to small tax payer earning less than 5,00,000 p.a., additional relief u/s 87A from Rs 2,000 to Rs 5,000
— Relief to those living in rented houses and not getting HRA from employers to go up from Rs 24,000 to Rs 60,000
— Corporate tax: Effective rate of tax comes to 24.8%. Accelerated depreciation limited to 40% for first year. IT rate for FY17 of relatively small enterpises, with turnover of less than Rs 5 crore limited to 29% plus cess
— 10% tax on dividends in excess of Rs 10 lakh received by individuals, HUFs; this will be in addition to DDT; LTCG period for unlisted firms reduced to 2 years
— Withdrawal up to 40% of corpus from Pension to be made tax-exempt– For first-time homebuyers, addl Rs 50,000 tax exemption for houses under Rs 50 lakh
— Infra cess of 1% on all diesel cars of certain capacity, SUVs, some other cars as part of pollution control measure
— 45% tax (including surcharge and penalty) on undisclosed income declared under new window between June 1- September 30, with no provision of scrutiny of books
— Retrospective Tax: High level committee headed by Revenue Secretary to allay fears
— Net revenue gain from direct and indirect tax proposals: Rs 19,600 cr
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