Indian Budget Highlights

This article was last updated on April 16, 2022

Canada: Free $30 Oye! Times readers Get FREE $30 to spend on Amazon, Walmart…
USA: Free $30 Oye! Times readers Get FREE $30 to spend on Amazon, Walmart…

A lot has been written about the budget presented by Jaitley last Saturday. While a section of industrialists & economists have given a thumbs up to the budget, another section feels that it lacked Big Bang reforms. While corporates are happy at the prospect of reduction in tax rates, consumers are disappointed because of increase in service tax and the salaried class was expecting much more. Will try to break down the budget for the Aam Aadmi.

The main items of the budget are listed below:

   

RE: Revised Estimates, BE: Budget Estimates

Fiscal Deficit = Total Expenditure less Total Revenue Receipts less Recoveries of Loans & Advances less Miscellaneous Capital Receipts

The Fiscal deficit is financed by market loans, short term borrowings, state provident fund, external assistance etc.

Budget is not only about economics but politics as well. BJP govt. which lost the elections in 2004 despite India Shining campaign – good economic growth, record job creation, record construction of highways – is very cautious this time around. The govt. wants to shed its pro rich / middle class tag and wants to portray itself as pro poor. In view of this pet schemes of UPA – NREGA & FSB which BJP was critical of, have been continued.

At the outset, must admit that there is no dream budget or perfect budget which pleases all. The budget presented by Jaitley has both positive as well as negative elements.

Positives:          

– Roadmap for fiscal consolidation & inflation

Government has announced that fiscal deficit target of 3% will be achieved in 3 years rather than 2 years. The fiscal deficit targets are 3.9%, 3.5% and 3.0% in FY 2015-16, 2016-17 & 2017-18 respectively. This is more realistic and eases pressure on public finances which could be used for infrastructure.

The govt. has also announced a new ‘inflation targeting’ mechanism, whereby it has mandated RBI to bring down inflation to below 6% by January 2016 and then target a level of 4% by March next year. RBI will have to explain the reasons if such targets are not achieved. This brings accountability to the monetary policy of RBI.

– Call for make in competitive india & huge infra push

The economy is expected to grow between 8.1% and 8.5% next year, up from 7.4% this year. This, if achieved, will make India the fastest growing economy in the world. The thrust on Make in India / Competitive India and big infrastructure push are the highlights of the budget.

· Housing for all by 2022 – 2 crore houses in Urban areas and 4 crore houses in Rural areas.

· Basic facility of 24×7 power, clean drinking water, a toilet and road connectivity.

· Electrification of the remaining 20,000 villages including off-grid Solar Power- by 2020.

· Increase in outlays of roads and railways.

· Set up of National Investment and Infrastructure Fund (NIIF) with an annual flow of `20,000 crores to it.

· Launch of Tax free infrastructure bonds for the projects in the rail, road and irrigation sectors.

· Plans to revisit / revitalise the PPP mode of infrastructure development which has not taken off.

– Proposed reduction in corporate tax rate to create more jobs

Corporate tax will be reduced to 25% in phases from 30% currently. This is positive in the sense would increase profits, make them competitive and lead to more creation of jobs. However, this comes with a caveat that host of exemptions which are now in force will be streamlined and minimised. This is in line of govt. vision of putting in place a direct tax regime, which is internationally competitive on rates, without exemptions.

I have been advocating this measure for salaried class as well for quite some time now, streamline exemptions & reducing tax rates, giving the tax payer the right to do what he wants to do with his money.

To improve the ease of doing business the govt. would also introduce a comprehensive Bankruptcy Code akin to global standards in fiscal 2015-16. business

– Comprehensive bill to curb black money

In line with its promise of bringing back the stashed black money abroad, the govt. promised to introduce a new comprehensive law to deal with black money parked abroad in the current session. The Benami Transactions (Prohibition) Bill to curb domestic black money to be introduced in the current session of Parliament. This is very crucial as I feel there is  a lot of domestic generation of black money which needs to be curbed and our focus is unnecessarily too much on black money stashed abroad.

– Set up of MUDRA BANK for micro financing

MUDRA Bank, with a corpus of Rs. 20,000 crores is proposed to be set up. The bank will be responsible for refinancing all Micro-finance Institutions which are in the business of lending to such small entities of business through a Pradhan Mantri Mudra Yojana. In lending, priority will be given to SC/ST enterprises. An effort to make financing available to the smallest of enterprises.

– Roadmap for roll out of GST & Disinvestments

Jaitley in the budget announced that the proposed Goods and Services Tax (GST) Bill will be implemented from April next year. This has been delayed for long and new target date should not be missed at any cost. GST, by harmonizing a large number of central and state taxes into a single tax, would eliminate double  taxation in a major way and pave the way for a common national market.

The govt. is committed to continue to divest its stake not only in loss making PSUs, but also make some strategic disinvestment. This ties with its ideology of “Minimum Government and maximum governance."

Negatives:
– Increase in NREGA

While Modi criticised the NREGA and termed it as a failure of Congress, Rs. 5,000 crores more was provided for the scheme in the budget. This when leakages in the scheme are rampant. This is difficult for me to comprehend and is linked to the political compulsions.

– Decrease in education & healthcare allocations

The most striking / alarming part of the budget for me was the reduction in allocations for education (-2%) and health care (-5.7%). With literacy levels of sub 70% more ought to have been provided. Our population which till a few years ago was considered as one of the weakness of Indian economy, is now a plus. But this huge population needs to be educated and trained to take on jobs around the world. Also in a country in which there is no social security & free healthcare, reduction in funds allocated for the sector is disturbing.

– Increase in service tax

The service tax has been increased from 12.36% to 14%. This means everything from mobile / landline / internet / piped gas / electricity bill to restaurant bills would increase. This would pinch common man and could discourage consumption. So the extra you get in form of conveyance allowance, some of it will go away in higher bills. A major shift

– No major relief for salaried class

Salaried Class is a bit disappointed as there was neither an increase in exemption level nor an increase in deduction for interest on home loan which was expected. Three announcements were made:
– Increase in conveyance allowance to 1,600 per month from 800 per month
– Increase in deduction for medical insurance premium from 15,000 to 25,000
– Deduction of 50,000 for investment in pension funds

This will make the salaried class richer by Rs. 80-240 per month on account of conveyance allowance depending upon tax slabs. This will however, go away in higher bills because of increase in service tax. If they opt for pension & medical insurance they can save tax ranging from Rs. 6,000 to Rs. 18,000 depending upon tax slabs. This saving is available only if one spends Rs. 60,000 on these instruments. Not everyone can afford this.

A statement by the finance minister that Rs. 4.44 lakhs is now exempt from tax created a lot of confusion. Some reported that exemption level has been increased to Rs. 4.44 lakhs. Further confusion was created when power minister tweeted that a person earning Rs. 7 lakhs need not pay any income tax (2.5 lakhs exemption limit 2 lakhs housing loan interest 1.5 lakhs 80C deduction 0.5 lakhs pension 0.25 medical insurance 0.20 conveyance allowance). This is ridiculous and assumes people earning 7 lakhs can save 65% of their income, claim all investment deductions and buy a house. It would have been better if govt. would have played it down and avoided this controversy.

– No attempt to bring in more people in the tax net

The FM failed to bring in more people in the tax net like earlier counterparts. Neither any attempt was made to tax people (rich agriculturists / some professionals) who pay zero / less taxes by way of consumption / expenditure tax.

The rating agencies have given a mixed response to the budget. S&P says the budget shows India's commitment to keep the fiscal deficit low despite lower than expected revenue growth. Moody's says budget has prioritized growth over fiscal consolidation but it may not have any impact on country's sovereign ratings. Fitch says that budget has both positive and negative elements and India's medium term fiscal consolidation strategy is less inspiring. 

There has been a rate cut post the Budget showing the government and RBI are on the same page as how they view the economy. Post the rate cut the Chief Economic Advisor has advocated for a rating improvement from rating agencies. An improvement in ratings will reduce the cost of external borrowings for Indian companies.

The Modi govt. has a very corporate like approach. The provision that 5,000 crores more would be provided to NREGA if tax budgets are met is an example of such approach. The way CEA is going all out on sovereign ratings also shows govt. commitment to meet various stakeholders and pitch for a rating upgrade. However, the controversy with respect to exempt income of salaried class shows it has to be sensitive as well in this approach.

Will this budget usher in a new & economically strong India? We have to wait at the maximum till the next elections to see the results

Politicalbaaba runs a popular blog on Indian politics and elections www.politicalbaaba.wordpress.com. It has been nominated by The Guardian as one of the online voices providing an alternative view of India and the general elections. author runs a blog author runs a blog www.politicalbaaba.wordpress.com. You can tweet @politicalbaaba.

Share with friends
You can publish this article on your website as long as you provide a link back to this page.

Be the first to comment

Leave a Reply

Your email address will not be published.


*