All about the budget

After the bold step of demonetization in November, three months later, finance minister Arun Jaitley  unveiled a budget which aimed at helping  the poor and middle class with hikes in government spending and tax breaks.

The Government announced spending increases on rural areas, infrastructure and on fighting poverty, and sought to allay fears that the effects of demonetisation would not spill over into the next financial year, ahead of polls to crucial state assembly elections where the cash ban and the Modi Government’s report card at the centre will be electoral issues.

Mr Jaitley announced halving of the basic personal income tax rate to 5 % for those earning between Rs 2.5 lakh to Rs 5 lakh, and cut taxes on small firms annual earnings of  up to Rs 50 crore that account for 96 %  of India’s businesses to 25 % from a current 30 %. While imposing a 10 % surcharge on those earning between Rs 50 lakh and a crore. A 15 % `rich’ surcharge already exists on those earning more than a crore of rupees.

Officials explained that the lower tax rate at the entry scale was meant to give relief as well as to encourage people such as small traders etc., who  were avoiding paying taxes to pay up and avoid being troubled by the taxman.

The stock markets, relieved at the absence of a feared increase in tax on dividends and a new impost on stock market transactions, welcomed the budget with the Sensex  leaping close to 486 points to close at an over 3-month high of 28,142, on the budget day.

The Prime Minister Narendra Modi who is believed to have personally held a series of meetings with secretaries in the run up to the budget himself termed the Union budget presented by Mr Jaitley as “Uttam” (Great).

Investment

With economic growth slowing down to 7.1 % in financial year 2016-2017, the finance minister had a tough task on hand – he needed to push the envelope and inject more money into the economy to try pep up growth, please the  middle class left unhappy by the cash ban with tax sops, woo farmers bitter because of lack of cash during the sowing season and help traders and small businesses trying to limp back to normalcy.

The Government decided as a consequence to raise capital investment by a whopping 25.4 %, hoping this would lead to a multiplier effect in the economy. Some Rs 2.41 lakh crore was promised as spending on rail, road and shipping. While the farmers’ were promised Rs 10 lakh crore in credit and better crop insurance coverage. The finance minister also announced a 24 %  hike in rural and farm spending as part of Modi’s commitment to double farm incomes over five years.

A series of sops were announced for affordable housing schemes, realtors were promised industry status, which would make loans cheaper and easier for them and a bond was promised investment in which would be set off against capital gains liability for those selling their property.

To woo people for using cash and promote digital economy, Mr Jaitley gave effect to the Prime Minister’s promise to reduce presumptive taxes on small traders from 8 % to 6 %, while cash purchases over

Rs 3 lakh were banned. Firms will now on be allowed to claim expenditure in cash, only up to Rs 10,000 and cash donations to charities limited to Rs 2,000. 

However, to try and garner money for these spending plans and give-aways, the Finance Minister has had to ease his fiscal deficit target from an earlier set 3 % to 3.2 % or by over Rs 32,000 crore.

 Election Bonds

Possibly one of the few bold moves taken in the budget was a move to sanitise political funding by introducing an Electoral Bonds, which can be bought from the market with legitimate money through cheques or through digital transactions from designated banks and given to the political party of the buyer’s choice.

The electoral bonds are an  unique experiment for which the Government will have to bring legislative changes, which officials have said are in the offing. The bonds will be authorised by the Reserve Bank of India and a scheduled bank or banks  will be authorized to issue the electoral bonds. Anyone who wishes to contribute to election funding can buy the bonds with legitimate funds. It can then be contributed to any recognized political party’s designated account. The party can then cash it for its election expenses. By buying the bond and then giving it to the party of his or her choice and individual or firm is able to maintain a veil secrecy in who he or she is funding.

The Government announced in the budget that cash contributions to political parties will be limited to 2000 instead of the earlier limit of `20,000 and that contributions above that can either be through cheques or electronic transfers or by way of anonymous bonds which can be legitimately bought and then given to any political party of a firm’s or individual’s choice. The move comes just days ahead of  key elections to state assemblies including India’s most populous state – Uttar Pradesh.

In another bold announcement, the finance minister said the Foreign Investment Promotion Board, a stodgy bureaucrats club which vets foreign investments would be scrapped  a move that is sure to cheer investors struggling against India’s red tape, which has kept India at a lowly 130th position in the World Bank’s Ease of Doing Business ranking, despite jumping 12 spots in the last year.