Budget 2017: Jaitley gives spending a push without busting fiscal bounds

Gaurav ChoudhuryMoneycontrolFinance Minister Arun Jaitley placed consumers before rigid fiscal discipline as he spelt out a carefully crafted plan to boost people’s spending power, create jobs and improve rural incomes in 2017-18 Budget, mixing welfare economics with a new wave of reforms.Compared to guarded moves of the past, Jaitley used his fourth Budget to launch policy changes including modifying India’s political funding structure, but did not overhaul the corporate or individual income tax system as was widely expected.He exempted foreign portfolio investors (FPIs) from indirect transfers, a move that will soothe frayed nerves following a tax circular in December that had sparked fears among overseas investors.He offered the most to those at the lowest salary bracket, farmers and small businesses which endured the demonetisation shock and could also influence the outcome in five upcoming assembly elections.Jaitley also proposed a new law to confiscate assets of economic offenders who have left the country, a move that will pave the way for launching a crackdown on corporate loan defaulters.The finance minister announced changes in electoral funding, under which political parties can only receive up to Rs 2,000 in cash from a single source, and proposed to ban cash transactions above Rs 3 lakh.The minister announced Mission Antyodaya, an ambitious umbrella initiative aimed at lifting 10 million out of poverty by stitching together a raft of programmes.Mission Antyodaya is seen as a counter to the Opposition charge that the Modi government was tilted in favour of corporate interests ignoring the farmers.All told, Jaitley announced a 24 percent jump in rural development programmes to Rs 1.87 lakh crore in 2017-18, reinforcing the point that villages remain central to the Modi-government’s development model.With risks of slippages still looming, the minister pledged to keep the fiscal deficit — a measure of how much a government borrows to meet its expenses -- at 3.2 percent of GDP in 2017-18, from 3 percent in 2016-17.It is a deviation from the medium-term consolidation target the government had set last year when Jaitley said the fiscal deficit would be contained at 3 percent of GDP in 2017-18, but not seen as a significant increase given that a new committee had allowed elbow room to borrow an additional 0.5 percent worth of GDP.Farmers, an important political constituency especially in poll-bound Punjab and Uttar Pradesh, received pointed attention. The finance minister announced several measures to revamp infrastructure, expanded a scheme to give concessional loans to farmers, offered incentives to states to computerise primary agricultural credit societies (PACSs) and increased allocation to the National Bank for Agriculture and Rural Development to ease fund-flow for farmers.MNREGS, the world’s largest job guarantee scheme, received top billing with budgetary allocation of Rs 48,000 crore, a 24 percent jump over the previous year’s Rs 38,500 crore, but only a Rs 1000 crore more than the actual spend of 2016-17.He proposed the development of a composite poverty index in association with panchayats, and hiked allocations for the Pradhan Mantri Gramin Awas Yojana (PMGAY), Pradhan Mantri Gram Sadak Yojana and the Swachh Bharat Abhiyan among others.India runs a string of poverty-relief programmes, including the MNREGS, but many of these are plagued by corruption and waste.The Finance Minister raised the Budget for programmes for scheduled castes (SCs) for 2017-18 to 52,393 crore from Rs 38,000 crore currently. Likewise, the annual budget for initiatives for scheduled tribes (STs) was raised to Rs 31,920 crore and for minorities to Rs 4,195 crore in 2017-18.NITI Aayog will carry out outcome-based monitoring of these programmes, a move seen as masking a political message ahead of the approaching Assembly polls.He doubled the credit target under the MUDRA scheme for raising the available loans to the unfunded and underfunded Rs Rs 2.44 lakh crore in 2017-18.“Priorities will be given Dalits and minorities,” Jaitley said.He announced the abolition of the Foreign Investment Promotion Board (FIPB)—the current nodal agency that vets overseas investment applications—a move that will hasten fund flow into the economyHe said that new schemes will be launched in leather and footwear sector, while 100 Indian International Skill Centers will be established, giving a push to the government’s flagship Make India and Skill India schemes.LESS TAX FOR SMALL SALARIESJaitley kept the income-tax exemption limit — the threshold below which taxes are not required to be paid – at Rs 2.5 lakh a year, but marginally rejigged the tax rates at the lower and higher  ends.Those earning between Rs 2.5 lakh and Rs 5 lakh will now be taxed at 5 percent from 2017-18, from 10 percent earlier, and those earning between Rs 50 lakh and Rs 1 crore annually will have to pay surcharge of 10 percent in addition to a 30 percent income tax.The surcharge for people with an annual Rs 1 crore taxable income will remain at 15 percent.The overhaul will leave more money in the hands of the lowest tax payer. On an average, every individual tax payer across all slabs will save Rs 12,500 in their annual tax outgo.Increase in household spending, which accounts for more than half of India’s gross domestic product, is critical to reviving the economy, expected to slow down in the aftermath of the currency recall.The minister, however, did not raise tax breaks offered on money parked in a pool of savings instruments, including bank fixed deposits, insurance premium and mutual funds from the existing Rs 150,000 under the popular Section 80C.DIGITAL PUSHHe announced a scheme to enable NABARD to digitise 63,000 primary agricultural cooperatives, withdrew service charges on e-tickets booked via IRCTC, proposed an allocation at Rs 10,000 crore for Bharatnet, an umbrella plan for nation-wide broad-band connectivity.“A shift to the digital platform will benefit the common man,” Jaitley saidTwo new schemes –Refer and Bonus and the Aadhar Pay—to supplement the BHIM app will be launched  to fund digital payment systems in rural and remote areas as part of the government’s strategy to move India towards a “less-cash” society.He also proposed a payment regulatory board within the Reserve Bank of India (RBI) with oversight powers on digital paymentsCORPROATE TAX REJIGHe proposed changes in India’s corporate tax system, but left the headline corporate income tax rate unchanged at 30 percent.That said, medium and small enterprises with annual turnover of upto Rs 50 crore, would now be taxed at 25 percent, from 30 percent earlier. The lower rate is a carryover from Jaitley’s to-do list of 2015 when he said the corporate income tax would progressively be cut to 25 percent over four years, but will be accompanied by fewer deductions.About 96 percent of companies will benefit from this moveSimultaneously, he expanded the carry forward of minimum alternate tax (MAT)  to 15 years from 10 years, but ruled out the abolition of MAT as demanded by industry associations.MAT was introduced in fiscal 1998 to address inequity in taxation of Indian corporations. Many companies, despite making profits, were hardly paying any taxes, claiming a web of exemptions.SPINNING JOBSSliding demand and demonetisation-induced cash crunch have hurt small businesses and factories, forcing job losses.On Wednesday, Jaitley proposed incentives for the labour-intensive leather sector as part of the government’s signature Make in India initiative to boost manufacturing and create jobs.Start-ups, plagued by valuation markdowns and the slowing business, got a helping hand, with Jaitley widening the tax-holiday regime to 7 years from three years and fast-tracking procedural clearances.Perhaps conscious of the fact that India needs to propel the investment rate to over 40 percent of GDP to create employment for armies of young people every year, the capital expenditure ihas been raised by 25.4 percent in 2017-18 compared to 2016-17.Funds for infrastructure received a big push as the government looks to revive the economy amid a global uncertainty and demonetisation at home. The total capital outlay for Indian railways have been raised to 1.31 lakh crore in 2017-18 from Rs 1.21 lakh crore in 2016-17, while the outlay for the national highway programme has been raised by Rs 7,000 crore to Rs 64,000 crore in 2017-18