With a vision to create a cleaner and bigger economy, Union Finance Minister Arun Jaitley presented the fourth Budget on Wednesday and announced series of measures to provide relief to the sectors affected by demonetisation. This was intended to help eliminate black money and introduce clean transactions while providing enough for infrastructure, railways and defence, and also managing to keep the fiscal deficit at 3.2 per cent of the Gross Domestic Product or GDP. Given the fiscal space available, Jaitley announced allocations to various sectors, instead of going in for the traditional departmental allocations.
Interestingly, the second last Budget presented by the NDA Government did not resort to any bold or shocking measures and remained in line with the one announced in 2014 which envisaged digitisation of the country, no pilferages in the resources reaching the last man, eradication of black economy, ending corruption and creating enough number of jobs. While the Opposition did criticise the Government for not doing much on generating employment, the Finance Minister in his Press conference responded by stating that the relief for housing sector, highest-ever allocation for the infrastructure and education will create more jobs. He added, “There cannot be a separate chapter for employment.”
Unlike in the past, the Finance Minister presented his historic Budget in which the Railway Budget has been merged and the date advanced by a month. The Budget did not have any path-breaking announcement for the next fiscal, but Jaitley said the focus of his Budget for 2017-18 is on 10 important sectors, including farmers, infrastructure, digital economy and tax administration to transform, energise and clean India.
“We shall continue to undertake many more measures to ensure that the fruits of growth reach farmers, workers, the poor, the Scheduled Castes and the Scheduled Tribes, women and other vulnerable sections of our society. Our focus will be on energising our youth to reap the benefits of growth and employment,” Jaitley said in his Budget speech.
The Finance Minister expressed confidence that the pace of remonetisation has already picked up and would soon reach comfortable levels. In view of the fact that the proposed GST is expected to be rolled out soon, he left indirect taxes largely untouched except for some changes in duties on tobacco products, solar panels and circuit for mobile phones.
While Excise Duty on pan masala has been hiked to 9 per cent from 6 per cent currently and that on unmanufactured tobacco to 8.3 per cent from 4.2 per cent, the same on filter and non-filter cigarettes of all length was also hiked. Mobile phones will be costlier with the Budget proposing a 2 per cent special auxiliary duty on import of populated printed circuit boards (PCBs).
Complementing the Budget 2017, Prime Minister Narendra Modi said that the Finance Minister has presented an ‘Uttam’, or ‘excellent’ Budget, because he has strengthened the hands of the poor. “The team that put the Budget together also deserves appreciation and congratulations because it has taken steps for the interest of all sectors. This Budget is yet again devoted to the well-being of the villages, farmers and the poor, and it reflects commitment to eliminate corruption and black money,” he said minutes after the Finance Minister finished his Budget presentation in the lok Sabha.
Markets also welcomed the budgetary proposals of infusing Rs10,000 crore in public sector banks and keeping long-term (lTCG) and short-term capital gains tax (STCG) unchanged for the capital market. With an offer of tax balm on FPI taxation in the Budget announcement, Sensex shot up 486 points on Dalal Street to close at an over 3-month high of 28,142. Financial and realty stocks powered the show.
Additionally, the Finance Minister proposed that category I and II foreign portfolio investors (FPIs) should be exempted from taxation on indirect transfers, which made investors a happy lot. Both key indices Sensex and Nifty reclaimed their key levels of 28,000 and 8,700 for the first time, scoring their biggest single-day gain since October 2016.
Easing the pain of common man due to the recent note ban, the Budget for 2017-18 also halved the tax to 5 per cent on incomes up to Rs5 lakh but proposed a new surcharge of 10 per cent on incomes between Rs50 lakh and Rs1 crore and raised duties on cigarettes and pan masala while stepping up allocations for infrastructure, rural, agriculture and social sectors. Retaining the 15 per cent surcharge on taxable income above Rs 1 crore, Jaitley said the surcharge alone would net Rs2,700 crore a year and his give away on direct tax proposals would result in a loss of Rs15,500 crore.
Cheering individual tax payers, Jaitley further said, “The change in the personal income tax rate for individual assessees between Rs2.5 lakh and Rs5 lakh income would reduce the tax liability of all persons below Rs5 lakh to either to zero with rebate or 50 per cent of their existing liability. In order to prevent duplication of benefit, the existing benefit of rebate available to them is being reduced to Rs2,500 available only to assessees up to income of Rs3.5 lakh.”
Besides, the taxation liability of people above Rs5 lakh and all other categories of tax payers in the subsequent slabs will also get a uniform benefit of Rs12,500 per person.
For senior citizens above 60 years, there will be no tax up to Rs3 lakh, while the exemption will be up to Rs5 lakh in case of citizens above 80 years. Both the categories will attract income tax of 20 per cent on income between Rs5 lakh and Rs10 lakh and 30 per cent for income above Rs10 lakh.
In a move to encourage small traders and business units, Jaitley reduced the peak rate of income tax for small companies with turnover of up to Rs50 crore to 25 per cent, benefiting as many as 6.67 lakh firms out of 6.94 lakh which file returns. The concession would lead to a revenue loss of Rs7,200 crore per annum.
Against the backdrop of demonetisation intended to eliminate black money and introduce clean transactions, the Budget barred any transaction in cash above Rs3 lakh. As a measure of transparency in political funding, he lowered to one-tenth the donation that political parties can accept in cash to Rs2,000 per donor.
Apart from taxation, the Finance Minister announced three major decisions to create a better, cleaner and healthier economy. One, the Government will move ahead with the listing of the railway public sector undertakings (PSUs) – Indian Railway Catering and Tourism Corp. (IRCTC), Indian Railway Construction Co ltd (IRCON) and Indian Railway Finance Corp. ltd (IRFC) – and come out with a procedure for a time-bound listing of central public sector enterprise (CPSEs). Two, seeking to improve the ease of doing business, the Government also abolished FIPB and decided that foreign investment proposals requiring Government approval would be cleared by the ministries concerned. Three, it also plans to merge some of the 13 state oil firms to create an energy behemoth that can rival global giants like BP and Chevron to help meet the energy needs of the world’s third largest oil consumer.
For the farmers who were worst affected due to demonetisation, the Budget raised the target for agriculture credit during the coming year to a record Rs10 lakh crore. The Budget provisions under rural employment guarantee scheme or MGNREGA has also been increased from Rs38,500 crore in the current year to Rs48,000 crore in 2017-18, while Rs19,000 crore has been given under the rural roads programme. The total allocation for rural, agriculture and allied sectors has been pegged at Rs187,223 crore, which is 24 per cent higher than the previous year.
For infrastructure spending, the Finance Minister proposed a total of around Rs4 lakh crore which is the highest ever allocation till now in the Budget history. Railway lines of 3,500 km will be commissioned in the next fiscal as against 2,800 km in the previous year. In the road sector, allocation for highways has been increased to Rs64,900 crore against Rs57,976 crore in Budget Estimates of 2016-17. For the transportation sector as a whole, including rail, road and shipping, the Budget provides for Rs2,41,387 crore in FY18. “This magnitude of investment will spur a huge amount of economic activity across the country and create more job opportunities,” Jaitley said.
The total expenditure in the Budget has been placed at Rs21.47 lakh crore. Defence expenditure, excluding pensions, has been pegged Rs274,114 crore for FY18, including Rs86,488 crore for capital. With the abolition of plan, non-plan expenditure, the focus will be now on capital and revenue expenditure, he said.
“I have stepped up the allocation of capital expenditure by 25.4 per cent over the previous year. This will have multiplier effect and will lead to higher growth. The total resources being transferred to the States and the Union Territories with legislatures is Rs4.11 lakh crore against Rs3.60 lakh crore in Budget Estimate of 2016-17,” he said.
Outlining the fiscal deficit roadmap of 3 per cent recommended by the FRBM committee, the Minister has pegged it for 2017-18 at 3.2 per cent of GDP and said he will remain committed to achieving 3 per cent in the following year. “With this gradual approach, I have ensured adherence to fiscal consolidation, without compromising the requirements of public investment,” he said.
The net market borrowing of the Government has been limited at Rs3.48 lakh crore after buyback, much lower than Rs4.25 lakh crore in the current fiscal. “More importantly, the revenue deficit of 2.3 per cent in BE 2016-17 stands reduced to 2.1 per cent in the revised estimates. The revenue deficit for next year is pegged at 1.9 per cent, against 2 per cent mandated by the FRBM Act,” he said.
As measures for stimulating growth, the Budget extended the concessional withholding rate of 5 per cent on interest earned by foreign entities in ECBs or in bonds and Government securities by 3 years to June 2020. This benefit is also extended to rupee denominated masala bonds.