Though closer scrutiny of numbers is warranted before venturing out an opinion, Mr. Arun Jaitley seems to have delivered another of those purposeful budget speeches which are not meant to set the Yamuna on fire. He has presented a budget that has substantive political thought and economic pragmatism behind its conception and if executed well over the balance tenure of this government, it should result in an economy that is more welfare-oriented and primed for growth. While there is a clear focus on stressed rural India, there is also a slew of initiatives in materially improving the ‘ease of business’ including that of dealing with the tax department while encouraging entrepreneurship in the country.
To begin with, the finance minister has allayed fears of ‘spending out’ of the existing demand rut by letting go of fiscal discipline. The FY16 fiscal targets remain reassuring at 3.5% while the FY16 BE is also at the targeted 3.8% of the GDP. There is significant amelioration of the FY16 BE revenue deficit which is now expected only at 2.5% compared to an expected 2.8%. No wonder the bond markets are happy and it is not unreasonable to expect the RBI to follow through soon with a rate cut.
The political nature of the budget is delineated through the quality of spending which is heavily rural economy-oriented. While calling this a transformative budget, the finance minister has outlined nine pillars, the first three of which belong to the agricultural, rural, and social sectors. There is a plethora of schemes that have come up, such as the imaginative cooking gas scheme for BPL (Below Poverty Line) families, and the medical insurance scheme for the poor, which if followed through well, can change the social security landscape of the country. The agricultural rural schemes such as irrigation, housing, and MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) get good money as well. As far as infrastructure is concerned, there is the substantial outlay for the roads sector.
Coming to the financial sector, the money kept aside for public sector bank recapitalization has been fairly piffling at Rs 25,000 crore, a cause for a big disappointment in the stock market. The stock market is also unhappy with the small-time tinkering in corporate income tax (reduction only for small turnover companies), increases in STT for options, and reintroduction of tax on dividends for HNIs receiving dividend income above Rs 10 lakhs. The market, however, should have reason to be grateful that the long-term capital gain tax has not been touched.
As far as the indirect tax regime is concerned, the service tax rate has been largely untouched which should be a big relief for corporates. However, both cigarettes and the automobile sectors have reasons to be unhappy with the increase in excise rates (for automobiles it is an additional cess). For the income tax paying citizen, there is nothing substantial on offer though there are marginal gains for those who are at the lowest bracket and for those who are looking at buying a house worth less than Rs 50 lakhs (additional Rs 50,000 exemption for Rs 35 lakhs loan). There are a host of benefits for small corporates and start-ups which hopefully would add fuel to the entrepreneurship culture.
It is, however, in the conduct of the tax regime that the finance minister has shown quite a bit of reformist zeal. There is the promise of a large-scale climb down on income tax-related issues, especially for small businesses (for example, presumptive tax limits have been hiked) and small-income taxpayers (the process of assessment, appeal penalty, etc. have been considerably made easier). Jaitley has brought back the black money disclosure scheme with a much more attractive penalty rate which is earmarked for spending on agriculture-related activities and could find a better response this time around. The retrospective tax demon that has been spooking foreign investors also seems to have been slain with the promise of a quick redressal mechanism.
On the whole, the budget offers no immediate fireworks to take the media into a tizzy but strives to hit the right trajectory for putting a stressed economy back in shape and paying ample heed to welfare requirements, especially for the rural sector where the votes lie.