New Delhi: Finance Minister Arun Jaitley has outlawed cash transactions above Rs 3 lakh in line with the government’s war on black money, eased income tax rates for those on modest incomes and slashed corporate taxes for small and medium firms in his Budget for 2016-17 that focuses on lifting up rural incomes while simultaneously pressing ahead with reforms in several sectors of the Indian economy.
Income tax for those with annual incomes of Rs 5 lakh has been halved to 5% from 10% while those earning under Rs 3 lakh will have to pay no income tax at all. This, the FM said, was a gift to the honest tax-paying citizens of the country who put up with the troubles of demonetization. Those with incomes between Rs 50 lakh and Rs 1 crore saw a 10% surcharge being imposed on their tax rate, while those with incomes above Rs 1 crore will see no change to their tax liability.
The government abolished the Foreign Investment Promotion Board (FIPB), a powerful symbolism indicating the government’s stance in favour of more foreign investment. This suggests that more FDI will now be allowed to come in through the automatic route, leading to speculation on the kind of sectors that will be allowed to avail the benefits coming in the new proposed FDI policy.
One of the world’s biggest ecommerce players, the Indian Railways Catering and Tourism Corporation (IRCTC) will be now be listed, Jaitley said, along with a veiled warning to fugitives such as Vijay Mallya and Lalit Modi that a new legislation was in the offing to bring confiscate their assets.
While ordinary people and small firms stood to gain from the budget, political parties came under the cross hairs of major reform. The finance minister capped cash donations to political parties to Rs 2,000 from a single source, while announcing plans for a new financial instrument of “Electoral Bonds” to fund political parties.
On the macroeconomic front, the fiscal deficit target was increased to just 3.2% of the GDP against 3% indicated earlier, underlining that the government, facing a raft of assembly elections in the coming weeks, resisted the temptation to go in for populist measures that would have thrown economic caution to the winds.
The only potential vote winning measures were the announcements steps taken for providing affordable incomes and kickstarting the job economy are expected to give a leg up to the BJP’s campaign in the 5 states going for assembly polls later this month.
Expectations were rife that the Modi government will announce a populist budget given the fact that five states are going to assembly polls later this month. Measures aimed at soothing the adverse impact of demonetization were also expected.
As if on cue, the government announced a renewed focus on SCs, STs and minorities.
The flagship NREGA programme, a UPA pet project panned by Prime Minister Narendra Modi earlier, ended up getting one of its biggest allocations ever — Rs 48,000 crore – but with additional emphasis on steps such as geo-tagging for transparency and priority to drought-proofing.
The FM raised total allocations to rural, farm, and allied sectors saw a whopping 24% hike in outlay at over Rs 1, 87,000 crore. The housing sector was given infrastructure status, which is expected to give a leg up to cement and steel sectors, one of the biggest employment creators.
The “bold and decisive” measure of demonetization, as the finance minister called it, was announced by Prime Minister Narendra Modi in a surprise address to the nation on November 8. The move to scrap overnight 86% of the value of total cash in the system was panned by Opposition, prominent economists and the international media that called it a “self-imposed cash crisis.”
In his speech, Jaitley claimed the harsh effects of demonetization would not spill over to the next financial year.