New Delhi: In his first full-fledged Budget for the Modi government, Union finance minister Arun Jaitley has unveiled a blueprint for accelerating growth with a plan for macro-economic stability. He has also anchored several incremental reforms like promising to bring in the consolidated Goods and Services Tax in April 2016 and using the direct benefit transfer route for transferring subsidies in a leak-proof, well-targeted and cashless manner.
The biggest resolve is the determination with which the Modi government proposes to nail the hoarders of domestic and foreign black money. A new law on black money stashed abroad will result in imprisonment of up to 10 years for the offenders with a penalty of 300 percent, while another proposed legislation will clamp down on ‘benami’ property with assured confiscation and prosecution. He also took a definitive step for curbing black money generation in real estate, making payment of Rs 20,000 or more in cash an offence and PAN mandatory for any purchase above Rs 1 lakh.
Even as Jaitley appeared corporate friendly throughout his speech, he did not offer anything substantial to the salaried middle class that has been a strong and vocal supporter of the Modi government. He did offer some concessions in terms of deductions in schemes that provide Income Tax rebate, but by increasing service tax rates by 2 percent virtually nullified that gain. His direct tax proposals would result in revenue loss of Rs 8,315 crore, whereas the proposals in indirect taxes are expected to yield Rs 23,383 crore, so that he gains Rs.15,068 crore.
Delivering a 100-minute oration that was punctuated by appreciative cheers from his own partymen led by prime minister Narendra Modi, Jaitley also reached out to the corporate sector with his themes of ease of doing business, having a corporate friendly taxation regime, and also creating a legal framework that makes it tough to generate black money both at home and abroad. Consistent with his approach that there should be no surprises in the taxation structure, he announced that the present rate of corporate tax shall be brought down from 30 percent to 25 in the next four years. He also said that the present system of individual tax exemptions shall be reviewed.
When Jaitley got jeers on his proposal to reduce the corporate tax, he tried to explain that 30% corporate tax is higher than that in other major Asian economies, making the domestic industry noncompetitive. He used the same logic of low returns to abolish the wealth tax in vogue since 1957 as it had yielded just Rs 1,008 crore in 2013-14 owing to the high cost of collection. Instead, he brought in an additional surcharge of 2% on the super-rich with a taxable income of over Rs 1 crore, saying "the rich and wealthy must pay more than the less affluent," noting that it will yield Rs 9,000 to the government.
The finance minister began his speech with a dig at the previous UPA regime and recited a couplet- ‘Kuch to phool khilaye humne, aur kuch phool khilane hai, Mushkil yeh hai baag me ab tak, kaante kai purine hai -- and then narrated the difference between the state of economy under the two dispensations. ‘‘In November, 2012, CPI inflation, stood at 11.2%, the current account deficit by the first quarter of 2013-14 had reached 4.6% of GDP, and normal foreign inflows until March 2014 were $15 billion. We inherited a sentiment of, if I may say so, doom and gloom, and the investor community had almost written us off. We have come a long way since then. The latest CPI inflation rate is 5.1%, and the wholesale price inflation is negative; the current account deficit for this year is expected to be below 1.3% of GDP; based on the new series, real GDP growth is expected to accelerate to 7.4%, making India the fastest growing large economy in the world… we have turned around the economy dramatically, restoring macro-economic stability and creating the conditions for sustainable poverty elimination, job creation and durable double-digit economic growth. Domestic and international investors are seeing us with renewed interest and hope,” he said.
Listing the challenges ahead, Jaitley counted areas like agriculture -- where incomes are under stress; infrastructure - which needs public investment to catalyse as the public private partnership model is still weak; manufacturing -- that has declined from 18% to 17% of GDP as per new data; manufacturing exports – which have remained stagnant at about 10% of the GDP; and the need for fiscal discipline in spite of rising demands for public investment. He pointed out that the central resources have been in a squeeze as keeping with the true spirit of co-operative federalism, the government has devolved 42% share of the divisible pool of taxes to states. “The devolution to the States would be of the order of Rs 5.24 lakh crore in 2015-16, as against the devolution of Rs 3.38 lakh crore as per revised estimates of 2014-15. Another Rs 3.04 lakh crore would be transferred by way of grants and plan transfers. Thus, the total transfer to the States will be about 62% of the total tax receipts of the country,” he informed.
With higher public investments of the order of Rs.70,000 crores, (and the gross budgetary support to the Railways being Rs 14,031 crore) Jaitley also revised the target for fiscal consolidation. “With the economy improving, the pressure for accelerated fiscal consolidation too has decreased. In these circumstances, I will complete the journey to a fiscal deficit of 3% in 3 years, rather than the two years envisaged previously. Thus, for the next three years, my targets are: 3.9%, for 2015-16; 3.5% for 2016-17; and, 3.0% for 2017-18. The additional fiscal space will go towards funding infrastructure investment,” he said.
In terms of initiatives for facilitating the acceleration in growth, one of the many schemes proposed by the finance minister is SETU- (Self Employment and Talent Utilisation) mechanism which will be a Techno-Financial, Incubation and Facilitation Programme to support all aspects of start-up businesses, and other self-employment activities, particularly in technology-driven areas. He has set aside Rs.1000 crore initially in NITI Aayog for this purpose.
