In a pre-election Budget, Finance Minister Arun Jaitley serves up a mix of populism and prudence
With a clear eye on the Lok Sabha election, Union Finance Minister Arun Jaitley pulled out all the stops in the Narendra Modi government’s last full Budget to promise a better deal for farmers, boost the rural economy and make the poor less vulnerable to health exigencies.
Responding to the distress in the agriculture sector that has reared its head in various States over the past year, the government has decided to offer a minimum support price (MSP) of at least 1.5 times the expenses borne by farmers for all crops. Equity markets were briefly spooked following the move to re-introduce a tax on long-term capital gains on equity shares at the rate of 10% for all gains over ₹1 lakh. No indexation benefit will be granted and the securities transaction tax will continue.
The BSE Sensex, which had opened at 36,048.99, slipped as low as 35,501 during Mr. Jaitley’s speech before recovering to close at 35,906 points.
Notably, the middle class constituency that played a key part in the BJP’s successful 2014 campaign was largely left high and dry. Despite some token measures to boost new jobs, such as footing part of the bill for new employees’ provident fund (PF) contributions for three years, Mr. Jaitley offered little respite for the salaried class.
Citing income tax data to show that individual businesspersons paid less average tax than the salaried class, he reintroduced a flat ₹40,000 deduction from taxable income for the latter in lieu of existing tax exemptions for transport and medical allowance, and extended this relief to pensioners as well.
But any gain in take home salaries has been virtually offset by raising the 3% education cess levied on personal income tax and corporate tax. Now, a 4% education and healthcare cess will apply.
Hopes of a respite for consumers on the indirect tax front was also extinguished in this Budget, with the Centre hiking customs duties on a range of products including mobile phones, wearable devices, television display panels, furniture, diamonds, footwear, cosmetics and dental floss. The idea is to push global producers to start making these goods in India but till that happens, consumers will need to foot higher costs.
A much-anticipated rationalisation of the high excise duties on petrol and diesel was carried out with an eight rupee reduction in these duties, but consumers would get no relief as a new road and infrastructure cess of ₹8 per litre has been levied to fund infrastructure projects. Unlike excise duties, the Centre is not required to share cess receipts with States.
The government’s inability to give away too many goodies were largely due to its fiscal constraints, with this year’s fiscal deficit overshooting the 3.2% of GDP target and likely to touch 3.5% on account of GST-related issues. Instead of a 3% deficit in the coming year, the Centre has settled to target the 3.3% mark, deferring the glide path to 3% to 2020-21.
Mr. Jaitley said the focus of the Budget — farmers, rural India, healthcare and education for the poor — reflects the Modi government’s emphasis on improving the ease of living for India’s common man.
Comparisons with UPA-1’s last Budget, with its farm loan waiver and the NREGS expansion, would be simplistic.
This one is actually similar to the Budget unveiled by Jaswant Singh in 2003-04, which talked of improving the ‘lifetime concerns’ of citizens, announced a new health insurance scheme and focused on housing, education and employment too.