Two years into the NDA’s term in office, Finance Minister Arun Jaitley presented a Budget that sent a clear political signal aimed at rural India. As the BJP gears up for elections in five big agrarian States, Jaitley sharply increased spending on rural infrastructure, particularly irrigation and rural roads, and a crop insurance scheme for farmers, and introduced giveaways for rural women by way of subsidised cooking gas.

He also significantly stepped up the allocation for the rural job guarantee programme MNREGA, gave a boost to foreign investors in the food processing sector, and unveiled plans for a national agricultural e-market, which could be a potential game-changer for farmers.

Above all, Jaitley channelled the Centre’s pledge to put more money into the hands of the small farmer, who, he said, forms the backbone of Indian agriculture.

“Our commitment to farmers runs deep,” Jaitley claimed, as he pledged to double farmers’ incomes in five years, and hiked the target for farm credit from ₹8.5 lakh crore to ₹9 lakh crore.

Modi’s hand Prime Minister Narendra Modi’s stamp was visible in the push given to infrastructure, which is key to realising his ‘Make in India’ mission. Public spending on infrastructure was hiked over 22 per cent, with sharp increases for roads — the Centre hopes to build 10,000 km of national highways in the coming fiscal and upgrade a staggering 50,000 km of State highways — rail networks and power.

All this, while keeping to the target fiscal deficit of 3.5 per cent of GDP for fiscal 2016-17, as mandated under the Fiscal Responsibility and Budget Management Act.

Ambitious assumptions There is an optimistic tinge when it comes to non-tax revenue projections: against the ₹2,58,576 crore realised in 2015-16, they are estimated to grow to a whopping ₹3,22,921 crore, mainly on the back of about ₹1 lakh crore from spectrum auctions and ₹56,500 crore from disinvestment in public sector undertakings. This is more than double the ₹25,313 crore that the Centre actually got from disinvestments in 2015-16.

Jaitley is also betting big on indirect taxes and direct taxes to shore up revenues. Despite missing the direct taxes target by nearly ₹46,000 crore this fiscal, the target for direct taxes — principally income-tax — has been increased by 12.6 per cent, compared to the little over 8 per cent increase in collections achieved in 2015-16. Indirect taxes are expected to increase by 11 per cent, which is achievable if oil prices continue to stay depressed.

The overall expected growth in tax collections is dependent on the GDP growing by a nominal 11 per cent (that is, after factoring in inflation) in the coming year; nominal GDP growth was only 8.6 per cent till January this year.

Few tax giveaways For taxpayers, Jaitley gave little joy. Headline corporate tax, which he promised to reduce to 25 per cent over four years, while simultaneously cutting back on exemptions, was left largely untouched. For small companies with turnovers of less than ₹5 crore, the tax rate was lowered to 29 per cent. Salaried individual taxpayers who don’t get a house rent allowance saw their deduction on house rent raised to ₹60,000 a year (from ₹24,000); and those earning less than ₹5 lakh a year saw their rebate scaled up from ₹2,000 to ₹5,000. But 60 per cent of withdrawals from provident fund accounts — the only social security for most salaried persons — were made taxable.

There were a plethora of charges — a cess on services, another for clean environment, and higher surcharge on those earning over ₹10 crore. Capital market investors were evidently disheartened by the levy of a 10 per cent tax, over and above the dividend distribution tax, on dividend income exceeding ₹10 lakh a year. At the end of a volatile trading day, the BSE Sensex finished down 152 points.

Bank stress PSU banks will get only ₹25,000 crore towards recapitalisation, but there was a pledge to provide more if needed. There were no ‘big bang’ reforms, but there were nevertheless a number of small measures worth noting. Jaitley walked the talk on ‘tax terrorism’, introducing a number of steps to reduce disputes and cut litigation. While the dreaded retrospective amendment stays on the books, foreign investors got a firm assurance that no new cases will be pursued, even as existing cases were offered to be settled by simply paying the tax demanded, without penalty or interest. He also introduced a voluntary disclosure scheme offering immunity for a limited time to bring more taxpayers into the net, while expanding the presumptive tax regime to bring in a larger number of small businesses into the ambit.

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