In Modi Sarkar's fourth annual Budget, Union Finance Minister Arun Jaitley kept a tight hold on government expenditure, making sure they don't walk off the path of fiscal caution. Refraining to make a big bang announcement, he simply put together small things this year, making up for an imaginative economic strategy.
Jaitley's 37-page Budget speech included reformist moves such as abolition of FIPB and a new non-cash scheme for political funding, stimulus measures including higher rural spends on roads and housing, populist announcements like taxing the rich more and the middle class less- all this, without spending beyond means. He also promised to go after offenders who fly away by enacting a law to confiscate their personal property, and also limiting cash transactions to Rs 300,000. This could be quite possibly, Jaitley's most conservative of budgets.
The total expenditure for 2017-18 has increased by a meagre 6.57 per cent or £13.23 billion over 2016-17. Juxtapose this against the massive £22.36 billion or 12.48 per cent increase in 2016-17 over the previous year. It is clear that the FM has kept a very tight fist. The Budget also explains his fiscal deficit target of 3.2 per cent of GDP for 2017-18, a minor per cent deviation from the prescribed 3 per cent. Jaitley has refrained from making any estimates about tax revenues that may accrue to him following the Income Disclosure Scheme post-demonetisation. The government will also benefit from a windfall, with a sizeable value of demonetised notes not returning to the banking system.
This will explain the higher allocation of £4.20 billion for rural housing and roads, and the cut in corporate tax to 25 per cent for SMEs with turnover less than £5 million a year. Ambitious targets have been announced, for disinvestment receipts despite a poor show in the current year. In 2016-17, receipts from stake sale have fallen short by £1.10 billion or 20 per cent. This didn't stop Jaitley from raising the target by almost 60 per cent to £7.25 billion for 2017-18. No meaningful progress was made in bank consolidation, but Jaitley changed that by proposing to create an integrated "oil major" by merging oil and gas PSUs.
What the Budget fails to recognise, is that private investment cannot take off unless the government first addresses the issue of bad loans. The FM has provide a pitiful amount of £1 billion towards bank recapitalisation. He stressed that his ten focus areas included farmers and village folk, the poor, and youth. This comes as no surprise as the demonetisation move had hurt the informal sector and the rural economy. Jaitley did, however, stress that the adverse effects of demonetisation would not spill over into 2017-18. "My overall approach has been to spend more on rural areas, infrastructure, and poverty alleviation, and yet maintain the best standards of fiscal prudence," he said in his 110-minute speech.
The government has increased the tax burden on the rich by introducing a couple of surcharges. Even as Jaitley halved the tax rate for income falling in the lowest tax bracket of Rs 250,000 to 500,000 to five per cent, he created a new category for the rich by proposing to levy a surcharge of 10 per cent on individuals with net taxable income between £5 million and £10 million. Similarly, while the government refrained from cutting the tax rate for large corporates, it announced a 5 percentage point reduction in tax rate for companies with annual turnover of up to £5 million, which would benefit medium and small enterprises. Given the additional surcharge of 10 per cent on the rich category, an individual with a net taxable income of Rs 5100,000 per annum will have to pay an additional tax of Rs 125,000. The move is expected to impact an estimated 145,000 individuals who fall in the income bracket of Rs 5000,000 and £100,000.
Jaitley announced the combined budget for the massive Railways Sector, for the first time, pegging the total capital and developmental expenditure at £1.31 billion, including £5.50 billion provided by the government for the railways. "Amongst other things, the Railways will focus on four major areas - passengers safety, capital and developmental works, cleanliness and financial and accounting reforms." a 'Rail Sanraksha Kosh' will be created for passengers safety, over the period of five years. He also announced that the unmanned level crossings on broad gauge lines will be eliminated by 2020.
