Economy

Budget 2016 Is About Jobs And Growth: 10 Major Takeaways From Jaitley’s Speech

R Jagannathan

Feb 29, 2016, 04:57 PM | Updated 04:56 PM IST


Finance Minister Arun Jaitley
Finance Minister Arun Jaitley
  • Arun Jaitley’s third budget is his best so far.

    The budget focuses its efforts on what needs fixing - the rural distress, the jobs problem, the banking crisis, and infrastrcture deficit.

    Politically, the budget sends the message that Narendra Modi is on the side of the poor, and positions his party bang at the centre-left to take on the Congress in 2019.
  • Arun Jaitley’s third budget is his best so far, not because it has the “wow” factor, or is too reformist, but because it focuses its efforts on what needs fixing - the rural distress, the jobs problem, the banking crisis, and infrastrcture deficit. If implemented well, it can give both jobs and growth a leg up, though that remains to be seen. Politically, the budget sends the message that Narendra Modi is on the side of the poor, and positions his party bang at the centre-left to take on the Congress in 2019.

    There are 10 takeaways from this budget.

    First, the budget sticks to the fiscal deficit roadmap and promises to bring down the deficit to 3.5 percent in 2016-17. This could mean some of the revenue assumptions may be dicey, or the nominal GDP figures may be bloated. It could also mean that the Seventh Finance Commission may not be fully implemented this year. For the future, the fiscal targets may be set in a range, giving Jaitley leeway in the year before the general election.

    Second, the corporate sector has been let down, with the promised reduction in corporate taxes restricted to small and new companies. But with the removal of some earlier tax concessions, big corporations may actually see effective rates going up.

    Third, the most exciting idea is the introduction of a tax amnesty scheme for domestic black money or undeclared incomes. Black money holders have to pay 45 percent tax - a penalty about 10 percent more than normal - to get immunity from questioning and penal action. If structured well, the scheme can obtain Rs 25,000-50,000 crore, considering that a similar scheme 20 years ago got Rs 10,000 crore on a smaller GDP base. Encouragement to those involved in tax disputes to pay up could also bring in additional revenues. Those with disputed tax cases will be allowed to pay the tax with no penalty for disputes upto Rs 10 lakh. For disputed amounts above that there will be a small penalty.

    Fourth, the big numbers are in infrastructure investment. Between railways and roads, both national highways and rural roads, the total investment in 2016-17 will be a massive Rs 2,18,000 crore - this should be a stimulant for jobs and investment.

    Fifth, the organised sector is being incentivised to take on more employees with the centre offering to pay the 8.33 percent pension contributions of new employees for three years. Companies will also be able to get a tax deduction on 30 percent of emoluments paid to new employees, limited to those earning upto Rs 25,000 per month.

    Sixth, the budget lowers the axe on rich promoters, who have benefited from the fact that dividend tax is paid by companies. They thus got a benefit not intended for the rich. Not any more. Promoters and big shareholders will now face 10 percent additional tax when dividend payments exceed Rs 10 lakh.

    Seventh, the budget singes the rich in other ways, too, by raising cess or taxes on cars, including diesel cars, luxury cars will be taxed more, and there will be a special infrastructure cess on certain cars, including luxury and diesel cars. Sin taxes will be levied on tobacco. Market speculators will be stung with a raise in the securities transaction tax on options to 0.05 percent - a three-fold rise.

    Eighth, the bottom end of the middle class gets some relief. Taxpayers in the sub-Rs 5 lakh income bracket will get a tax rebate of around Rs 3,000. Two crore taxpayers will benefit. Those staying in rented houses will get a deduction of upto Rs 60,000 - up from Rs 24,000, under section 87a.

    Ninth, there is a strong financial sector angle in the budget. Jaitley has proposed a strong exit policy which will involve legislating the Indian Financial Code, the Bankruptcy Code and quicker disposal of debt recovery cases in debt tribunals.

    Banks will be recapitalised by Rs 25,000 crore this year, which is a substantial step-up from last year. Government will also try to bring its stake in some banks below 50 percent, especially in IDBI Bank. But a lot will depend on legislation to change the bank nationalisation laws.

    Tenth, the big pitch was to the rural and farm sector. The FM promised Rs 2.87 lakh crore of fiscal transfers to villages, and all villages will be electrified by 2018. This government obviously believes in doing things in mission mode. After Jan Dhan, now it is time for full electrification and taking cooking gas to all rural households.

    NREGA, once the bugbear of NDA, has now come centrestage with allocations of Rs 38,500 crore.

    Jaitley has also given pride of place to farm sector rejuvenation, from higher outlays for irrigation to farm reforms. This is a key political message, that the BJP is going for a rural outreach to seal it position as the prime pole of Indian politics.

    A farm interest subvention scheme of Rs 15,000 crore is intended to help farmers get back on their feet after two drought years without extending a waiver.

    Net-net: This is Modi’s political gameplan taking shape through the budget. It is a signal that he wants to clearly broaden his party’s appeal beyond its traditional urban redoubts and make up for delays in taking up the issue of rural distress.

    The economy is set for a cyclical rebound after two bad monsoons and a gradual improvement in corporate profitability. This budget is about making sure that the government has some good things to talk about when major state elections happen in 2017, setting the stage for the big one in 2019.

    Jagannathan is Editorial Director, Swarajya. He tweets at @TheJaggi.


    Get Swarajya in your inbox.


    Magazine


    image
    States