Growth, jobs, simple tax regime: Jaitley's budget lays ground for India's flight
Finance minister Arun Jaitley made most services and some goods costlier and stopped short of putting more money in the hands of the salaried class by not raising the tax exemption limit. Instead, he allowed salary earners extra elbow room to save for their pensions by contributing up to Rs 50,000 a year with tax concessions and also raised the premia one can pay for health insurance with tax benefits.business Updated: Mar 01, 2015 08:41 IST
Finance minister Arun Jaitley laid out on Saturday a budget focused on accelerating growth, vowing to spend more on building roads and railway to create masses of job while simplifying tax and regulations to woo private investors.
Presenting the Narendra Modi government's first full budget, Jaitley made most services and some goods costlier and stopped short of putting more money in the hands of the salaried class by not raising the tax exemption. Instead, he allowed salary earners extra elbow room to save for their pensions by contributing up to Rs 50,000 a year with tax concessions and also raised the premia one can pay for health insurance with tax benefits. The maximum benefit that can accrue to an individual by way of tax exemptions is Rs 4.4 lakhs.
"The credibility of the Indian economy has been re-established. The world is predicting this is India's chance to fly," Jaitley said early in a 95-minute speech watched by millions huddled in homes, offices and tea stalls, keen to know how the government will meet their aspirations.
The proposals also included an elaborate plan for startups to encourage entrepreneurship as well as new laws to punish tax evaders hoarding slush funds abroad with a 10-year prison term.
Nine months back, Modi's landslide election victory raised hopes that he would be able to engineer a quick turnaround in the slumping economy and create some 100 million jobs over the next decade or so to push India into the league of developed nations. Since then, the economic outlook has improved but analysts say the government is still to tackle deep-seated structural problems that need to be resolved to boost growth.
Saturday's budget underlined that much of the growth push would rely on public spending, slowing down the process of bridging deficits. The government's market borrowing plans, though, suggest that it was looking to raise revenue through additional resources such as gold bonds and a more aggressive share sale in state-run firms. Jaitley launched an interest-bearing gold deposit scheme to make productive use of gold lying in India's households, and strung it up with planned tax-free bonds -- all in efforts to pile up funds to build vital infrastructure.
Watch:Highlights of tax proposals in budget
The government shrugged off the recent bruising from the Delhi elections that had triggered talk that the BJP, which swept to power on the promise of high growth, could be forced to rethink its aggressive pro-investment stance.
Jaitley slashed the corporate tax rate from 30% to 25% over the next four years starting April but experts said it did not amount to much as some other concessions were removed. He also cut customs duties on a slew of items imported as inputs or raw materials -- so that processing them would spin manufacturing jobs under Modi's "Make In India" initiative.
The stock markets gave a thumbs-up to Jaitley's pro-growth budget, climbing 300 points during a special trading session but later settling 141 points up to close at 29,361 -- as investors and speculators grappled with the details of the proposals from the long-term point of view.
There was plenty in the budget to ease up foreign direct investment (FDI) and clear uncertainties on taxation to help portfolio investment in real estate, alternate investments and venture capital but the finance minister kept a careful eye on issues that touch the poorer sections.
With a feisty Opposition closing rank to pin the government down on a land acquisition law on the ground that it may hurt farmers, the minister emphasised that poverty alleviation and rural areas would remain central to the government's development model.
He announced the launch of a universal social security system for all Indians, specially the poor and the under-privileged, a special welfare scheme for the elderly, and an education and livelihood scheme called 'Nai Manzil' for minority youth. Jaitley did not cut allocations in line with what the PM told the Lok Sabha Friday, for rural jobs scheme MNREGA as well as the food security plan but hinted that some of the welfare programmes would be changed to plug India's notoriously leaky subsidy regime.
Compared to last year's gradualism, Jaitley's budget for 2015-16 was expected to be a high-speed affair - perhaps mindful of growing impatience for some real action -- that set into motion the much-awaited push for a non-adversarial and a healthy business environment.
He announced plans to enact a law to deal with India's infamous and bustling parallel economy, where deals thrive outside the financial system by creating a web of transactions to obscure the sources of slush funds.
Modi's signature initiative Make in India received thrust with measures to enhance job seekers' skills and make small firms primary growth engines with Rs 20,000 crore new funding institution-MUDRA Bank.
Jaitley said the government would increase spending on the country's collapsing infrastructure-roads, ports and railways--by Rs 70,000 crore to turn around the economy.
He did not announce a repeal of the controversial retrospective tax law but assured it would be used sparingly. He, however, balanced it by putting off to 2017 the roll-out of the General Anti-Avoidance Rule, a string of rules aimed at plugging tax loopholes that had investors and executives nervous.
The retrospective tax, introduced in 2012, had hit major companies such as British telecom giant Vodafone with huge liabilities. Along with GAAR, it had made India look like an unfriendly country for business.
A contemporary bankruptcy law, he said, was in the works.
To ease the squeeze, Jaitley raised taxes on services by two percentage points to 14%, while the marginal hike in excise duties from 12.36% to 12.5% will make some goods costlier.
Jaitley's Rs 17.74 lakh crore spending plan sets aside Rs 246,727 crore for defence higher by about Rs 23,000 crore over current year's actual expenditure of Rs 222,370 crore.
With risks of slippages still looming, the minister pledged to the keep the fiscal deficit - a measure of how much a government borrows to fund its expenses -- at 3.9% of GDP in 2015-16, compared to 4.1% in 2014-15.