Finance minister Arun Jaitley on Saturday unveiled a budget that aims to ramp up growth, aided by a slowed pace of fiscal deficit cuts and a raft of tax measures to put private domestic and foreign capital to work.
In his first full-year budget since Prime Minister Narendra Modi's landslide election victory last May, Jaitley said India's economy was about to take off. Modi tweeted that the budget would "further reignite our growth engine".
While seeking to spark an investment-led boom, the budget was short on structural reforms, with the government leaving major welfare schemes untouched and only cutting fuel subsidies thanks to a collapse in international oil prices.
"People who urged us to undertake 'big bang' reforms also say the Indian economy is a super giant, which moves slowly but surely," Jaitley told Parliament as he wrapped up a 90-minute speech. "Even our worst critics would admit we have moved rapidly," he said.
Jaitley promised higher investment in India's decrepit roads and railways, offered the carrot of corporate tax cuts to global corporations and the stick of tighter compliance rules to get Indian tycoons to invest at home rather than stash wealth abroad.
Although Jaitley forecast that growth would accelerate to 8-8.5% in the fiscal year starting in April, up from 7.4% this year, businesses have yet to respond to Modi's call to "Make in India".
Room for rate cutes?
Jaitley forecast inflation at 5% by the end of the fiscal year ending March 2016, undershooting the Reserve Bank of India's 6% target and creating room to cut interest rates. Annual inflation was 5.1% in January.
But he pushed back by a year, to 2017-18, a deadline for cutting the fiscal deficit to 3% of gross domestic product. In 2015-16, the deficit will be 3.9% of GDP, above the 3.6% target inherited from the last government. In volatile trading, India's NSE share index gained as much as 1 percent as Jaitley gave an upbeat economic outlook, but went into the red on his comment that the fiscal deficit would slip, and traded 0.4 percent lower after his speech.
Radhika Rao, an economist at DBS in Singapore, said the deficit slippage was unlikely to draw the immediate ire of credit-rating agencies, and she expects the private sector to follow the lead set by the government, which is hiking capital investment by a quarter to $39 billion. "Today's budget was pragmatic, wide-ranging and inclusive," Rao said.
Carrots and sticks
India's budget concentrates a year's economic policymaking into a single speech, and the range of measures Jaitley announced included a monetary policy overhaul, a bankruptcy code and the creation of a public debt management agency.
The 62-year-old finance minister, who underwent surgery last year to treat diabetes, sat down around 20 minutes into his speech and gave the rest from the government's front bench.
In a key passage, Jaitley said he would cut the tax on company profits to 25% over four years from the current 30%, high by international standards.
A national goods and services would enter force, as planned, in April 2016 but a controversial set of new rules to fight tax avoidance would be delayed by two years, he said.
Jaitley scrapped a distinction between direct and portfolio investors, in a move designed to encourage foreign investors to take strategic stakes in Indian companies. He also simplified regulation of financial markets.
"This is a forward-looking budget," said Krupa Venkatesh, a partner at Deloitte. "This clear statement of intent should bring cheer to industry."
Road and rail
Reaping the benefits of low global prices for oil, India's main import, Modi's government says India is in a sweet spot with spare cash to modernize its creaking infrastructure.
Jaitley announced an increase of 700 billion Indian rupees in road and rail investments next year and announced that the government would commission five "ultra-mega" generation projects to end chronic power shortages.
The government shied away from politically sensitive cuts in its $37 billion subsidy bill , seeking instead to boost efficiency of a rural jobs scheme that's India's costliest welfare programme. It will also boost direct welfare payments into bank accounts, and gradually replace benefits in kind.
"My proposals... lay down the roadmap for accelerating growth, enhancing investment, passing on the benefit of growth process to the common man, woman, youth and child," said Jaitley. "This is the path we will doggedly and relentlessly pursue."
New law to track black money
Jaitley said the government was committed to tracing black money stashed abroad and a comprehensive new law will be framed to track it. "On black money, a new structure including e-filing and tracking down is our abiding commitment," Jaitley said in his budget speech.
He said a "comprehensive new law to track black money" would be framed.
He also said there will be rigorous imprisonment of 10 years under black money law.
The finance minister said a benami property transaction bill will be brought to tackle black money transactions in real estate.
Individual tax payers to benefit, no change in tax rate
Not changing the income tax rates or increasing the exemption limits for individuals, Jaitley proposed increasing the range of tax deductible investments/spend.
Jaitley said the government is proposing to rationalise various tax exemptions and incentives to reduce tax disputes and improve tax administration.
The proposals mentioned by the finance minister made clear the government's focus on enlarging the tax-exempt investments/spend. Jaitley said the proposals would result in tax deductions to the tune of around Rs 440,000 crore.
Defence allocation increased by nearly 11%
The government increased the defence budget by 10.95% to Rs 2.46 lakh crore for the next fiscal as compared to the revised estimates of Rs 2.22 lakh crore for 2014-15 as it pushes 'Make in India' initiative to curtail over-dependence on imports.
While the government had last year alloted Rs 2.29 lakh crore in the budget, it was revised to Rs 2,22,370 crore.
Jaitley underlined that defence of every square inch of our mother land comes before anything else.
Super rich taxed, wealth tax abolished
Jaitley proposed to abolish the wealth tax and proposed two percent surcharge on the super rich.
He said the government's goal is to have "minimum government and maximum governance" with the focus on ease of doing business and simplifying tax procedures.
"The total wealth tax collection in the country was Rs.1,008 crore in 2013-14. Should a tax which leads to high cost of collection and a low yield be continued or should it be replaced with a low cost and higher yield tax?" he posed.
Announcing the abolishment of wealth tax, Jaitley said it would be replaced with an additional surcharge of two percent on the super-rich with a taxable income of over Rs 1 crore.
Over 80,000 secondary schools to be upgraded
Jaitley said the government was committed to providing quality education and planned to upgrade over 80,000 secondary schools in the country. He said educating and skilling the youth to enable them to get employment is the "altar before which we must all bow".
"To ensure that there is a senior secondary school within five km reach of each child, we need to upgrade over 80,000 secondary schools and add or upgrade 75,000 junior and middle schools to the senior secondary level," Jaitley said.
We will build six crore toilets: Jaitley
The government will achieve the target of building six crore toilets across the country under the Swachh Bharat Abhiyan, Jaitley said. He said the BJP government was able to "transform Swachh Bharat into a movement to regenerate India".
"I can speak of, for example, the 50 lakh toilets already constructed in 2014-15, and I can also assure the members of this august House that we will indeed attain the target of building six crore toilets," Jaitley said.
Swachh Bharat Abhiyan (Clean Indian Campaign) was launched by Modi on October 2 last year. The programme aims at providing toilets to every household across the country.
Full Coverage: Budget 2015