The FY17 budget numbers are in line with market expectations. Despite a market cacophony, it has not deviated from its long-term goal of fiscal consolidation. For FY18, the government borrowing is budgeted at Rs 6.05 lakh crore and a net borrowing requirement is pegged at Rs 3.48 lakh crore taking into account repayments (adjusting for switch and buyback) of Rs 2.56 lakh crore. Of this amount, buyback of Rs 75,000 crore is contingent on receipts from securities against small savings of Rs 1 lakh crore.
The agriculture sector has also received specific focus in the budget. For example, for Fasal Bima Yojana the cropped area coverage has been increased from the current 30% to 50 % in FY19. The allocation has also been increased by 240%. Pradhan Mantri Fasal Beema Yojana has been implemented by 21 states during Kharif 2016. The sum insured under this Yojana has more than doubled from Rs 69,000 crore in Kharif 2015 to Rs 1,41,625 crore in Kharif 2016. This yojana makes it possible for small and medium farmers to afford an opportunity to cover risk at low premium rates.
There is something for everyone in the budget. For the salaried class, there has been a tax cut from 10% to 5% for having income between Rs 2.5 lakh to Rs 5 lakh. There are around 1.38 crore tax payers/38% of overall tax payers in this bracket (FY15) and this will directly benefit.
This will result in across the board tax benefits of Rs 12,500 to all tax paying individuals in the next fiscal. However, with an average deposit size of Rs 3.31 crore in 1.48 lakh bank accounts post demonetisation, it is likely that the tax net will be significantly enlarged in the next fiscal, paving the way for further reduction in rates. For example, if the taxpayer to voting population in India increases from 7% currently to the desired 23%, the average tax liability for every tax paying individual could get reduced by as much as 70%.
Reducing corporate taxes for companies with an annual turnover up to Rs 50 crore will benefit 96% of companies. Scaling up the mudra target to Rs 2.4 lakh crore is a welcome step, though an even better way could have been to raise the credit limits from the maximum of Rs 10 lakhs as off now.
The idea of introducing electoral bonds is a novel idea and possibly the first of its kind in the world. This will streamline and cleanse electoral funding. Banning cash transactions over Rs 3 lakh will allow the banks to focus on value-based banking rather than transaction banking.
Abolition of FIPB Board will streamline FDI inflows. Providing infrastructure status to affordable housing and rationalisation of area will make the housing sector more competitive. This is a big step towards the government’s target of providing 20-million houses across India by 2020.
The government also unveiled a series of post-demonetisation digital reforms, including a proposal to set up a payment regulatory board, encouraging digital payments at petrol pumps and hospitals and withdrawing service charges on railway e-tickets booked via IRCTC. All these steps aims to garner 2,500 crore digital transactions across platforms including the United Payment Interface.