Finance minister Arun Jaitley painted a rare rural mural in his budget speech on Monday, signalling where priorities lay for the Modi government -- the farm and social sectors, with added focus on women and small businesses.
The minister’s speech delved into agriculture early as it promised to double farm incomes in just over five years, which would mean the sector growing faster than the rest of the economy at the current clip.
Stock markets reacted adversely, falling more than 500 points in intra-day trade, but recovered later as the budget sidestepped temptations to make taxes easier for the salaried class and risk a higher fiscal deficit.
A ballooning wage and pension bill removed a large chunk off the government’s resource cake. Despite risks of slippages looming, the minister pledged to the keep the fiscal deficit — the gap between what the government spends and earns — at 3.5% of GDP.
Instead of a big spending kick, Jaitley unveiled carefully crafted measures to boost affordable housing, spread digital literacy, nurture technology start-ups and create new manufacturing units while setting aside more money for anti-poverty schemes pioneered by the previous UPA government.
The measures could shape a larger economic engine in the hinterland to spur industrial demand and help counter the Opposition that has often accused the Modi government of being pro-rich, tagging it as a “suit-boot ki sarkar”.
The job quota protests by the predominantly agricultural Jat community are also linked to dwindling farm incomes. With assembly polls looming in a series of states, the aroma of electoral politics in the budget speech was distinct.
“We need to think beyond ‘food security’ and give back to our farmers a sense of ‘income security’,” the minister said. He set aside Rs 20,000 crore for a new irrigation fund, proposed internet-based e-markets to sell produce and increased allocation for MGNREGA, the rural job scheme, by 11% to Rs 38,500 crore in 2016-17. He also allocated Rs 97,000 crore, the highest ever, for development of roads, with a third of the outlay earmarked for rural areas.
“We have a desire to provide socio-economic security to every Indian, especially the farmers, the poor and the vulnerable,” Jaitley said.
To fund the big rural and infrastructure push in his budgetary proposals, Jaitley increased the surcharge on tax paid by people with incomes above Rs 1 crore from 12% to 15%, imposed a 0.5% cess on services taking the service tax rate to 15%, brought back tax on dividend incomes exceeding of Rs 10 lakh and began slashing exemptions that help companies reduce their tax payouts.
He left income tax slabs and rates unchanged, disappointing the salaried class. However, he gave marginal relief to some 20 million taxpayers with incomes under Rs 5 lakh by increasing the ceiling on rebate for them from Rs 2,000 to Rs 5,000.
There was focus on indirect taxes, especially a series of cess levies, which would keep the tax registers jingling. The finance minister cut customs duties on a slew of items imported as inputs or raw materials so that their processing could spin manufacturing jobs under the government’s ambitious Make in India programme.
The minister set aside Rs 25,000 crore for India’s bad loan-hit banks. He introduced a special scheme to settle disputes and simplified tax rules to signal a friendly administration.
Jaitley also spelled out plans to spin jobs, build infrastructure and foster a climate for small businesses and start-ups to flourish. He promised an increase in social spending, more than last year’s budget, reflecting the realisation that if the rural and social sectors were left behind, double-digit overall growth would be hard to achieve.
He allocated Rs 2,000 crore to give cooking gas connections to women in poor households and a scheme for health insurance of up to Rs 1 lakh per family. Such schemes will aid 15 million households below the poverty line.
Prime Minister Modi, who on Sunday described the budget as his annual exam, hailed Jaitley’s speech.
“Budget2016 will ensure a qualitative transformation in our villages & in the lives of farmers, women & marginalised sections of society,” Modi said in a tweet.