Finance minister Arun Jaitley unveiled a largely pro-poor budget on Monday, bumping up social spending and farm credit to revive the rural economy without over-spending.
Jaitley shunned populism while balancing the key priorities of investment, growth and jobs in a budget eyeing reforms.
He spelt out plans for creating jobs, building infrastructure, simplifying tax rules and creating a climate for small businesses and start-ups to flourish.
In his second full budget, the finance minister sent out an unambiguous signal: despite electoral setbacks and an aggressive Opposition, the government remained firm on reforms.
For investment and growth - the government’s overriding objectives - the 2016-17 budget, which coincides with 25th anniversary of liberalisation, offered a raft of measures.
These include a total of Rs 97,000 crore for building highways and village roads.
To arrest the decline of farm sector, which provides jobs to half of the country’s population and has been dragging down the economy, the minster announced a string of measures.
Some of these measures are: a health cover of up to Rs.1 lakh per family announced, a Rs. 2000-crore fund to give LPG Connection to women member of poor households, a scheme to benefit 1.5 crore households below poverty line in the current year, measures for promoting affordable housing and an irrigation scheme for 28.5 lakh hectares.
He also promised an increase in social spending, more than the last year’s budget, reflecting the realisation that a double-digit growth would be hard to achieve if the rural and social sectors were left behind.
Through these proposals, the government hopes to meet halfway both the GDP target of 7-7.75% and better social protection.
Concerns have been growing over a possible slowdown in India with global economy looking increasingly vulnerable.
Jaitley announced a new programme to making tenant farmers eligible for loans from banks.
The move aims to reduce their dependence on private money lenders, whose exorbitant interest rates have driven farmers to suicide.
The Opposition has often criticised the government of being pro-industry - remember “suit-boot ki sarkar” -- and anti-farmer. The recent Jat stir for quota that saw widespread violence in Haryana has been linked to dwindling farm incomes.
Jaitley imposed a 0.5% cess on services that would effectively raise the service tax to 15%, which will make most services costlier.
He also reached out to weaker sections and students as the government battles a twin fire - over the JNU sedition row and suicide of Dalit student Rohith Vemula.
Jaitley left income-tax slabs and rates unchanged, disappointing the salaried class. He, however, gave them some more reason to cheer by raising the annual limit for the people in the lower income bracket.
The ceiling of tax rebate for tax payers with up to Rs 5 lakh annual income will be raised to Rs 5,000 from Rs 2,000.
This will give a relief of Rs 3,000 per year to taxpayers with income below Rs. 5 Lakh per year and 10 million tax payers to benefit.
The minister increased the so-called “super-rich” surcharge to 15% from 12% for those with a taxable income of more than Rs 1 crore.
He also proposed changes in the corporate tax system, removing layers of exemptions that have distorted the way companies paid levies.
Smaller companies will now be taxed at 29%, from 30% earlier. The lower rate, however, will come bundled with phase-out of tax exemptions, which would bring more clarity to the tax regime.
This move is a carry-over from Jaitley’s to-do list from last budget. In 2015, he had said corporate income tax would be progressively brought down to 25% over four years.
A ballooning wage and pension bill removed a large chunk off the government’s resource cake.
Despite 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 3.5 % of GDP.
Stock markets reacted adversely to the budget proposals, with the benchmark 30-share Sensex falling more than 500 points during the course of the speech.
Jaitley also cut customs duties on a slew of items imported as inputs or raw materials so that their processing spins manufacturing jobs under the government’s ambitious ‘Make in India’ programme.
He didn’t announce a repeal of the controversial retrospective tax law but assured it would be used sparingly, even though anxiety continues to loom after the income tax department’s recent “pay-up or we seize your assets” notice to British telecom giant Vodafone.
Read full text of Jaitley’s Budget speech