The shock and awe created across the country on November 8, 2016 by demonetisation, will take time to settle in. Indian financial topography has been completely reshuffled, with the country being at the cusp of a major digital transition.
The demonetisation drive has opened gateways for a big digital explosion in the Indian financial sector. And it required a strong, well-aligned Budget to have a holistic impact.
In his fourth budget, Finance Minister Arun Jaitley culled out the best budgetary delight, directed towards financial inclusion, upliftment of the poor, thrust on education sector and healthcare. He managed to mix welfare economics with some major path breaking reforms.
Populism vs. beneficial
The budget cannot be called populist, yet the finance minister made a provision for some benefits for all sections.
~ The efforts towards a cashless economy continued, with banning cash transactions over ₹3 lacs.
~ The government has done a great job in terms of bringing the rural sector into the fold of new age digital and technological transition, by crafting out higher allocations for this critical segment.
~ With more thrust towards MNREGS, which is projected at a staggering ₹48,000 crore, rural electrification, internet infrastructure, agricultural credit, provision for a magnanimous 1 crore homes for rural poor, mission Antyodaya for 50,000 gram panchayats, it definitely has all the makings of a populist budget intended at giving a holistic shape to the overall progress of the economy.
~ The finance minister also gave relief to tax payers in the lowest bracket, to farmers and small businesses, who bore the brunt of demonetisation.
The finance minister lowered the tax rate to 5 per cent for those earning between ₹2.5 lakh and ₹5 lakh, while introducing a surcharge of 10 per cent for those with income between ₹50 lakh to ₹1 crore. While a cut in corporate tax rate was not announces, the finance minister did reduce the tax from 30 per cent to 25 per cent for companies having a turnover of less than ₹50 crores.
~ He also re-iterated his commitment to fiscal prudence by pledging to keep fiscal deficit at 3.2 per cent of GDP.
~ The much feared capital gains tax on securities held for more than a year was not announced while he exempted foreign portfolio investors (FPIs) from taxation on indirect transfers.
~ The industry’s demand for the abolition of Minimum Alternate Tax (MAT) was ruled out, but the corporates were given a concession in the form of an increase in allowance to carry forward MAT, from 10 years to 15 years.
~ Electoral reforms in the form of restricting cash donations to political parties to below ₹2,000 and issuance of electoral bonds to protect the identification of donors will have a major impact in political parties’ funding.
~ Finance minister also proposed a new law to confiscate assets of economic offenders who flee the country. To encourage and expedite foreign fund flow, Foreign Investment Promotion Board (FIPB), the nodal agency for clearing all Foreign Direct Investments (FDIs) in India, was scrapped.
~ The Budget also brushes on the education accreditation system in India. The government is formulating a draft bill on world class institutions in India, wherein 10 government and 10 private institutes would be given full autonomy in their course design and structuring. This will bring in a lot of freedom to the top institutes and release them to an extent from the clutches of UGC with its umpteen number of caveats. But this will take time.
Overall, the budget seems to have the relevant promise and the sheen. With a strong focus on execution and implementation, the government should do necessary justice to the promises made. Like they say: “It’s not a blockbuster till the ticket counter starts ringing”. So let’s wait and watch.