Budget 2017 is comprehensive, given that it impacts both the lower and upper strata of the society. The individual income-tax rate has been cut from 10 per cent to 5 per cent for the lower slab, and the tax rate for MSMEs with a turnover up to ₹50 crore has been trimmed from 30 per cent to 25 per cent, while a surcharge of 10 per cent has been imposed on individual incomes from ₹50 lakh to ₹1 crore. These are the breakthrough proposals.
The reforms in direct tax legislation for the lower income group are likely to increase tax compliance and widen the tax base. The budget has avoided other populist measures in order to stay on track to meet the targets of the FRBM (Financial Responsibility and Budget Management) Act.
Thrust areas
The relaxation in the promoters’ holding limit for carry-forward of losses and the three-year tax holiday provided to start-ups will further boost the Prime Minister’s “Start Up India” campaign. For the educational sector, Finance Minister Arun Jaitley announced online education portal “Swayam”, which offers virtual education for 350 online courses and provides a thrust to the government’s Digital India movement.
The Finance Minister has identified the right focus areas, such as agriculture, infrastructure, rural development and youth, and has substantially increased allocations for these areas, in keeping with his vision of “Transform, energise and clean India”.
The Budget has substantially increased allocations (30 per cent) for the eight north-eastern States. Under its flagship Digital India initiative, the government proposes to set up BPO promotion schemes for the north-eastern States to stimulate employment opportunities in the region. The government has taken steps to put Arunachal Pradesh and Meghalaya on the rail map. It has already identified thematic circuits for the North-East to promote it as a major tourism hub. With these and other steps, the government is making efforts to ensure the cultural and economic connectivity of the north-eastern region with the mainland.
The merger of the railway budget with the general budget failed to show any added advantages, with the railway budget ending up being sub-par.
Fiscal deficit target
Another front where the Budget was lacking is the meagre allocation of ₹10,000 crore towards bank recapitalisation in the face of mounting NPAs and approaching deadline for implementation of Basel III norms. Also, the rising oil prices, the 7th Pay Commission and the reduction in the income-tax rates would put further pressure on the government in meeting its fiscal deficit target of 3.2 per cent of the GDP.
Demonetisation, being one of the most controversial moves by the government in recent times. The revision of withdrawal limits from ATMs and the introduction of the BHIM digital payments app, along with the cut in direct tax rates, are likely to offer some relief to the cash-starved economy. These measures will potentially boost demand in the economy and the increase in public spending will ensure that the effects of demonetisation will not spill over to the next financial year.