In this year’s Budget, Finance Minister Arun Jaitley announced selective yet effective interventions and incentives that minimise market distortions, a minimalist approach that augurs well for the economy in the long run.
It helps set a precedent where the onus of growth is slowly shifting from the Government to free enterprises. This low-key Budget is in alignment with the financial roadmaps of the world’s advanced economies and signifies the growing role of the private sector, with the Government providing the framework and effective institutions for conducting business.
The Budget was aimed at vulnerable sections of the population, in rural as well as in urban areas. It, however, does not hand out populist doles and encourage extravagant deficit spending; it provides tax breaks to the least-paid segment of the working population. The income-tax rate for people earning between ₹2.5 lakh to ₹5 lakh was revised to 5 per cent from 10 per cent. Additionally, an incentive of ₹12,500 is provided to those with an income of over ₹5 lakh.
Job creation
More significantly, the Budget lays out a series of steps that will incentivise the creation of markets and jobs, empowering the most marginalised people of society.
The corporate tax for MSMEs (micro, small and medium enterprises) was cut to 25 per cent. To prevent generation of black money, long-term capital gains tax was retained at zero if the securities transaction tax (STT) has been paid while buying shares in the equity market. A significant tax relief was also made available for start-ups, whereby the losses of first seven years can be carried forward as long as the company’s shareholding structure remains intact.
The Government has also encouraged the use of mobile transactions and digital payments by providing financial incentives to users of certain technologies.
Affordable housing
Affordable housing was given “infrastructure status”; this would enable developers to access institutional financing, with higher limit on external commercial borrowings. This will attract more investments and reduce costs, resulting in savings that can be passed on to the customer. In the past, affordable housing was viewed as a freebie given by the Government and therefore, developers had no incentive to expedite construction and hand over the project on time. By focusing on the supply side of the equation the Finance Minister has converted affordable housing into a marketable product.
Overall the Budget will enable wage earners to buy goods and services at affordable rates. For those who cannot afford the basics, the Government has set side ₹23,000 crore for the Pradhan Mantri Awas Yojana to enable construction of houses, and has promised electrification of all rural houses by 2018.
Apart from this, it has set up the framework for ushering in GST, GAAR and the Ind-AS accounting standards, all of which will align India with taxation practices in advanced economies.
Sustainable growth
Overall, this Budget is realistic and takes a different growth path, one that is more sustainable. With current capacity utilisation across sectors at around 67 per cent, any move to artificially force investments into the system will lead to a significant capital inefficiency. That being said, overall capital expenditure is up 25.4 per cent, most of will would go towards infrastructure development.
With the abolition of the Foreign Investment Promotion Board, and the promise of further liberalisation of the foreign direct investment policy, this is just the first of many similar Budgets could place the country firmly on the growth path.