Budget 2017: Kaabil Jaitley out to make you Raees

Circumstances had demanded Finance Minister Arun Jaitley goes back to old ways of budgeting with public sector as key driver of the economy while the Economic Survey had cautioned him about very challenging times ahead.

Yet, Jaitley turned up pretty Kaabil and ventured out to make farmers and the middle class Raees, by doling out goodies after goodies for rural India and the farm sector, and proving a huge relief to income-tax payers by lowering rate at the entry level by half.

At the same time, Jaitley took enough care to not stir up financial markets, by avoiding some of the much-feared measures such as tweaking of the long-term capital gains tax (LTCG) and securities transaction tax (STT) and clarifying several tax rules for foreign portfolio investors.

Check out the key highlights: Majority of the Budget allocations have gone towards investment, with the government capital expenditure rising 25.4 per cent year on year. The FM took the liberty to miss the 3 per cent fiscal deficit target for the year and raised it marginally to 3.2 per cent to create some legroom for himself; but nobody is complaining as it is unlikely to crowd out private investment.

The FM put a firm cap on cash transaction at Rs 3 lakh, which might dampen demand for some sectors.

Jaitley tried to stimulate the economy by boosting a key demand driver: real estate and job creation. He redefined the term 'affordable housing' by raising the size of house by 30 sq ft; accorded infrastructure status to affordable housing to draw new investors, set a target of 1 crore rural housing units by 2019, set aside a much higher allocation of Rs 23,000 crore towards PM Awas Yojana, granted more money to NABARD to infuse liquidity in the industry and allowed other procedural concessions.

He made a Rs 64,000 crore budget allocation for highways in FY18 against Rs 57,676 crore in FY17, aiming to build 133 km road every day. The FM targeted 100 per cent village electrification by May 2018.

The Finance Minister lowered the income-tax rate at entry level to 5 per cent from 10 per cent, which effectively reduces the tax burden to zero for an individual earning up to Rs 3 lakh, and up to Rs 4.5 lakh for those availing benefits of tax exemptions under Section 80C. In higher income brackets, this offers a tax saving of about Rs 13,000.

To achieve this, he played Robin Hood and taxed the rich with a 10% surcharge on incomes between Rs 50 lakh and Rs 1 crore and maintaining the super-rich tax at the existing level.

Belying market speculations, the Finance Minister left the long-term capital gains tax on equity investment, STT and other taxes untouched, tweaked domestic transfer pricing rules and exempted some FPIs from indirect transfer provision. He also further clarified the GAAR rules.

“It was already hinted that FPIs would be spared from the implications arising from indirect transfer by keeping the recently issued clarifications on hold. The proposed amendment to the law would rest at anxiety apprehensions of foreign investors,” said Pranay Bhatia, Partner – Direct Tax, BDO India

Boosting investor confidence, the FM also proposal to abolish the FIPB, a body that clears proposals envisaging foreign investment up to Rs 5,000 crore. This clearly reflected the government’s commitment for creating an condusive investment environment for FIIs.

Jaitley contradicted the contention of the Economic Survey that the impact of demonetisation will slow down growth in FY18 as well. Instead, he asserted that the impact of the cash ban will not spill over to next year and the remonetisation process will pick up pace soon.

For the farm sector, he raised allocation under the MGNREGA to highest-ever at Rs 48,000 crore, raise agri credit target to Rs 10,000 crore, expanded farm insurance cover, among a host of measures aimed at doubling incomes of farmers and rural households in 5 years.

In the first-ever Budget that swallowed the Rail Budget within itself, Jaitley made a Rs 1,31,000 crore outlay for the Railways with a Rs 55,000 crore Budget support, with most of the money going into creating 3,500 km lines and other capacity-creation and cleanliness measures.

The biggest reformist move of the Budget was with respect to political funding. The Finance Minister proposed to cap cash donation for political parties at Rs 2,000 per individual and mulled electoral bonds and cheque payment for all other forms of political donations.

Then there was more allocation for irrigation and market reforms to boost farm output; more funds for education, healthcare, youth and skill development, welfare of women and children, poverty alleviation and for pushing the digital economy.

Is it the best job that the Finance Minister could pull off under the circumstances? Are the Budget measures enough to stimulate demand in the economy?
Financial markets rated it as OK budget, economists called it prudent and reformist, but the common man called it a 3G budget: Gaon, Ghar aur Gareeb.

“Budget was okay, as expected,” said ace equity market investor Porinju Veliyath. “The uptrend in the domestic will continue with a higher momentum till India's market-cap crosses $2 trillion.”

Arvind Chari, Head of Fixed Income & Alternative Investments at Quantum Advisors, said this is not a populist Budget. In fact, it was a rather tepid, as has been the case lately.

“We liked the government focus on fiscal prudence and the commitment, although delayed, to move fiscal deficit to 3.0 per cent of GDP next year. The budget proposals are not inflationary and thus if food prices remain benign, we could expect some rate cuts by RBI. Bond markets should like the lower net and gross borrowing number as it will lead to lower government bond supply,” he said.

“I would call this a fiscally prudent reformist budget with realistic deficit target of 3.2%,” said Ranen Banerjee, Leader Public Finance and Economics, PwC.