Jaitley has committed to rein in fiscal deficit at 4.1 per cent by recasting government expenses and subsidies even as he unveiled plans to fund at least a dozen pet schemes of prime minister Narendra Modi, including a rather unnecessary Rs 200 crore bill for erecting a giant statue of Sardar Vallabhbhai Patel on Gujarat’s coast overlooking Pakistan.
Jaitley also desisted from burying the ghost of the controversial retrospective tax regime that has haunted multinational companies with huge tax demands on industry. Instead he assured them of being more circumspect in raising future tax claims.
He also pushed for selling a record Rs 58,425 crore worth of government shares in state-owned companies during this fiscal, besides offloading shares in PSU banks to retail investors.
The stock market did not know which way to react to the budget proposals, swinging wildly through the day’s trading, to close 72 points down. Forgoing Rs 14,725-crore revenue from his tax proposals, Jaitley sought to comfort the salaried class and boost household savings through tax breaks by increasing personal tax exemption limit, raising investment ceiling and tax deduction limit on housing loans.
In his two-hour long speech, Jaitley opened the door wider to foreign investment in the defence production and insurance sector, raising the FDI cap to 49 per cent. He also allowed foreign manufacturing businesses to access retail and e-commerce platforms without prior approvals. Besides raising the ceiling on defence FDI, Jaitley also announced a huge outlay of Rs 2,29,000 crore for defence spending, including over Rs 90,000 crore for acquisition of equipment.
The finance minister left tax rates untouched but revised customs, excise and service tax imposts on nearly a dozen items such as cigarettes, pan masala, gutka, cigars and aerated drinks to mobilise resources for the development projects outlined in the BJP’s election manifesto. He has also offered a ‘one-time settlement’ to end tax litigation to unlock disputed tax claims worth over Rs 4,00,000 crore.
On the much promised tax reforms, the finance minister has committed to roll out a single tax regime, goods and service tax (GST) and direct tax code at the earliest, though he was unable to provide an exact roadmap pending clearance from state governments.
Retaining the ‘sovereign right’ to tax retrospectively, the finance minister assured that ‘ordinarily’ it would not create fresh tax liabilities on foreign companies by resorting to retrospective tax measures. He also announced a high-powered panel to look into all such cases.
“I hope the investor community both within India and abroad will repose confidence on our stated position and participate in the Indian growth story with renewed vigour,” Jaitley said while offering a stable and predictable tax regime.
Pointing to slump in domestic savings to 30.1 per cent in 2012-13 from 33.7 per cent two years earlier, Jaitley increased the income tax exemption limit to Rs 2.5 lakh from Rs 2 lakh for individuals up to 60 years. For senior citizens above that age, the exemption limit was set at Rs 3 lakh.
Tax relief for investments under section 80C was increased to 1.5 lakh from Rs 1 lakh. He also increased the tax deduction limit to Rs 1.5 lakh from Rs 1 lakh on housing loans.
Those saving small amounts also got relief as the finance minister increased the maximum investment limit in PPF to Rs 1.5 lakh from Rs 1 lakh in a year.
He announced the setting up of an expenditure management commission, revamping food and fertiliser subsidies, and a new urea policy.
The prime minister’s pet projects got a leg-up in the budget. These include 100 smart cities, Skill India campaign, swachh Bharat abhiyan (clean India), rurban mission (urban amenities in rural areas), gram jyoti yojana (power to villages), beti bachao, beti padhao yojana (save and educate the girl child campaign).
The budget also pushed promises in the BJP’s election manifesto such as the Rs 2,037 crore Ganga clean-up plan, christened “namame gange”, NRI funding to cleanse Ganga, a Rs 100-crore riverfront beautification plan, the river-linking programme and the ‘sagar mala’ project linking a string of 18 small and medium ports across the peninsular waterways.
For the food and agriculture sector, Jaitley announced a large package of measures to moderate food price inflation. Apart from setting up a price stabilisation fund worth Rs 500 crore, the government committed itself to setting up a unified market in consultation with states to curb inflation. It has also asked states to encourage setting up farmers’ markets free of middlemen.
Jaitley announced 7 per cent concessional interest rate on farm loans while 3 per cent additional interest subvention was made available for those making timely repayments.
For capital markets, the government decided to implement the Indian financial code and put together a framework for have a modern monetary policy linked to consumer-level inflation in sync with the Urjit Patel panel recommendations.
The finance minister also announced a liberalised 5 per cent withholding tax on all corporate bonds valid till June 30, 2017, allow issue of depository receipts on all permissible securities, settlement of Indian debt securities globally, revamp of IDRs into Bharat depository receipts. He has also decided to end uncertainty in taxing income of foreign portfolio investors in the stock market. This will be treated as capital gains to encourage fund managers operating from abroad to shift to India.
He has pushed an aggressive disinvestments programme to sell Rs 58,425 crore worth of Centre’s stake in state-owned companies during this fiscal. For state-run banks, the government will take recourse to a new strategy of selling their shares in the open market to broadbase their shareholding, and mop up additional capital towards recapitalisation, while continuing to retain its control on them.
Jaitley’s budget speech stood out for its sheer length, stretching over two hours, which was much longer than his predecessors P Chidambararm and Pranab Mukherjee. His speech was also longer than his NDA predecessors Yashwant Sinha and Jaswant Singh during 1998-2004. Jaitley’s speech contained 16,536 words against Yashwant Sinha’s 2002-03 budget with 15,882 words and Jaswant Singh’s 15,081 words. Pranab Mukherjee in his swansong budget struggled to cross 14,157 words.