A glance at 9 pillars of Budget 2016:
Union Finance Minister Arun Jaitley presented a pro-poor Union Budget in Parliament on 29th Feb, 2016, skimping on a bank bailout and announcing new rural aid schemes. He reiterated his forecast that the economy would grow by 7.6% in the 2015-16 fiscal. His government, Jaitley said, wants to spread the growth benefits more exhaustively among the country’s 1.3 billion people, but at the same time, would stick to the present 3.9% fiscal deficit target for 2016-17. The budget, which stresses on the government’s “Make in India” mantra, has exempted startups from filing an Income-tax (IT) return for the first three years. Besides, the income tax slabs for taxpayers, have remained unchanged.
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The nine pillars
In his speech, Jaitley highlighted the nine pillars that will be crucial for the transformation of the country and stated that his government’s agenda will be to focus on these nine pillars and build transformative measures around these pillars. The nine pillars are:
- Agriculture and Farmer’s welfare
- Rural sector
- Social sector including health care
- Education skills and job creation
- Infrastructure and Investment
- Financial sector reforms
- Governance reforms and ease of doing business
- Fiscal discipline
- Tax reforms
Key highlights of Budget 2016
Following are some of the key highlights of budget 2016:
Tax rebate: For all those earning up to Rs. 5 lakhs per annum, the tax rebate ceiling under section 87A has been enhanced from Rs. 2000 to Rs. 5000. Over two crore taxpayers will benefit from this relief. The finance minister also extended relief to people staying in rented accommodation, by increasing the house rent allowance deduction under section 80GG to Rs. 60,000 from Rs. 24,000.
Corporate tax: New companies incorporated on or after 1st March, 2016, will be charged 25% tax along with surcharge and cess, provided that they do not claim profit linked or investment-linked deductions. No more exemptions for a new company, if taxed at 25%. Jaitley said the government has also planned to lower the corporate tax for the companies that generated the turnover of less than Rs. 5 crores in the FY ending March 2015 to 29% plus surcharge and cess.
Startups: All startups will get a full tax holiday for three years except the minimum alternate tax.
Health insurance: The finance minister announced a brand new health protection scheme, having a cover of up to Rs. 1 lakh per family with an additional top-up package of Rs. 30, 000 to senior citizens.
LPG: The finance minister claimed that 75 lakh lower-middle and middle-class families surrendered their gas subsidies. He said, the government will give LPG connections for women of 1.5 crores below poverty line (BPL) households at a Rs. 2,000 crores of expenditure in the coming fiscal.
Customs and Excise : Some suitable changes have been made to the customs and excise rates for the government’s “Make in India” campaign.
Other highlights
The budget also addressed the following issues:
Home buyers: Those buying a home for the first time will get an additional deduction of Rs. 50,000 for houses costing up to Rs. 50 lakhs, and loan of up to Rs. 35 lakhs.
Taxing the rich: Henceforth, a 15% income tax surcharge will be applicable to individuals exceeding Rs. 1 crore per annum. It is 12% as of now.
Tax on cars: The government will levy a 2.5% infrastructure cess on diesel cars, 1% on small petrol, LPG, CNG cars and 4% on sports utility vehicles, with a target to reduce pollution.
Housing: Constructions that are less than 30 sq. metres in four metro cities and 60 sq. metres in other cities have been exempted from housing service tax.
Organic farming: The government will reorganise its intervention both the non-farm and farm sector for doubling farmer income by 2022. Five lakh acres will come under organic cultivation over a period of three years.
EPF: The government will pay 8.33% EPF contribution for new employees for the first three years. EPFO services will be exempt from service tax. However, EPF contributions made after April 2016 would be partly taxable at the rate of 40%. The balance is presumably taxable according to the slab.
Pension scheme: Jaitley proposed an identical treatment regarding pension. Withdrawal of up to 40% of the corpus during retirement will be tax-free in case of National Pension Scheme (NPS). He said: “In case of superannuation funds and recognised provident fund (PF) schemes including EPF, the same norm of 40% of the corpus to be tax-free will apply in respect of corpus created out of contributions made after 1st April 2016.” Besides, the annuity fund payable to the legal heir, after the death of a pensioner, won’t be taxable in any of the cases. He also proposed a Rs. 1.5 lakh per annum limit to employer contribution in recognised superannuation funds and PF schemes to avail the tax benefit.
Forex reserves: India’s forex reserves are at the highest ever level with $350 billion. The consumer price index (CPI) inflation has reduced from over 9% to 5.4%, bringing a huge relief to the public.
Recapitalisation of banks: Rs. 25,000 crores have been earmarked for capital infusion in nationalised banks.
Rural Electrification : The finance minister said that his government has committed to 100% electrification of villages by 1st May, 2018. By February 2016, 542 villages would be covered.
Reduce farmer loan burden : Rs. 15,000 crores have been allotted for the purpose.
Rural expenditure and infrastructure: Government have allocated a corpus of Rs. 87,765 crores for rural sector. A sum of Rs. 38,500 crores has been allocated for MGNREGS.
Education: Government has planned to open 62 new Navodaya Vidyalayas. Will also run a program under Sarva Shikhsha Abhiyan for the increase in quality of education. The initial capital base of Rs. 1000 crores have been set aside for Higher Education Financing Agency.
Skill Development: A target to set up 1500 Multi Skill Training Institutes. A corpus of Rs. 1804 crores have been allocated for the skill development.
Raising domestic demand, continuing with reforms, and a prudent fiscal policy are the three major priorities of the government. Besides, farmer and health insurance and cooking gas subsidy for BPL families are the main schemes for the social sector.
What it means
The budget, undeniably, addresses some key economic pain points, but at the same time, springs no major negative surprise, which may have derailed the country’s current growth momentum, amid rising global challenges. Jaitley’s budget, most importantly, speaks in the right language.
The finance minister has presented a big picture budget—a “transformative agenda”—rooted to what he says are his nine pillars. He has carefully sought to address some issues under each of the nine heads while highlighting his commitment to tread the path of fiscal consolidation firmly.
Let’s take the latter commitment first. Jaitley has made it clear that notwithstanding the urgency to push growth, he won’t forgo consolidation, and has stuck to the 3.5% fiscal deficit target for 2016-17. It’s a signal to the global community that India means business here. It’s also music for Reserve Bank of India governor, Raghuram Rajan, who can now consider cutting rates once again and bolster the growth engine.
The finance minister has also managed to push the infrastructure and farm sector. Sample this: Rs. 35,984 crores allocation for farmer and agriculture welfare. He underscored the need to move farmers from the food security dragnet to income security by doubling their incomes by 2022. Given the current state, the push, if implemented correctly, can change rural demand and also generate a multiplier effect in the process. There has also been a major push towards irrigation.
There was huge expectation over bank recapitalisation. But the markets immediately considered the Rs. 25,000 crores outlay meagre, despite the finance minister assuring that more funds would be infused in state-owned banks, as and when necessary. This raised the sentiments. After all, nationalised banks must become more professional in their operations, and eventually tap the markets again with an improved balance sheet.
The government fell abysmally short of its 2015-16 disinvestment targets, managing to raise only Rs. 13,300 crores against the targeted Rs. 69,500 crore. Jaitley pared the 2016-17 target rather drastically and pegged the target at Rs. 36,000 crores, hoping to raise Rs. 20,500 crores via strategic sales in the coming fiscal. State-controlled units would be encouraged to divest assets like manufacturing units and land to generate resources for fuelling new projects.
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The EPF announcement, however, has come as pretty bad news for crores of people. Fans of fixed income, investing via Voluntary PF, along with EPF, or investing through the NPS, should go easy on the same.
But for a budget which came on the backdrop of slow investments, falling exports, and economic headwinds, the finance minister has credibly addressed areas that demand prompt attention. Except the 0.5% Krishi Kalyan Cess, no service tax has been raised. While he has raised taxes for sectors like automobiles, the overall idea is to bolster growth even in the middle of a challenging environment.
The most important highlight of the budget is the move to provide a predictable but stable tax regime. A limited voluntary disclosure of income (VDIS) window (45% tax with immunity from prosecutions), a new dispute resolution system, and forming a high-level committee under the revenue secretary, are all steps in the proper direction that would assuage the corporate sector, particularly foreign investments.
Much of the budget’s success would depend on the implementation. Jaitley deserves good marks for successfully balancing the twin requirements of growth impetus and fiscal prudence. It’s not easy to revive rural demand, usher infrastructure spending, and at the same time, raise adequate resources, even when the Pay Commission recommendations and the One Rank One Pension scheme stares him in the face.