By Yashwant Sinha
Budget 2016 is a make budget not a break budget and it has come as a pleasant surprise. The global scenario as well as the domestic situation was extremely challenging. The ship of state had to be carefully navigated through these challenging waves. The finance minister has succeeded in doing so.
His first challenge was to encourage the growth impulses in the economy. I had identified, before the budget, three sectors of the economy for this purpose – the road sector, the railways and the housing sector. Fortunately all the three sectors have received the finance minister’s attention. The total amount of money which is going to be spent on roads and railways in the next year is Rs 2.18 lakh crore, out of which Rs 97,000 crore would be spent on roads – rural, state and national highways. The total outlay on the infrastructure is Rs 2, 21,246 crore. Infrastructure has thus received a massive dose of funds to move ahead. In addition, attractive tax benefits have also been offered for those who build houses as well as those who rent them. The limit of deduction on rent paid under Section 80 GG has been raised from Rs 24, 000 per annum to Rs 60, 000 per annum. Similarly, for the first time home buyer, the deduction for interest paid on home loan has been raised by an additional Rs 50, 000 per annum.
These three sectors of the economy have the potential to provide great momentum to the economy by creating demand for investment goods. This will also have a salutary impact on the stressed sectors of the economy like steel and cement and other building materials. They will also help in creating additional employment opportunities.
The finance minister has also announced disinvestment through strategic sales. During the Vajpayee regime we had successfully done so with favorable outcomes. Though it is like rediscovering the wheel, it is a major and significant reform.
I wish the resolve of the government to reduce its stake in the public sector banks to below 50 percent was not restricted merely to IDBI Bank but extended to all the PSU banks. I had introduced a bill to this effect in Parliament when I was finance minister but the bill was effectively blocked by the Congress party. This would have enabled the banks to go to the market and raise funds for their recapitalisation and the amount of Rs 25, 000 that the finance minister has provided for this purpose in the budget could have been usefully spent elsewhere.
I am happy that the FM has shown courage to tax dividends in the hand of the recipient. Though it will apply only to persons receiving dividend in excess of Rs 10 lakh per annum and will be taxed at the rate of 10 percent only, it is a step in the right direction. I would like to warn the FM that he would be under tremendous pressure to withdraw this tax. He should hold his ground.
The rural economy, including agriculture, has received the attention it deserves. So have skill development, ease of doing business and simplification and rationalisation of taxes. The additional expenditure has been managed by raising and rationalising indirect taxes which will put a burden of Rs 20, 670 crore on the people. Tax administration is also sought to be streamlined.
The finance minister has stuck to the fiscal deficit road map he had outlined in his last budget. He is also appointing a committee to suggest a new FRBM Act. Both are steps in the right direction.
I wish he had paid more attention to the problem of stalled projects. There has been some forward movement, no doubt, especially in the road sector but yet projects worth Rs 13 lakh crore are still held up. Their unlocking would not only further add to the demand for investment goods but would also help solve the problem of NPAs in the banking sector.
While I generally welcome the budget I must record my disappointment at the way the issue of irrigation has been dealt with in the budget. The provision made for irrigation, both through budgetary support and market borrowing is Rs 12,517 crore. A further Rs 6,000 crore is supposed to be spent on sustainable management of groundwater resources. In a vast country like India with 54 percent of its arable land still without irrigation this is clearly inadequate. I wish the minister had done more to make a real difference to agriculture.
The author was former union finance minister in the previous National Democratic Alliance government