On Budget Day, I felt a lot of compassion for Finance Minister Arun Jaitley as I saw him go through the difficulty a father goes through while allocating his limited resources to the varying needs and aspirations of family members without compromising fiscal discipline. The FM has to balance the varying needs of the India Undivided Family (IUF) -- long-term growth and short-term stimulus, growth and fiscal discipline, tax rates and subsidies/social welfare, and regulations and ease of doing business. This is by no means an easy task and the finance minister has once again done a commendable job. Let me explain why I say this.
Instead of falling to the temptation of coming up with a populist budget, given that five states are going to assembly polls later this month, the budget was consistent with the government’s focus over the last two years on fundamental growth, rather than subsidies and loan waivers. It focused on increasing rural incomes and boosting infrastructure, besides ushering in long-pending reforms in the financial sector.
The budget also provided for an additional Rs.20,000 crores for the long-term irrigation fund under NABARD. The total allocations to rural, farm, and allied sectors saw a whopping 24 percent hike in outlay at over Rs 1,87,000 crore. Increased fund allocation to crop insurance and better access to irrigation and agricultural credit will help tackle the distress in rural India and give it a much needed push. The investment in creating infrastructure, which can have a multiplier effect, got a strong boost in this budget.
The Finance Minister also continued his focus on the poor, underprivileged and education through many schemes announced as part of the budget. The impetus given to affordable housing by according it the status of an ‘Infrastructure Industry’ and increasing the area eligible for affordable housing, along with the fiscal incentives announced by the Prime Minister at the end of last year, are steps in the right direction, which would ensure that more people in the country can afford to buy their own homes.
The budget also makes clear the intention of the Government to fight black money and digitize the economy. Limiting the amount of cash per transaction to Rs. 3 lakh, reducing the limit of cash donations to trusts / political parties to Rs. 2,000 per person, and coming up with an innovative way of funding political parties (electoral bonds) are all excellent initiatives. The implementation, though, needs to be watched.
The budget also talked about concessional tax rates being provided to those moving toward non-cash payment mechanisms, and making it mandatory for many Government transactions to move to digital, which again are important steps in this direction. The reduction of personal income tax at the lowest slab to 5 percent is more a gesture of goodwill for those who bore the pain of demonetization, rather than a big reward.
The one area, in which the Government has been moving rather slowly is corporate taxes. While the minister’s roadmap in the FY-2015 budget promised to reduce the corporate tax rate to 25% within four years, even after three years, the tax rate for large corporates has remained almost the same or marginally higher (with exemptions being withdrawn).
While one had expected some reduction this year, the reduction was restricted to small and medium sized companies only. Coupled with this, the Minimum Alternate Tax (MAT), which is already at a high of 20 percent did not see any change in this budget. Surely, the extension of the time period for carrying forward MAT credit to 15 years, from 10 years, would benefit some large corporates, however, some reduction in the MAT rate would have been useful for a big set of large companies.
The merging of the Railway Budget with the general budget was done seamlessly and was touted as a historic move, ridding us of the colonial era practice of separate budgets. In a difficult year, represented by growing global uncertainties, lower economic growth at home and increasing oil and commodity prices, the finance minister has done a great job of sticking to the fundamentals and doing what is good for the economy, rather than for the vote bank.
While avoiding populist measures and focusing on investment activities that have a multiplier effect, he has also tried to garner additional resources through higher tax compliance, rather than higher tax rates. In fact, contrary to popular expectation, the definition of long term capital gains for property transactions was brought down to two years from three years.
When one reads the Economic Survey and Budget proposals together, the intentions of the government to guide the country onto the path of inclusive growth are clear. While there will always be some misses and hits in the budget, this is not the time to question, but the time to believe – after all, the Government has shown the political will to fight corruption and black money, which have become strong appendages of our economy.
(The writer is CFO, Mahindra Group)
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Updated Date: Feb 02, 2017 13:16 PM