The Union Budget for 2016-17 presented the finance minister, Arun Jaitely on February 29, 2016 carries the imprint of prime minister Modi’s unflinching and genuine commitment to ameliorate the conditions of millions of poor – engaged in farming and other occupations – by creating all right conditions to enable them do productive work and earn good income. Driven by latter’s pledge to double farmers income by 2022 [75th year of Independence], the former has unveiled a plethora of initiatives/steps to bring about a structural transformation in the way farming is conducted and agricultural produce is marketed.
Boost to farmers income & rural employment
The measures that will enhance farmer’s capability to increase yield include a mammoth capital spend of Rs 86,500 crores over 5 years to complete 89 stuck irrigation projects [of these, 23 to be commissioned by March, 2017]; using a large portion of an all time high allocation of Rs 38,500 crores under MGNREGA [Mahatma Gandhi National Rural Employment Guarantee Act] for digging 500,000 farm ponds and wells for conserving/storing water; issue of soil health cards [SHC] to all 140 million farmers to guide them apply nutrients as per soil needs; increase in credit availability to a record Rs 900,000 crores with provision of Rs 15,000 crores towards interest subvention; over 140% increase in allocation for agriculture and allied activities to Rs 36,000 crores and kick-starting Prime Minister’s Fasal Bima Yojna [PMFBY] with an allocation of Rs 5500 crore.
Food procurement & marketing reforms
The increase in agricultural output by itself has no meaning unless the farmer is able to sell in time and fetch a remunerative price. Modi – government has gone whole hog in ensuring this. The steps in this direction include massive spend of about Rs 27,000 crores to build rural roads to connect 65,000 new habitants; extending decentralized procurement of food to all remaining states for an all-India footprint and putting all centralized procurement by Food Corporation of India [FCI] on e-platform to bring transparency and certainty in purchases [as this will store all data on how much each farmer has to offer]; setting up of an integrated e-national market integrating over 500 mandis/market yards enabling seamless trading of produce in any part of the country [all states who have not amended APMC [agriculture produce marketing committee] Act have been requested to do so].
100% FDI in ‘food-processing’
At present, humongous quantities of agriculture produce particularly fruits and vegetables valued at about Rs 100,000 crores is wasted annually due to lack proper storage/refrigeration, handling and transportation facilities. In this backdrop, the government has announced a revolutionary decision to permit 100% FDI [foreign direct investment] in food-processing subject to approval by Foreign Investment Promotion Board [FIPB] which will give a boost to required investment in cold chain infrastructure and thus avoid these unconscionable wastage.
Propping up ‘job creators’
Budget’s focus is also on generating employment through innovative routes. In tune with Modi’s philosophy of youth becoming job creators, Jaitely has proposed that each of 125,000 branches of public sector banks [PSBs] will finance potential entrepreneur – one each from SC/ST/backward and woman – to create a total of 250,000 entrepreneurs; further boost to supply of credit to self-employed under PM Mudra Yojna [under it, a vendor/artisan/plumber/electrician etc can get loan from Rs 50,000/- to Rs 1 million] to Rs 180,000 crores during 2016-17 [up from over Rs 100,000 crores during the current year] and fiscal incentives to “start-ups” viz., 100% tax holiday on profits for first 3 years of project commencement.
Village panchayats/local bodies ‘financially’ empowered
Jaitely has also given to village panchyats and other local governance bodies such as municipal corporations a whopping Rs 287,000 crores as per the recommendations of 14th Finance Commission. The local bodies can utilize these funds for undertaking development activities in a wide range to give a boost to employment and incomes. The state governments can work with them to complement each other and maximize “synergetic” effect.
Big boost to national highways & roads
The infrastructure especially rail, road etc is the backbone of the economy. Its development not only provides direct employment but also creates a huge indirect impact on the economy. The budget gives it a big boost by providing for total capital spend of Rs 70,000 crores for highways including budget support Rs 55,000 crores and Rs 15,000 crores worth bonds to be issued by NHAI [National Highway Authority of India] besides Rs 27,000 crores on rural roads. Together with Rs 121,000 crores investment in rails, this adds up to Rs 218,000 crores. Besides, unclogging of 70 projects worth Rs 100,000 crores for a length of 8300 km [via speeding up environment and land clearances] is commendable.
Social infrastructure
The government has also given required attention to social infrastructure viz., education, health, housing etc. In health sector, coming on top of PM Suraksha Bima Yojna [PMSBY] launched last year [it provides Rs 200,000/- accident cover for just Re one per month], it has announced a new health protection scheme for health cover up to Rs 100,000/- per family. Senior citizens will get additional healthcare cover of Rs 30,000 under the scheme. In education, a Digital literacy scheme will be launched to cover 60 million additional rural households and entrepreneurship training across schools/colleges through massive online courses. Under PM Kaushal Vikas Yojna [PMKVY], 10 million youth will be skilled in 3 years. In housing, a number of fiscal incentives have been provided to a give a boost to affordable housing.
Relief for salaried class at lower end
For those outside agriculture and rural sector, there exists a perception that they have got nothing. This is a myth. The main focus of budget being on building infrastructure and generating demand, this will automatically yield benefits for every class. Still, even as FM has not tinkered with tax rates – in both income and corporate segments – he has definitely addressed some areas requiring prop up by giving relief to persons earning up to Rs 500,000 per annum [available tax deduction for this slab has been increased from Rs 2000 to Rs 5000] and those living in rented accommodation [deduction for these persons is up from Rs 24,000 to Rs 60,000].
Corporate tax – big incentive for new projects
For the corporate sector, keeping his commitment in 2015-16 budget, Jaitely has laid a road-map for withdrawing various exemptions but making sure that none is withdrawn prematurely where the original scheme had a definite sun-set clause. However, any new exemption will have a clear-cut sun set. As regards reduction in corporate tax, for any new project set up after April, 2016, 25% rate will be applicable. Besides, companies with turnover less than Rs 5 crore will be taxed at 29% plus surcharge. The calibrated and guarded approach to reduction in tax rate has to be viewed in the light of extant exemptions slated to end at different points of time.
Retrospective taxation – one-time dispute resolution
Reinforcing the government’s credentials as providing a non-adversarial tax regime and dead against retrospective taxes, Jaitely has offered a one-time dispute resolution to all those companies on whom demands are already pending under the 2012 amendment by erstwhile UPA dispensation. The offer requiring them to only pay tax [sans interest and penalty] could not have been better. He has also offered such window to hundreds of thousands of other cases which are under appeal. Yet another metaphorical decision that will give a boost to small businesses is a decision to cover those with turn-over less than Rs 20 million under ‘presumptive’ tax [the extant threshold was Rs 10 million]. Likewise, for professionals earning up to a ceiling of Rs 5 million, the benefit of presumptive tax will be available.
Unearthing ‘domestic’ black money
Modi’s relentless fight against black money resonates even in 2016-17 budget. Undeterred by somewhat disappointing outcome of a scheme brought in last year [July-September, 2015] to bring back black money stashed abroad, Jaitely this time has announced a scheme to nab un-declared domestic income. Under a 4 month window [June-September, 2016], persons declaring their such income will be charged in addition to 30% tax, 7.5% sur-charge plus 7.5% penalty adding to a total tax of 45%. While, this will put additional resources in government’s kitty, honest tax payers should have no reason to feel discriminated as dodgers will be taxed at much higher rate than even the maximum marginal rate.
Recapitalization of public sector banks [PSBs]
In the backdrop of mounting non-performing assets [NPAs] of public sector banks [PSBs] and RBI’s directive to provide for full provisioning, FM has allocated Rs 25,000 crores towards their re-capitalization as part of plan to infuse a total of Rs 70,000 crores over 4 years. While, experts feel this is inadequate, he has promised more as and when needed. At the same time, he has promised a slew of measures including Bankruptcy Code to recover the money from the defaulters. The outcome of this will be known with time. Meanwhile, the government has ruled out reducing its holding in PSBs to below 50% [sans IDBI where it is already going ahead with its plans to dilute below 50%].
Divestment of central public sector enterprises [CPSE]
In regard to central public sector enterprises [CPSE], Jaitely has alluded to a comprehensive approach to sale of their assets which would cover inter alia piece-meal divestment of government’s equity, strategic sale [to bring in private sector in management] and even sale of individual assets. An investment commission will be set up to look in to all these aspects. Meanwhile, 2016-17 target for proceeds from divestment at Rs 56,000 crores [including Rs 26,000 crores from strategic sale] looks ambitious keeping in mind past achievements vs target and uncertain market conditions.
Fiscal consolidation on track
Finally, despite continuing with the momentum of investment in agriculture, rural development and infrastructure etc to sustain high growth, the government has stuck to fiscal consolidation road-map. Thus, it has achieved fiscal deficit [FD] of 3.9% for 2015-16 and set it at 3.5% for 2016-17 followed by 3% during 2017-18. However, by announcing a review of the FRBM [Fiscal Responsibility and Budget Management] Act with a view to set FD targets within a range, Jaitely has sounded a discordant note. Perhaps, this may be a pointer to his flirtation with numbers to keep growth on a higher trajectory.
Food & fertilizer subsidy reforms – still a miss
In sum, FM has done a brilliant job in pursuing Modi’s agenda of inclusive growth although he could have used this third budget [still over 3 years away from next general elections] to go for long pending reforms in fertilizers, food, LPG, labour etc. With this big opportunity missed, it is evident that these reforms have been deferred till 2019.
That is not a good omen.