With eye on 2019 polls, FM announces sops for farmers and common man but targets markets
The government is likely to make an expenditure of Rs 4,000 crore on this. The finance minister called it the world’s largest health scheme
In his last full budget before general elections in 2019, Finance Minister Arun Jaitley raised long-term capital gains (LTCG) tax to 10 per cent from zero at present, reduced corporate tax for 99 per cent of the companies to 25 per cent but left the tax structure for individuals largely unchanged.
The finance minister's focus was on rural india and agriculture, perhaps with an eye on electoral gains for the ruling party at the centre next year, announcing a number of schemes and incentives. For the Kharif agricultural output, the minister increased the minimum support price to one and half times of production cost, raising institutional farm credit to Rs 11 lakh crore in 2018-19 from Rs 8.5 lakh crore. His speech also focused on education and healthcare.
The finance minister indicated a slippage in fiscal deficit for the current year from 3.2 per cent to 3.5 per cent and from 3 per cent to 3.3 per cent (Rs 5.95 lakh crore) of the GDP next year, indicating the government will be borrowing more to balance its books.
"In order to impart unquestionable credibility to the government's commitment for the revised fiscal glide path, I am proposing to accept key recommendations of the Fiscal Reform and Budget Management Committee relating to adoption of the Debt Rule and to bring down Central Government's Debt to GDP ratio to 40 per cent," he said.
The government announced a health coverage called National Health Protection Service of upto Rs 5 lakh per family in secondary and tertiary treatments, which is expcted to cover 10 crore poor families. The government is likely to make an expenditure of Rs 4,000 crore on this. The finance minister called it the world's largest health scheme.
To pay for the social welfare schemes, the government has imposed Social Welfare Surcharge at the rate of 10 per cent on aggregate customs duties. The Surcharge replaces the earlier Education Cess and and Secondary and Higher Education Cess.
The stock markets reacted sharply initially, later recovering, to impostion of long term capital gains on shares held beyond one year exceeding Rs 1 lakh in value, which was exempted so far. However, shares bought earlier, but sold by July-end this year would be "grandfathered" where 20 per cent of the gains (upto January 31) would be exempted, beyond which the 10 per cent clause would kick in.
There will be no indexation and there's no change in the short-term capital gains tax of 15 per cent. The total amount exempted under capital gains, according to the minister, was Rs 3,67,000 crore. The government, therefore, may gain over Rs 36,000 crore from this one measure.
Jaitley also imposed a 10 per cent dividend distribution tax on mutual fund companies which invest in equities.
Individual tax payers were allowed a standard deduction of Rs 40,000 in lieu of the present exemption in respect of transport allowance and reimbursement of miscellaneous medical expenses. Also, interest on deposits with banks has been increased from Rs 10,000 to Rs 50,000 and money spend on health insurance premium exempted from tax raised to Rs 50,000 from Rs 30,000. Cess on personal income tax, though, was increased from three to four per cent, thus raising Rs 11,000 crore for the government from individual tax payers. It will now be called Health and Education Cess.
In his one hour 45 minutes long speech, the finance minister spoke in English but delivered large tracts in Hindi, unlike earlier finance ministers who briefly peppered their speeches with poems or couplets in hindi.
The government has set a target of Rs 80,000 crore divestment target for 2018-19, the finance minister said adding that target for 2018-19 had exceed the target of Rs 72,500 crore and would touch Rs 1 lakh crore. Despite that, he did keep his aim low for the next year. He announced that the three public sector insurance companies would be merged. The merged entity is expected to be listed at some stage.
In keeping with his earlier announcement of reducing corporate taxation rate to 25 per cent, the finance minister made the change for companies with turnover of upto Rs 250 crore, up from Rs 50 crore announced during his last year budget speech. He said this would take care of almost 99 per cent of the companies and would have an impact of Rs 7,000 crore on government finances. Only about 250 companies would have a turnover above the cut-off level. An ID on lines of Aadhaar would also be set up for companies.
Jaitley also proposed to increase customs duty on mobile phones from 15 per cent to 20 per cent, on some of their parts and accessories to 15 per cent and on certain parts of TVs to 15 per cent. "This measure will promote creation of more jobs in the country," he said.
The minister started his speech by reading out the achievments made by the government led by Prime Minister Narendra Modi and was optimistic about the path taken by the country. "We are now a $ 2.5 trillion economy, and we are firmly on path to achieve 8 per cent plus growth soon," Jaitley said. "We hope to grow at 7.2 per cent to 7.5 per cent in the second half of 2017-18."
"Our exports are expected to grow at about 15 per cent in 2017-18," he added.
Talking about rural infrastructure, he said in 2018-19, for creation of livelihood and infrastructure in rural areas, total amount to be spent by the ministries would be Rs 14.34 lakh crore, including extra-budgetary and non-budgetary resources of Rs 11.98 lakh crore. Overall, Rs 5.97 lakh crore was allocated for infrastructre.
"Apart from employment due to farming activities and self employment, this expenditure will create employment of 321 crore person days, 3.17 lakh kilometers of rural roads, 51 lakh new rural houses, 1.88 crore toilets, and provide 1.75 crore new household electric connections besides boosting agricultural growth."
The minister also announced a Mission on Cyber Physical Systems to be launched by department of science and technology, doubling the allocation on Digital India to Rs 3,073 crore. NITI Aayog was asked to initiate a national programme on artificial intelligence. Five lakh WiFi hotspots are planned to be set up.