Jaitley plans to cut MSME tax rate to 25%

Finance Minister Arun Jaitley is likely to offer additional tax breaks to the salaried class, increase government spending to boost flagging demand and prepare the ground for the launch of basic universal income for some proportion of Indians who live below the poverty line – 172 million at last count – while presenting his fourth budget on February 1.

In the Budget, Mr Jaitley allocated 3.96 trillion rupees for infrastructure, up from 2.12 trillion rupees the year before, even as he halved income tax for those at the bottom of the scale and cut corporate tax for small businesses. The total expenditure in the budget has been placed at Rs21.47 lakh crores – this includes a 25% incremental allocation for capital expenditure y-o-y.

The long-term capital gains tax was left untouched – except for reducing the holding period for immovable property to be considered long term from three years to two.

Fiscal discipline and prudence were the essence of the budget. Approximately half the funds were returned, according to the Economic Times, signifying some difficulty in spending the allocated funds. The government will first run a pilot project in 15 districts during the 2017-18 fiscal year. The digital infrastructure outlay of Rs 10,000 crore for BharatNet with high speed fibre to reach 1,50,000 villages in 2017 will reduce the digital inequity or gap between rural and urban India, throwing more educational and skill development for rural students.

Jaitley called India “an engine of global growth”, but highlighted risks to its outlook from likely U.S. interest-rate hikes, rising oil prices and signs that globalization is in retreat.

The Budget unveiled yesterday represented an effort to win the support of voters by blunting the negative impact of the government’s controversial move previous year to get rid of black money by demonetising high-value currency, say analysts.

Jaitley said India had undergone “historic reform” over the past year, but remained an “engine of global growth”.

That is below the target rate of 8 percent or more that Modi needs to create enough jobs for the one million young Indians who enter the workforce each month.

The budget has said that central government will provide seed capital with the Railways arranging the balance resources from their own revenues and other sources. “The aim of the Government is to double the income of farmers”, he added.

A few significant places where the budget fails to get a flawless score is its inability to do much for the weak state of bank finances or any significant moves to trigger big ticket investments. The second was the proposed abolishment of the Foreign Investment Promotion Board (FIPB) and further streamlining the process through which foreign direct investment is made in the country. Another positive move is the effort to improve the ease of doing business. Private economists expect Jaitley to plan a federal fiscal deficit of 3.3-3.4 percent of gross domestic product (GDP) for 2017/18. Jaitley is leaving room to exceed it at a later time. The agricultural sector is expected to grow at 4.1% this fiscal and they have been lent the necessary support for true development to take place through the larger target for agri credit of Rs 10 lakh crore this year, the Fasal Bima Yojana coverage increased by 40% and the micro irrigation fund – all of which are extremely well timed and expected to strengthen the agri economy.

Political parties are not going to lose sleep over this. That would create space to invest an extra $6 billion, but would be anathema to ratings agencies concerned that India’s high national debt exposes it to shocks, such as a possible spike in oil prices.