Union budget – Progressive, pro-poor & youth-oriented

FM lays out blueprint for economic revival, fiscal prudence, infrastructure growth, FDI push and a stable tax regime

The maiden Union Budget of the Narendra Modi-led NDA government presented by Finance Minister Arun Jaitley in Parliament on July 10 has been prepared from a long-term perspective. Laying out a blueprint to revive India’s sluggish economy, it has outlined a slew of measures to achieve fiscal prudence, job creation, FDI push and a stable tax regime as well as to give a major fillip to the infrastructure and manufacturing sector.

Delivering the budget speech, the Finance Minister said his budget aims at a 7-8% growth over the next three-four years, less fiscal deficit and a manageable current account deficit. Towards achieving them, he has chosen fiscal prudence over grand schemes in a bid to nurse public finances, tame inflation and simplify tax laws as he believes that by doing so, growth, investment and jobs will follow.

Emphasizing that the prevailing economic situation presents a tough challenge and there was a need to introduce “fiscal prudence” that will lead to fiscal consolidation and discipline, Jaitley said his government will aim to retain the fiscal deficit target for 2014-15 at 4.1% of GDP and reduce it further to 3.6% in 2015-16 and to 3% by 2016-17. The budget will prefer to lower the fiscal deficit by boosting revenues rather than cutting down on expenditure, he elaborated.

While reviving growth and reining in the fiscal deficit, the budget also nurtures a vision to improve investor sentiment and business climate, boost agriculture and manufacturing sector, generate employment opportunities and meet all the expectations that began to build up since May 16, after it became amply clear that the BJP-led National Democratic Alliance would form the next government with a clear majority. In that sense, the budget can also be termed as youth-oriented, farmer-friendly and pro-poor.

To promote skilling and vocational training among youth and to make them job-ready, the budget has made several announcements. To encourage rural youth to start their own ventures, Jaitley has announced a spending of Rs 100 crore to start village entrepreneurship training schemes. Recognizing the importance of stepping up vocational trainings and bringing it at par with the higher education system, he has announced the ‘Skill India’ programme and allocated an amount of Rs 14,389 crore  for job creation, a huge part of which will hopefully be spent in training the youth.  

The Finance Minister has also proposed setting up of five new Indian Institutes of Technology (IITs) and five Indian Institutes of Management (IIMs) across the country at a cost of Rs 500 crore.

For the farmers, the budget has announced a slew of much-awaited measures. Focus on increasing irrigation facilities, farm markets, financial help to landless farmers and Kisan TV to provide real time information to farmers would help in increasing productivity of the farm sector. Moreover, Haryana has been gifted a horticulture research institute and Jharkhand an agriculture research institute, while Maharashtra will get agri-biotech clusters.

The budget is not only progressive, but it is also pro-poor. It has tried to address the aspirations of almost all sections of the Indian masses, including the downtrodden. Landless farmers will be given cheaper credit, the rural poor have been promised broadband, cheaper TVs and better roads, Dalit-focused schemes have been allocated more money, the middle class have been given tax breaks, the youth got the Skill India and Digital India programs and India’s holiest river will get funds for a clean-up.

Not surprisingly, Narendra Modi has endorsed the budget through a tweet that stated: ‘Finance Minister presented a Budget that is a ray of hope for the poor & downtrodden. It converts people’s hopes & aspirations into trust.’

To give a fillip to the infrastructure and manufacturing sector, a 10-year tax holiday for undertakings that generate and transmit power has been unveiled. Focus on industrial infrastructure such as a plan to establish seven industrial cities in India would enhance industrialization and create employment opportunities in the economy. 

The allocation for urban infrastructure earmarked at Rs 50,000 crore is really appreciable and this would expedite the pace and urbanization in the country and give a massive boost to growth and expand the national economy much faster.

The boost to Real Estate Investment Trusts (REITS) and Infrastructure Investment Trusts is very encouraging news for the real estate and infrastructure markets as it offers innovative and modern tools of investment to Indians. These are all important signals. 

Investment allowance of 15% to the manufacturing companies investing Rs 25 crore in plant and machinery would accelerate capital investments and propel manufacturing growth. Steps undertaken to revive SEZs would help to rejuvenate the investment cycle. Similarly, facilitation to manufacturing units to sell their products through retail and e-commerce would reduce the selling cost and benefit both manufacturers and consumers.

Furthermore, it is also a taxpayer-friendly budget as the income-tax exemption limit has been raised by Rs 50,000 to Rs 2,50,000, the PPF ceiling to Rs 1,50,000, housing loan rebate to Rs 2,00,000, investments under 80C to Rs 1,50,00. In view of this, through appropriate tax planning those drawing a salary up to Rs 6,00,000 can bring down their tax liability to nil.

The Finance Minister has also assured investors that retrospective amendments to tax laws will be undertaken with extreme caution. Promising to set up a high-level CBDT committee to deal with retrospective taxation, Jaitley said all fresh cases arising out of the 2012 Retrospective Amendment to the Income Tax Act, 1961 will be looked into by the committee. However, the existing tax disputes, arising out of the said amendment, and are pending in Courts, will be allowed to reach their logical conclusions, he said.

Speaking about his government’s plan to introduce the Goods and Services Taxes (GST) this year, Jaitley said the GST aims to replace a series of existing taxes such as excise duty, service tax and value added tax (VAT). Revealing that discussions with state governments with regard to GST implementation have been encouraging, he said GST will streamline the tax administration, avoid harassment to businesspersons and also result in higher revenue collection both for the Centre and the States.

The budget also highlights the Union Government’s intention to overhaul the subsidy regime in a bid to ensure that subsidies reach the targeted beneficiaries. While food subsidy for FY15 has been increased to Rs 72,970 crore, the oil subsidy has been retained at Rs 63,427 crore.  Furthermore, there are plans to link the National Rural Employment Guarantee Programme to genuine asset creation and can’t be used to dig and fill up holes and pits as it were. 

Taking into account the fact that our Finance Minister got only 45 days’ time to prioritize his priorities and for drawing up the budget for 2014-15, he has done an excellent job because this budget is undoubtedly very progressive, astute and realistic.

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