This has been a progressive and reformist budget, living up to the expectations the people and industry have from this government.
The highlights of the budget are focus on farm sector and rural population, youth, poor & unprivileged segments, development of infrastructure, progress towards an efficient digital ecosystem, and above all prudent fiscal management and tax administration. Apart from providing impetus to the core sectors of agriculture and manufacturing, it also reveals some radical positive measures.
First and foremost is the focus on creating an environment for growth. Significant growth of 25% has been planned in capital expenditure growth. This is expected to attract investments, create growth and employment.
It includes an allocation of almost Rs 4 lakh crores to infrastructure building, which is the need of the hour. Besides, initiation of various metro projects, improvement of railway facilities, and significant allocation of Rs 64000 crores to construction and maintenance of highways. Steps like relaxations in Foreign Direct Investment (FDI) norms and abolition of the Foreign Investment Promotion Board (FIPB), will further promote investments.
Significant steps have been outlined to accelerate the digitalisation of the economy.
Steps to promote the use of the Unified Payment Interface (UPI - there are already 1.25 crore users of BHIM app); and planned introduction of Aadhar Pay will ensure wider digitalisation even among people not having mobile phones. The budget aims at 25 billion digital transactions in FY18 through UPI, USSD, IMPS, debit cards and Aadhar Pay.
The budget also puts severe restrictions on cash transactions of individuals as well as corporates. This digital thrust is encouraging and will lead to efficiency gains and transparency. Particularly, enforcing transparency in funding of political parties through Government of India Electoral Bonds is a revolutionary reform.
The Budget also includes commendable steps for rural development, agricultural development, as well as ensuring participation of underprivileged sections in the growth agenda. For example thrust on affordable housing, farm credit target of Rs 10 lakh crores, total rural electrification of villages within a year, Open-Defecation-free villages getting priority for piped water supply, safe drinking water in rural areas, target to achieve 50% coverage under Pradhan Mantri Fasal Bima Yojana within a year, highest ever allocation to MNREGA of Rs 48000 crore, and dedicated micro-irrigation fund to be set up by NABARD with a corpus of Rs 5000 crore.
On tax reforms, the reduction of the corporate tax for MSMEs to 25% is a welcome move.
The Budget also passes on the benefits of demonetisation to the common man in the form of a reduction in tax rate from 10% to 5% in the income bracket of 2.5 to 5 lakh (though partly subsidised through introduction of 10% surcharge on income from 50 lakh to 1 crore). This puts surplus in the hands of the common man. Simplification of tax forms, and reduction in holding period for capital gain from immovable property from 3 years to 2 years, are welcome steps. Roll out of GST is expected to be on schedule.
Positives for the banking sector include increase in tax relief on Non-Performing Assets (NPA) provisioning, taxation of interest on NPA's on receipt basis instead of accrual basis, and a law on confiscating assets of offenders fleeing the country. However provision of Rs 10000 crore for recapitalisation of banks might be insufficient.
Commendable above all, is the continued commitment to fiscal consolidation without compromising on developmental expenditure. This is largely to be achieved through growth in tax revenues led by better tax administration and compliance. Fiscal deficit target of 3.2% for FY18 is largely in line with expectations, and also stated goal of further reduction to 3% in the following year.
Union Budget 2017 has focused on inclusive growth and efficiency gains, and this is exactly what is required for the country at this stage. On the whole it is a balanced and progressive budget, much in line with the Prime Minister's motto, Sabka Saath, Sabka Vikas.
G Murlidhar is the Managing Director, Kotak Mahindra Old Mutual Life Insurance