Thursday, June 29 2017 | ASIA TODAY INTERNATIONAL - Reporting the Business that Matters in Asia
Modi budget to help farmers and rural poor
MUMBAI — India's Budget for the 2016-17 fiscal year is aimed at uplifting the farmers and rural poor. The agrarian poor constitute 92 per cent of the population and the ruling party needs their support to win State Assembly elections to be held in 2016 . . .
INDIA’s Finance Minister, Arun Jaitley, has achieved a fine balancing act by making his tax policy in the 2016-17 fiscal budget inclusive, and by giving the biggest relief to small taxpayers.
Jaitley has acted in tandem with India’s Reserve Bank by reducing the fiscal deficit and improving macro stability. He has pursued the path of fiscal consolidation while accelerating growth by lifting Government spending.
His focus on macro stability has helped bring a better performance to India’s equities markets compared to other emerging countries. Against the weakening global economy, India has shown prudent fiscal management, with growth standing at 7.6 per cent.
Voluntary disclosure of unaccounted income, allowed till September 2016, may have good potential to raise revenue. And Jaitley's efforts to clean up India's image on the taxation front are a step forwards in improving India's ease of doing business.
The Government has given a much-needed boost to the rural economy, with Prime Minister Modi expecting the Government's initiatives through adequate and timely flow of credit to farmers to help villagers double their incomes by 2022.
An allocation of Rs9,000,000 million has been made for agricultural credit in fiscal 2017, and infrastructure spending is to be increased by 31 per cent.
Sectors to watch in the next fiscal year are rural consumption, agriculture, telecoms and infrastructure, and food processing.
India's image on the tax front will improve with a reduction in the discretionary powers of tax officers. There will no longer be any retrospective tax levies.
The rich will pay an additional income tax surcharge of three per cent, and an additional tax of 10 per cent will be levied on dividends above Rs1 million.
All cars will be hit by an infrastructure tax ranging up to four per cent, jewellery will bear higher taxes, and the securities transactions tax on options has been tripled.
Jaitley will use these funds to ensure electricity supply to every rural household, a well-constructed road to every village, and cooking gas cylinders to 50 million poor households over the next two years. The bottled gas will come at a cost of Rs800,000 million, but the gas subsidy has been withdrawn for those with an annual income of Rs100,000 and above .
Economics analyst, Swaminathan Aiyar, lauds Jaitley for showing sensitivity to one of India’s most telling health hazards, referred to as “indoor pollution”.
Some 700 million Indians inhale smoke from cooking ”chulahs”, made of clay or stone and fuelled by firewood or dung. Prof Kirk Smith, an authority on smoke hazard, says smoke from an Indian cooking fire is equivalent to smoking 400 cigarettes.
WHO suggests that the smoke kills 1.2 million Indians every year, with the particulate matter 10 times the WHO limit of 2.5 microns. This causes cancer and tuberculosis, and affects 59 per cent of rural lndia, so provision of cooking gas cylinders is of special significance in terms of health care.
A new tax of 0. 5 per cent will be levied on all services to fund agricultural schemes. Loans to small and medium enterprises under the MUDRA (Micro Units Development and Refinance Agency) scheme will expand from 10 million to 18 million borrowers next year, while a record Rs358,000 million will be spent on MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) programmes.
Government spending will emphasise agriculture, rural infrastructure and health.
Another proposed Bill in the Budget will help resolve disputes in infrastructure public-private partnerships, provide guidelines for PPP renegotiation and create a credit rating system that reduces lending risks.
Indian shipping firms are now allowed to claim a 14 per cent service tax credit for transporting goods outside India, making Indian goods more competitive.
The Finance Minister has kept his promise of fiscal consolidation by keeping the fiscal deficit at 3.5 per cent and creating room for the Reserve bank to cut interest rates.
The Budget is seen as a realistic attempt to support growth within the limitations of fiscal constraint, with the imprint of PM Modi apparent in relief to low income groups and greater impetus on affordable housing.
Small taxpayers get the biggest relief, with low income taxpayers earning up to Rs0.5 million getting an additional rebate of Rs3,000. Those earning over Rs10 million now have to pay a 15 per cent surcharge, against 12 per cent last year.
For business, offering a flat 25 per cent tax regime will encourage corporate expansion. Till now, the rate was 30 per cent. There is also a special economic zone tax holiday exemption till 2020.