When Finance Minister Arun Jaitley rose to present the budget for the financial year 2016-17 on Monday, he was embarking on the most difficult exercise of his tenure so far. The government had already painted a gloomy picture of the global economy in the Economy Survey and Jaitley sought to portray that India is still doing well, if not well enough as promised.
The budget was a test of the Bharatiya Janata Party-led government which faces both economic and political challenges over recent events amidst global economic slowdown, as trade has contracted and engines of economic growth are slowing down.
Jaitley claimed that his government has done its job well.
While the budget portends tougher economic environment in the coming years and an even bigger challenge for India to maintain its growth targets, Jaitley’s budget had some interesting takeaways. While the government is now planning to rationalise and target subsidies to the poor better by increasing the burden on the rich, it is also trying to increase spending on public welfare through its own kitty.
To borrow from Prime Minister Narendra Modi’s habit of using abbreviations, the budget’s formula seems to be of 3Rs: Reforms for legislations, Restructuring of schemes and Rationalisation of subsidies.
Here are the key takeaways that stood out from the budget:
A cesspool
While the government received mixed reactions for its Swachh Bharat Cess introduced last year, it didn’t shy away from introducing another one in the current budget. This time, an agricultural cess called the Krishi Kalyan Cess at the rate of 0.5% will be levied on all taxable services from June 1, 2016. The tax proceeds will be used for initiatives in agriculture and welfare of the farmers.
Meanwhile, an additional infrastructural cess has been levied in view of the mounting pollution and traffic problems in Indian cities. The cess will be charged at the rate of 1% on small cars which run on petrol, CNG or LPG, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles and SUVs.
Further, the Clean Energy Cess on coal has been renamed Clean Environment Cess and its rate has been increased from Rs 200 per tonne to Rs 400 per tonne.
However, Jaitley also said that he will abolish 13 existing cesses levied by various ministries in which revenue collection is less than Rs 50 crores a year.
Fiscal deficit targets
Jaitley faced a tough choice between fiscal consolidation by keeping government expenditures in check or improving public spending and investment to boost growth. He chose the former and struck to fiscal deficit targets of 3.9% in the current year and aimed to bring the deficit down to 3.5% in the coming financial year.
“I have weighed the policy options and decided that prudence lies in adhering to the fiscal targets,” he said in his speech. “While doing so, I have ensured that the development agenda has not been compromised.”
This was evident from the fact that the Plan Expenditure was increased by more than 15% to Rs 5.5 lakh crore. This may not be such a bad thing for Modi’s vision of cooperative federalism given that the states are now set to get an additional Rs 99,861 crore from the budgetary resources.
Boosting rural economy – one cylinder at a time
The theme of the current budget can be summed up in two words: rural economy. While Jaitley announced a slew of measures and increments in allocations to schemes for farmers ranging from procurement, selling of food grains to crop insurance, he made it a point to include women in his agenda for growth – and he aimed to achieve it by providing them LPG cylinders.
For this, Rs 2000 crores have been allocated for a national mission to bear the cost of providing LPG connections to about 1.5 crore households below poverty line in the upcoming year. Interestingly, these connections will be provided in the name of women members of the households.
“This measure will empower women and protect their health,” he said while thanking the 75 lakh households who gave up their LPG subsidies. “It will reduce drudgery and the time spent on cooking. It will also provide employment for rural youth in the supply chain of cooking gas.”
Unanswered questions on defence and pay commission
While Jaitley attempted to touch upon nine broad pillars of the economy ranging from infrastructure to health and education, he dodged the big question about the impact of the seventh pay commission which has recommended an increase of salaries of government employees by about 23.5%.
He didn’t put forward a figure for the pay commission burden and only mentioned that it will put excessive burden on the finances next year. Additionally, he said that implementation of One Rank One Pension for army personnel will also add to the burden.
However, there was no mention of the defence budget in his speech though the financial statement said that the capital account expenditure on defence has been reduced this year to Rs 86,340 crore from Rs 94,588 crore budgeted for 2015-16 last year. The revenue expenditure on defence services, on the other hand, has been increased from Rs 1.58 lakh crore budgeted last year to Rs 1.69 lakh crore for the upcoming year.
Rs 200 crores for birthday celebrations
Interestingly, the finance minister once again allocated a substantial sum of money to celebrate birthdays of historical figures. Rs 100 crores each will be disbursed to observe Deen Dayal Upadhyay’s birthday and Guru Gobind Singh’s 300th birth anniversary.
It is not the first time that the “great nationalist” Upadhyay’s birthday has found mention in the budget as the government last year too announced a committee to celebrate his birth anniversary while it didn’t name a figure for the allocation.