Finance Minister Arun Jaitley on Monday unveiled a Union Budget worth Rs 19.78 lakh crore in Parliament, which aimed to cut fiscal deficit and focussed heavily on the rural and infrastructure sectors. Jaitley called Asia’s third-largest economy a bright spot at a time of a global slowdown, and reiterated that it would grow by 7.6% in the 2015-16 fiscal.
“Prudence lies in adhering to fiscal targets,” Jaitley told Parliament, as he opted to keep the fiscal deficit at 3.5% of GDP in 2016-17, down from the estimation of 3.9% for the current fiscal. The finance minister then announced what he called a “transformative agenda” to double the income of farmers by 2022, with the government setting aside as much as Rs 87,765 crore for rural development.
The budget also hiked public investment in infrastructure by 22.5%, while taking further steps to revive corporate investment to boost job creation. Jaitley promised to spend Rs 2.18 lakh crore on roads, highways and rail, and a further Rs 25,000 crore on recapitalising public sector banks that have been crippled by bad loans.
Jaitley announced that the personal tax slabs would remain unchanged, and presented a series of tough breaks for the rich in the form of surcharges and taxes on luxury goods. He added that the net revenue generation through taxes will be Rs 19,610 crore. However, the Financial Times reported that investors were unimpressed by the lack of bold economic reforms, with the stock market also crashing during Jaitley's speech.
Here's how the markets, the government, the Opposition and analysts reacted to the budget:
Markets and rupee:
The Bombay Stock Exchange Sensex ended the day 152 points lower at 23,002 after initially crashing by more than 650 points when Jaitley was announcing the Centre's tax proposals. The National Stock Exchange Nifty also settled below the 7,000-mark. This is the eighth time in the last 10 years that the markets have suffered losses on budget day, reported PTI.
The Sensex has fallen by 6,359.50 points, or 21.65%, and the Nifty by 1,914.80 points, or 21.51%, since the last budget. A senior Finance Ministry official told PTI that the budget can not be dictated by the markets. The Indian rupee, however, ended stronger against the US dollar, trading at Rs 68.42. The sterling pound also finished lower at Rs 94.86 at the close of the Interbank Foreign Exchange market.
Shares of automobile companies fell by up to 4.88% after Jaitley proposed to levy an infrastructure cess of up to 4% on various categories of vehicles. Maruti Suzuki, Tata Motors and Mahinda & Mahindra were the major losers. Tobacco companies, led by ITC, also plunged by up to 8%, as excise duty on tobacco products other than beedis was raised by about 10-15% in the budget.
The prime minister and the government:
Prime Minister Narendra Modi said the budget is pro-village, pro-poor and pro-farmers, with a focus on bringing about qualitative change in the country and alleviate poverty in a time-bound manner, reported PTI. He said special attention has been paid to agriculture, village infrastructure, healthcare, employment generation and Dalit entrepreneurship.
Noting that electricity and roads are crucial for villages, the prime minister said all villages of the country will be connected by roads by 2019, while all of them will be electrified by 2018. He also highlighted the fact that the Mahatma Gandhi National Rural Employment Guarantee Act has got its highest ever allocation of Rs 38,500 crore.
Modi said every common man dreams of owning a house, and his government is taking efforts to strengthen the housing sector. He added that tax exemptions have been given to those living in rented accommodations. Noting the Rs 2,000 crore allocated towards a mission to provide LPG cylinders to 1.5 crore households below the poverty line, Modi said, "Crores of such people will benefit through the scheme for free LPG connections. It will not only be beneficial for their health but also save the environment."
The prime minister also said the budget lays thrust on national security by having provisions for boosting defence manufacturing and providing the armed forces with modern and potent equipment. The ruling Bharatiya Janata Party also hailed the budget as "historic".
It came as no surprise when opposition parties, led by the Congress, dismissed the budget. Congress vice-president Rahul Gandhi said the budget's "mere rhetoric", without vision or action, will fool neither farmers nor the country's poor. Former Prime Minister Manmohan Singh said it was a "nit-picking" budget. Former finance minister and Congress leader P Chidambaram said one big takeaway from the budget is that "there is no new idea", adding that it "was expected to be political and I am not surprised".
Communist Party of India (Marxist) general secretary Sitaram Yechury said the budget was full of "hollow promises" and will burden the common man, who will feel the pinch of the hike in indirect taxes. "The finance minister says the budget is about fulfilling desires and dreams, but it has no vision. The dead certainty from it is of a shrinking economy," he said.
Aam Aadmi Party chief Arvind Kejriwal tweeted, "There is nothing for [the] middle class in this budget. [The] Modi government [has] cheated [the] middle class, which votes for them."
Credit rating agency Standard & Poor's welcomed the budget in general, but said the proposals on the fiscal side show only limited progress. It ruled out making any changes in its rating outlook on the country in next two years. S&P credit analyst Kyran Curry said, "[The] budget has made limited progress in fiscal consolidation and it only modestly reduces the vulnerabilities associated with the low per capita income and weak public finances."
Curry added that the budget highlights the government's commitment to encourage investment in manufacturing and infrastructure, and to bolster rural demand through welfare programs, while containing the fiscal deficit.