In the run-up to its first full budget, it was clear the rendra Modi government was feeling good about the country’s economy. This came out in the Economic Survey presented by Fince minister Arun Jaitley in Parliament where it was said that ‘India has reached a sweet spot and there is a scope for Big Bang reforms now.’ Anticipating a return to double-digit economic growth, the report forecast that the country’s Gross Domestic Product (GDP) will grow at 8.1-8.5 per cent in the next fincial year. The growth rate is already 7.4 percent this year, inflation is moving down to 5-5.5 percent, the government is getting a much-needed windfall from falling oil prices, the foreign funds inflow and foreign exchange reserve positions are healthy, and it is likely that the fiscal deficit will be limited within the targeted 4.1 percent of GDP in 2014-15. Having led the BJP to a landslide win, rendra Modi had a strong mandate to take his reform agenda forward. He lost some steam with the interim budget last year, and seemed eager to make amends with this full budget. The general consensus is that General Budget 2015-16 is growth-oriented as well as inclusive. It seeks to spark an investment-led boom by hiking infrastructure spending substantially, making the tax system fairer and more predictable, and putting in place some market reform measures. But it did not go all out on ‘big bang’ structural reforms, leaving major welfare schemes untouched. Reaffirming its commitment to ratiolise subsidies by plugging leakages, it has only cut fuel subsidies. However, this budget has kept the Prime Minister’s word of getting tough with black money stashed abroad by proposing a new law and stiff pelties.
What Jaitley’s budget offers this year is a glimpse into the NDA government’s economic roadmap in the medium term. This involves more public spending to drive growth, going a bit slower in bridging deficits, and raising additiol resources through measures like selling gold bonds and shares in public sector firms. Aiming to spur investment and create more jobs, the budget proposes to slash corporate tax from 30 to 25 per cent, ratiolise the capital gains tax regime as well as cut wealth tax, and further streamline the regulatory process of doing business in India. The 2 per cent increase in surcharge on rich people earning above Rs 1 crore is welcome. However, introduction of the much-talked-about goods and services tax (GST) has been pushed to April next year. A direct tax regime, intertiolly competitive on rates without exemptions — remains a fondly expressed hope in this budget. Jaitley also hopes that if revenue improves, budgeted allocations for rural job scheme will be hiked by Rs 5,000 crores in 2015/16. Proposing to pump Rs 70,000 crore in the infrastructure sector to bring it up to India’s growth ambitions, Jaitley announced a tiol investment and infrastructure fund and tax-free infrastructure bonds to raise funds for roads, rail and irrigation projects. Five new ultra-mega power projects of 4,000 MW capacity each, building additiol 100,000 kms of roadway, corporatising public sector ports, revitalising public private partnership (PPP) mode to develop infrastructure — are some other major infrastucture proposals.
The rendra Modi government can ill afford to ignore social security, which was the plank that brought UPA to power in 2004 in Atal Behari Vajpayee’s ‘Shining India’. That lesson has been further driven home by the AAP storming the Delhi citadel this year, encouraging left-of-centre forces to think of joining forces in the near future. Most of India’s population continues to remain without health, accident or life insurance cover. Jaitley has announced plans for a universal social security system that will give the poor access to subsidised insurance and pension. The government will pay half the premium in Atal Pension Yoja, the Prime Minister Jeevan Jyoti Bima Yoja will provide an insurance cover of Rs 3 lakh with a premium of Rs 330 per year, and the Pradhan Mantri Suraksha Bima Yoj will cover accidental death risk by paying Rs 2 lakh for a premium of just Rs 12 per year. The Aadhaar system and Jan Dhan Yoja bank accounts will be linked to these schemes for the poor. As for the middle class and the salaried, there are no tax breaks in this budget apart from the raising of health insurance premium deduction to Rs. 25,000 and transport allowance to Rs. 1,600 per month. The tax incentive limit for investment in pension funds has been raised to Rs. 1.5 lakh, encouraging the salaried to save more for their retirement. However, the hike in service tax and education cess will make most services costlier. To give a push to the Prime Minister’s ‘Make In India’ initiative, Jaitley has slashed customs duty on a range of imported raw materials and production inputs, to give a fillip to domestic manufacturing. Overall, the Fince minister has tried to take the corporate sector, the middle class and the poor along in his efforts to present a balanced budget. The rendra Modi government has much to do to fulfill its promises of sustaible poverty elimition, job creation, and durable economic growth.