FM presents growth budget, but lack of big reforms makes it miss the wow factor

Finance Minister Arun Jaitley presented what can be termed as a growth oriented realistic Budget with something for almost everyone, promising to cut corporate tax, providing exemptions to individual taxpayers, igniting infrastructure investments and tax clarity for foreign investors. However, by revising upwards the fiscal deficit target for the coming year and skipping past much anticipated reforms in areas like labour laws and slashing subsidies, the FM missed hitting the bull's-eye.

Not surprisingly, the stock markets which were trading in the positive zone at the beginning of his speech, turned into the red later in the day. It later swung back and the 30-stock benchmark was up around 0.7 per cent to 29,430 level.

Notably, all key pet projects of the Narendra Modi-led government, be it Make in India, Digital India, Smart Cities and so on received short shrift in the Budget. Earlier, the Rail Budget had just made a passing mention on the ambitious and headline grabbing Bullet Train project.

Jaitley acknowledged that expectations of this Budget have been high. Referring to the caricature of Indian economy being an elephant, he said that 'an elephant moves slowly but surely'.

Among the major decisions related to business, Jaitley provided a roadmap to cut corporate tax rates (one of the highest among developing nations) in the country while doing away with exemptions (which leads to litigations and revenue loss) at the same time. He said he proposes to reduce corporate tax rate from 30 per cent to 25 per cent over the next four years.

“This will lead to higher level of investment, higher growth and more jobs,” he said adding that he intended to implement it immediately but wants to avoid sudden surprises and instability in tax policy hence it would start only next financial year.

The FM also made the much awaited clarification of tax pass-through status of all venture capital and private equity funds, proposed to modify the Permanent Establishment (PE) norms for fund managers.

He also stuck to the expected lines and deferred the implementation of GAAR by two years while setting a new deadline to have the much awaited GST up and running by April 1, 2016.

On the flip side, he pulled a surprise by raising service tax rate to 14 per cent. This is puzzling as under GST the taxations structure is supposed to converge to a single rate but with a marginal rationalisation of excise duty to 12.5 per cent and rise in service tax rate, the tax policy is not exactly in tune with the declared objectives.

Jaitley talked tough on curbing flow of black money both stashed abroad and involving domestic transactions and said the government is bringing new laws to tackle it, especially in the real estate sector.

The FM did talk of reinvigorating infrastructure spends with a National Investment and Infrastructure Fund (NIIF), setting up five new large power projects which would absorb Rs 1 lakh crore investment and around 25 per cent jump in planned capital expenditure by PSUs.

He sought to support the government's much touted Make in India campaign not through any major sops or schemes for the manufacturing sector but by tweaking excise and customs duty structures to make for lower cost inputs for domestic producers and lower production tax to boost their demand.

Although Jaitley did not take a tough stance on cutting down subsidies which could have allowed him to meet the previous projected fiscal deficit targets, he promised subsidy rationalisation by banking upon the Direct Benefit Transfer scheme.

With the lack of big moves to cut subsidies, the fiscal deficit target for the coming year now stands revised to 3.9 per cent as against expectations of 3.6 per cent previously. The FM said he is now targeting 3.5 per cent deficit in 2016-17 and 3 per cent in 2017-18. He did stick to the current year target of 4.1 per cent.

The minister also said that the government would engage in further divestment of the under-performing assets and strategic dilution of stake in other firms to meet its fiscal targets.

While the Budget undershot its expected trajectory of being big on reforms in a year which is not scheduled to see many states going to elect new assemblies, experts see this is to be in line with what Suresh Prabhu brought out in the Rail Budget two days ago, a fix-the-problems Budget, in short. Those bullish on the Indian economy can take heart from the fact that it had several, if not fifty, shades of pro-business and pro-investors measures.

(Edited by Joby Puthuparampil Johnson)

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