New Delhi: Union Finance Minister Arun Jaitley pledged to spend nearly Rs 36,000 crore to double the income of struggling farmers and also boost a rural employment scheme as he unveiled his annual budget on Monday under pressure to balance the much-needed spending with fiscal prudence.
India is now the world's fastest-growing major economy, but years of drought and a failure to create jobs for a burgeoning young population has left millions of rural Indians struggling and led to deadly protests in recent weeks.
Read: Union Budget 2016 highlights: Cheer to small tax payers, those living on rent
Finance Minister Arun Jaitley said India's estimated 120 million farmers were the "backbone of the country's food security" as he pledged to spend 359 billion rupees ($5.2 billion) on the country's vast agriculture sector.
"We need... to give back to our farmers a sense of income security," Jaitley told Parliament as he presented his third budget.
The initiative would increase the income of farmers over the next five years through a series of measures including boosting a crop insurance scheme, increasing access to markets and a massive injection of funding to village councils.
Read: Budget 2016: Jaitley announces 9 pillars for transforming India
"For rural development as a whole I have allocated 877.6 billion rupees ($12.7 billion) in this budget," he added.
That includes a major hike in spending on a rural employment scheme introduced under the last government and a pledge to ensure all the country's villages have electricity within two years.
Jaitley said the government would increase spending on the National Rural Employment Guarantee Scheme, which guarantees 100 days of employment on public works each year for any household that requests it.
He also allocated Rs 15,000 crore for interest subvention on the farm credit, Rs 5,500 crore for the new crop insurance scheme and Rs 500 crore to boost pulses output.
Read: Modi's budget, in policy shift, to focus on rural India: officials
Jaitley said a unified agricultural market would be launched on April 14 and soil health cards will be provided to all 14 crore farmers by March 2017.
Jaitely also allocated a major share to infrastructure that includes Rs 2.21 lakh crore outlay, saying enhanced allocations coupled with reforms and steps will remove obstacles impeding the sector's growth.
Members of the Lok Sabha in Parliament during the Union Budget presentation. (Photo: Video grab)
Presenting Budget for 2016-17 in Parliament, Jaitley said infrastructure is one of the strong pillars of economy and "exemplary" and "proactive" steps by government to remove hurdles resulted in India awarding highest ever road contracts in 2015 as well as highest ever sales of motor vehicles which are clearly "signs of growth".
For the tax payer:
While there has been no change in personal Income Tax slabs, some relief has been given to those who earn below Rs 5 lakh a year. The ceiling of rebate u/s 87A raised to Rs 5,000 from Rs 2,000.
House rent deduction slab has also been raised from Rs 20,000 to Rs 60,000. First-time home buyers will get an additional deduction of Rs 50,000 on interest for loan up to Rs 35 lakh. The cost of the home, however, should not be more than Rs 50 lakh.
Jaitley also hiked the surcharge by 3 per cent on earnings above Rs 1 crore,
levied a pollution cess on petrol, diesel cars and SUVs and offered a one-time compliance window for domestic black money holders slapping a tax and penalty of 45 per cent
Consolidating public sector banks:
Government will also unveil a roadmap for the consolidation of public sector banks (PSBs) which are expected to get an infusion of Rs 25,000 crore next fiscal, Arun Jaitley said today.
Besides, the government may consider bringing down its stake in state-owed IDBI Bank to below 50 per cent. "Our Public Sector Banks will have to be strong and competitive. The Bank Board Bureau will be operationalised during 2016-17 and a roadmap for consolidation of Public Sector Banks will be spelt out," he said. He also added that the process of transformation of IDBI Bank has already started.
What else?
Presenting his third Budget, Finance Minister Arun Jaitley also proposed a 'Krishi Kalyan' cess of 0.5 per cent on all taxable services to improve agriculture and reduction of duties on project imports for cold room for cold chain, refrigerated containers and a number of other items.
Cigarette and tobacco products will become costlier with the hike in excise duty by 10 to 15 per cent.
While the revenue loss on direct taxes will be Rs 1060 crore, his indirect tax proposal will mobilise an additional Rs 20,670 crore. Net revenue gain will be Rs 19,610 crore.
In a bid to shore up the economy hit by global slowdown, the Budget proposes a 15.3 per cent higher expenditure at Rs 19.78 lakh crore in 2016-17, consisting of Rs 5.50 lakh crore under Plan and Rs 14.28 lakh crore under non-plan.
The Budget provides an outlay of Rs 162,759 crore for defence in 2016-17, up by 13 per cent from Rs 143,236 crore in the revised estimates for the current year. Capital expenditure on defence has been put at Rs 86,340 crore against Rs 81,400 crore in the current year's revised estimates.
Interest payment will account of Rs 492,670 crore against Rs 442,620 crore. Subsidies will marginally lower at Rs 250,433 crore as opposed to Rs 257,801 crore in the revised estimates.
In relief to small tax payers, the Budget proposes to raise the ceiling of tax rebate under Section 87(A) from Rs 2000 to Rs 3000 for incomes not exceeding Rs 5 lakh per annum. There are two crore tax payers in this category who would get a relief of Rs 3000 in their tax liability.
Those who do not have house of their own and do not get house rent allowance from employers will get a deduction of Rs 60,000 per year as against existing Rs 24,000. First time home buyers will get a deduction of an additional interest of Rs 50,000 per annum for loan upto Rs 35 lakh, during 2016-17, provided the house value does not exceed Rs 50 lakh.
After pursuing blackmoney abroad, Jaitley today offered a limited period compliance window for domestic holders of unaccounted income and assets to declared their undisclosed income and assets and clear past transgressions by paying tax at 30 per cent plus 7.5 per cent penalty and 7.5 per cent interest, a total of 45 per cent. For foreign blackmoney holders, the total tax and penalty was 60 per cent for those came clean.
In the domestic scheme, the minister declared there will be no scrutiny or inquiry regarding income tax declared under I-T and Wealth Tax Act and there will be immunity from prosecution. Immunity from Benami Transaction Act of 1998 is also proposed subject to certain conditions.
"We plan to open the window under this Income Disclosure Scheme from June 1 to September 30, 2016 with an option to pay the amount due within two months of the declaration," he said.
A Krishi Kalyan cess of 0.5 per cent would cover all services, proceeds of which will be used for financing incentives for improvement of agriculture and welfare of farmers. The cess will come into effect from June 1.
Raising concern over pollution and traffic in cities, Jaitley said he proposed to levy infrastructure cess of 1 per cent on small petrol, LPG, CNG cars, 2.5 per cent on diesel cars of certain capacity and 4 per cent on higher engine vehicles and SUVs.
Recalling last year's promise of reducing corporate tax from 30 to 25 per cent over a period accompanied by rationalisation and removal of exemptions and incentives, Jaitley today limited the accelerated depreciation provided under the I-T Act to a maximum of 40 per cent from April 1, 2017.
The benefit of deduction for research would be limited to 150 per cent from April 1, 2017 and 100 per cent from April 2020.
To boost domestic manufacturing and job creation, he allowed new units incorporated on or after March 1, 2016 an option of being taxed at 25 per cent plus surcharge and cess provided they did not claim profit linked or investment linked deductions.
He also proposed lower corporate income tax for relatively small enterprises with a turnover not exceeding Rs 5 crore in 2016 to 29 per cent plus surcharge and cess. At present they pay 30 per cent plus surcharge and cess.
In a bid to promote employment through startups under the ‘Make In India’ programme, the budget proposes to assist propagation through 100 per cent deduction of profit for three out of five years for companies set up between April 2016 and March 2019.
Minimum Alternate Tax will apply in such cases. Capital gains will not be invested in regulated or notified fund or funds and by individuals in notified startups in which they hold majority shares.
As part of an attempt to incentivise domestic value addition in the ‘Make In India’ campaign, he proposed suitable changes in customs and excise duty rates on certain inputs, raw material, intermediaries and components to reduce cost and improve competitiveness of domestic industry in various sectors including IT, IT hardware, capital goods, defence production, MRO of aircrafts and ships, and textiles.
The period of getting benefit of long term capital gain regime in case of unlisted companies is proposed to be reduced from 3 to 2 years.
The controversial General Anti Avoidance Rules or GAAR will be implemented from April 1, 2017, he said.
The 12 per cent surcharge on personal income above Rs 1 crore has been raised to 15 per cent.
The Budget also proposes to collect tax at source at the rate of one per cent on purchase of luxury cars exceeding value of Rs 10 lakh and purchase of goods and services in cash exceeding Rs 2 lakh.
It also seeks to impose an excise duty of 1 per cent without input tax credit or 12 per cent with input tax credit, on jewellery excluding silver other than studded with diamonds or some other precious stone with a higher exemption and eligibility limit of Rs 6 crore and Rs 12 crore respectively.
As an additional resource mobilisation for agriculture and rural economy, the Finance Minister proposed a 10 per cent additional dividend distribution tax on individuals, HUFs and firms receiving dividend in excess of Rs 10 lakh per annum.
He also proposed several measures as part of financial sector reforms that includes enactment of a comprehensive Code on Resolution of Financial Firms to provide with a mechanism to deal with bankruptcy situations in banks, insurance companies and financial sector entities.
This Code together with the Insolvency and Bankruptcy Code 2015, when enacted, will provide a comprehensive resolution mechanism for the economy.
The other steps include amendment of RBI Act to provide statutory basis for a Monetary Policy Framework and a Monetary Policy Committee through the Finance Bill 2016.
He also announced that a comprehensive central legislation will be brought to deal with the menace of illicit deposit-taking schemes.
Jaitley proposed Rs 25,000 crore for bank recapitalisation and said the government will also consider the option of reducing its stake to below 50 per cent.
Stalled reforms:
The ruling Bharatiya Janata Party (BJP) faces crucial state elections this year and next, when the plight of farmers suffering from falling crop prices and several years of drought will play a major role.
It needs to perform well in those elections in order to push stalled economic reforms through the national parliament, where it lacks a majority.
Prime Minister Narendra Modi has made it a priority to boost India's economic growth, but investors have raised concerns about the pace of change and his government's third budget has been described as "make or break".
Economists had predicted the government would relax its commitment to rigorous fiscal discipline in order to boost spending.
But Jaitley said it would stick to its ambitious target to cut the fiscal deficit to 3.5 percent of GDP in 2016-2017.
"I have weighed the policy options and decided that prudence lies in adhering to fiscal deficit targets," he said.
India is seen as a relative bright spot in the world economy, after a slowdown in China, collapsing commodity prices and recession in other big emerging markets sent stock indexes tumbling.
But feeble global demand has caused its exports to shrink for 14 months in a row and private investment remains weak.
Pay hikes:
The finance ministry had promised the 2016-17 budget would be "growth-oriented" in the face of a global climate that appears significantly more challenging than last year.
On Friday the annual pre-budget Economic Survey said gross domestic product (GDP) would expand between 7.0 percent and 7.75 percent in the next financial year, marking little change from this year's levels.
"If the world slows down we will slow down as well," the government's chief economic adviser, Arvind Subramanian, told a news conference.
Investors were looking for concrete initiatives to make it easier to do business and are also expecting an announcement on how to break the impasse over Modi's flagship Goods and Services Tax (GST) which has stalled in an intensely polarised parliament.
Despite a major push to boost manufacturing, farming remains by far the biggest employer in India and the sector is struggling after two years of weak monsoon rains.
