Union Budget 2016-17 : Left Of Centre

The union budget, this year, clearly brings to fore the left-of-centre turn for the government. The budgets main focus points were the rural economy, social sector, agricultural infrastructure. There was not much for corporate India in it.

Fiscal aspects

The fiscal deficit this year is pegged at 3.5% of the GDP. This is in line with the previous year's estimates. Such fiscal prudence has been achieved despite the increased burden of implementing the 7th pay commission recommendations along with the one rank one pension norm.

Social sector spending and agricultural sops

The major announcements were-

1. A new health insurance scheme with cover of 1 lakh rupees for families below the poverty line.
2. Total outlay for the infrastructure sector ha been pegged at Rs. 221246 crore.
3. Rs. 8500 crore have been provided for integrated power development schemes,with the target of 100% electrification for villages by May 1, 2018.
4. In a boost to rural development, the allocation has been increased to 87765 crore.
5. The allocation for MGNREGA has been increased.

 These steps are expected to provide a fillip to the rural demand and help grow the rural economy.

Defence

 The government on Monday allocated Rs. 249099 crore for the defence sector for the year 2016-17, which is 11 per cent more than the revised estimates of last year. The allocation does not include defence pensions as well as certain civil expenses of the defence ministry. 

Business and Taxation

1. The corporate tax has been reduced from 30 pe cent to 29 per cent.
2. A new amnesty scheme for tax defaulters aimed at domestic black money is in the offing.
3. Even though the direct tax slab for the salaried class has remained unchanged there is disappointment as the indirect taxes have been raised.
4. Service has been raised by 0.5% to 15%, which will translate to all the services getting costlier.
5. The government will come out with a comprehensive Bankruptcy code.
6. The 60% of EPF saving will be taxable.
7. Reforms in taxation, foreign direct investment, dispute resolution in PPP projects, and methods of dealing with the retrospective tax demands were promised
8. The airfares are likely to go up as the excise duty on airline fuel has been increased from 8% to 14%.
9. The government has shown faith in the PSU banks which are currently facing a huge NPA problem.
10. The banks will be recapitalised with a capital of Rs. 25000 crore this fiscal year and additional funds, if needed will be provided to overecome the stress of NPA.
11. Car prices will go up with the levy of infra cess and luxury taxes based on thecar model.

Final word 

One of the bizarre proposal of the budget was increase in the duty on tobacco but not on beedis. This is an attempt at sin tax on the rich even though both of these products are almost equally harmful. The direct revenue collection will incur a loss of Rs.1060 crore, while the indirect taxes will yield nearly Rs.20670 crore. It is axiomatic that indirect taxes are regressive and can be passed on to the common man as the ultimate consumer.

The small corporate houses have to pay only 29% as corporate tax. This benefit should also have been extended to non-corporate entities and individuals who have to give more than 30% plus surcharge on thair incomes exceeding Rs.10 lakh.

 I have always held that this annual extravaganza should be more focused on the fiscal aspects and the macroeconomic aspects of the economy. There should be enough room for the government to make necessary changes to these allocations as and when required.