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Remonetizing India: Arun Jaitley stays away from announcing freebies; consumption focus of Budget

Arun Jaitley

Budget 2017-18 has paved the way for a new campaign. Finance Minister Arun Jaitley started the process of remonetizing the country in a different way, just a few days before state elections, and without disturbing the code of conduct.

Clearly consumption-focused, the Budget has put additional money to the tune of Rs 12,500 per annum in the hands of honest tax payers as Jaitley reduced the income tax rate from 10 per cent to 5 per cent in the Rs 2.5 lakh-Rs 5 lakh income bracket. Hike in disposable income would mean a direct spike in consumer spending. Jaitley’s magic drives consumerism, currently reeling under demonetization, particularly at the bottom of the pyramid.

This is being supplemented by a massive push in infrastructure funding. Presenting the first-ever combined Budget – merged with the Railway Budget – Jaitley announced a budgetary allocation of Rs 3.96 lakh crore for infrastructure projects – a giant leap from the Budget estimate of Rs 2,21,246 crore for 2016-17. While it proposed Rs 1.31 lakh crore for railways, the investment for National Highways Authority of India is pegged at Rs 64,900 crore. The rural Pradhan Mantri Gram Sadak Yojana (PMGSY) has got an allocation of Rs 27,000 crore.

Close on the heels of the painful demonetization move that slowed down the economic juggernaut, Jaitley has brilliantly sailed past the usual freebies that would have drawn the EC’s ire. He has rolled out a red carpet for the poor, the deprived and honest tax payers, while making a sincere effort to broaden the tax base.

Sudhir Kapadia, national tax leader, EY India, says: “The FM has passed on the entire 5 per cent corporate tax rate reduction to micro, small and medium enterprises (MSMEs) with a turnover of up to Rs 50 crore. This, coupled with a never-before-low tax rate of 5 per cent on lower income slabs up to Rs 5 lakh, means that disposable incomes will see a considerable increase and will lead to a consumption demand push.”

As Jaitley kept the indirect tax proposals on hold in the wake of the new GST regime, the Budget presentation was devoid of the usual sparkles of industry-specific announcements. While cigarettes and tobacco products and mobile phones have become costlier, online railway tickets and solar power products have become cheaper.

Jaitley rightly said that India stands out as a bright spot in the world economic landscape, which has thrown up three major challenges for emerging economies. The current monetary policy stance of the US Federal Reserve threatens to lead to lower capital inflows and higher outflows from the emerging economies while the uncertainty around crude oil and other commodity prices has implications for the fiscal situation of emerging economies.

“In several parts of the world, there are signs of increasing retreat from globalisation of goods, services and people, as pressures for protectionism are building up. These developments have the potential to affect exports from a number of emerging markets, including India,” says Jaitley.

The government’s ongoing campaign to bolt out black money hoarders and herald a cashless economy has got another booster shot in the new limit of cash transactions at Rs 3 lakh. The decision, based on the recommendation of the Special Investigation Team (SIT) on black money, may create some ripples in the premium and luxury product markets.

Jaitley has taken a cue from Chief Economic Advisor’s recommendations in the Economic Survey to tackle the parallel economy.

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