Budget 2017: Jaitley bets on rural, infra spending to beat demonetisation blues

Finance minister Arun Jaitley on Wednesday sought to ramp up spending on rural areas and infrastructure as well as hand out marginal tax relief to the middle-class and small businesses in his budget proposals for 2017-18, which he said will help beat the fallout of demonetisation.
The government’s November 8 decision to ban Rs 500 and Rs 1,000 notes, as part of a broader plan to curb black money, sent ripples down the economy, which was already battling slowing demand and sluggish investment. It also caused hardship for many, especially the middle class and the cash-only informal sector that Jaitley said had a “legitimate expectation” for relief.
The budget proposed to halve the rate for tax payers in the lowest slab of up to Rs 500,000, from 10% to 5%, and cut the tax rate for enterprises with a turnover of less than Rs 50 crore from 30% to 25%. To make up for the revenue foregone, he introduced a surcharge of 10% on the tax to be paid by individuals with an annual income of Rs 50 lakh-Rs 1 crore. There was no change in the 15% surcharge on tax paid by individuals with income above Rs 1 crore.
There weren’t many changes in other taxes as the government hopes to roll out a unified goods and services tax (GST) that will replace the existing set of indirect taxes levied by both the central and state governments.
The focus of this budget, however, was on the rural economy and the need to step up public investment that could help overcome the impact of demonetisation and revive growth. Jaitley announced several measures in this regard, but was cautious enough to not let up too much on government spending.
“My approach in preparing the budget is to spend more on rural areas, infrastructure and poverty alleviation with fiscal prudence,” he told parliament, adding that the impact of demonetisation would not spill over to the next financial year.
He pegged the fiscal deficit target at 3.2% of GDP (gross domestic product) for 2017-18, slightly higher than an earlier aim of 3%. Out of the Rs 21.5-lakh crore budget, Jaitley plans to spend Rs 3.9 lakh crore, or 18%, on infrastructure, Rs 1.9 lakh crore, or about 10%, on rural, agriculture and allied sectors and transfer Rs 4.1 lakh crore, 19%, to state governments for projects they manage.
Jaitley’s budget also appeared to keep an eye on a string of state elections beginning this week, where the so-called demonetisation move is likely to influence the vote, among other things.
He increased funds allocated for scheduled castes by a third to Rs 52,000 crore and said many new enterprises had been set up under the Stand Up India programme, aimed at helping women, Dalit and tribal entrepreneurs.
The increased allocation might help the BJP especially in Punjab – where Dalits make up a third of the population – and in crucial Uttar Pradesh, where scheduled castes can make a difference in at least 100 seats. The two states are among five voting this month.
The finance minister also used the occasion to strongly defend his government’s decision to ban Rs 500 and Rs 1,000 notes and push for replacing cash exchanges with digital transactions.
“We are moving from informal to formal economy and the government is now seen as a trusted custodian of public money,” he said.
Prime Minister Narendra Modi praised Jaitley’s budget, saying it was for the welfare of the poor but Congress vice president Rahul Gandhi said it was a “damp squib”.