Jaitley cites fund crunch, defers reforms

The Narendra Modi government’s first full-year Budget stopped short of announcing any big bang reforms and also left very little in the hands of the middle class to spend, but created avenues for savings that could be channelised for creating infrastructure.

Finance Minister Arun Jaitley, who did not provide any tax breaks to lakhs of salaried employees, said he did not have fiscal space after enhanced devolution of resources to states based on the recommendations of the 14th Finance Commission.

“The Centre hardly had any fiscal space. After the Finance Commission grants, it reduced further. Therefore we thought of incentivising people to save. The increase in savings will help in nation building. Instead of giving more money into the hands of people and making India a consumption-based society, I preferred that people save,” Jaitley said in his interview after the Budget.

The Budget increased service tax by close to 2 percentage points making eating out, travelling, making phone calls and even paying insurance premium costlier.
Jaitley, however, proposed raising health insurance premium deduction from Rs 15,000 to Rs 25,000. For senior citizens, the limit was increased from Rs 20,000 to Rs 30,000.
Exemption on transport allowance was hiked from Rs 800 per month to Rs 1,600 per month.

The finance minister announced several investment-based tax exemptions. At present, income up to Rs 2.50 lakh is not taxed. That remaining the same, the tax payers would now benefit to the extent of Rs 4,44,200 from the exemptions announced in the Budget.
An increase in tax deduction limit was announced towards contribution in a Pension Fund and New Pension Scheme from Rs 1 lakh to Rs 1.5 lakh.

An additional deduction of Rs 50,000 came for contribution to the New Pension Scheme.
In a smart move, the Budget increased surcharge from 10 per cent to 12 per cent on the super rich by abolishing wealth tax. This would allow the Centre to appropriate Rs 9,000 crore accruing from it.

Earlier, the proceeds from wealth tax was being shared with the states.
In a boost to agriculture, the finance minister raised the farm credit target by Rs 50,000 crore to Rs 8.5 lakh crore and  allocated Rs 5,300 crore for flagship irrigation programme.
For the first time, the Budget proposed tax free bonds to fund irrigation projects. Besides, an additional Rs 5,000 crore was allocated for MGNREGA.

In a slew of measures in the social sector, the Budget proposed setting up MUDRA bank to encourage first generation SC/ST entrepreneurs. For Atal Pension Yojana, the government would contribute 50 per cent of the premium limited to Rs 1000 a year. It also announced to use Rs 9,000 crore unclaimed funds in PPF/EPF for Senior Citizens Fund.

The government would also create universal social security system for all Indians. To promote “Make in India”, the Budget raised effective tariff rate on imported commercial vehicles from 10 per cent to 20 per cent.

The Defence Budget got a 10 per cent boost with focus on “Make in India” for quick manufacturing of defence equipment The Budget also reduced tax on corporates to 25 per cent over four years from the current 30 per cent. Jaitley said that it would spur investment and create jobs but the Congress slammed the proposal saying it would help corporates earn Rs 80,000 crore in the next four years after which the government would go into election.

In a relief to investors, the General Anti-Avoidance Rules  was deferred by two years. A resolve to implement the Goods and Services Tax from April 2016 was touted as a serious step towards indirect tax reforms.  The move to monetise gold was aimed at curbing imports. But a reworked fiscal consolidation road map keeping a lower fiscal deficit target for 2015-16 was seen as negative.