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India unveils pro-poor budget, keeps deficit target
March 5, 2016, 6:08 pm
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Indian Finance Minister Arun Jaitely unveiled the Union Budget in Parliament on 29 February. The budget, aimed at winning back support among rural voters and sustaining growth against a grim global economic backdrop, manages to do both without borrowing more.

The minister’s third Union Budget marked a strategic shift by addressing rural distress in a country of 1.3 billion, where two-fifths of families rely on farming and are reeling from two years of drought. At the same time it hiked public investment in India's woeful infrastructure by 22.5 percent, while taking further steps to revive corporate investment that the government needs to create new jobs for India's burgeoning workforce.

Some of the highlights of the budget for the fiscal year that begins on 1 April include:

Fiscal Deficit

* Fiscal deficit seen at 3.9 percent of GDP in 2015/16

* Fiscal deficit seen at 3.5 percent of GDP in 2016/17

* Planned expenditure seen at 5.5 trillion rupees in 2016/17

* Proposes to set up panel to review fiscal responsibility management act

Rural Economy

* Rural jobs program allocated 385 billion rupees in 2016/17

* Farmer welfare budget to total 359.84 billion rupees

* Rural road development to get 190 billion rupees

* Target of agriculture credit at 9 trillion rupees

* Interest subvention towards farm loans at 150 billion rupees

* To set up dedicated irrigation fund worth 200 billion core initially

* Allocates 55 billion rupees for crop insurance program for 2016/17

Growth

* Nominal GDP growth seen at 11 percent year-on-year in 2016/17

Monetary Policy

* Government along with central bank to set retail inflation target every 5 years

* Monetary Policy Committee to have 6 members, including 3 appointed by federal government

* Monetary Policy Committee to decide policy rates to achieve inflation target; decisions shall be binding on central bank

* RBI act is being amended for implementing monetary policy framework

Banking Reforms

* Government to infuse 250 billion rupees capital into state-run banks in 2016/17; will find resources for additional capital for banks if required

* To weigh cutting stake in state-run IDBI below 50 percent

Policy Reforms

* Proposes to raise foreign portfolio investment limit in state-run companies except banks to 49 percent from 24 percent currently

* Bankruptcy code for financial firms to be introduced in parliament in 2016/17

* To list general insurances companies on stock exchanges

* Companies Act 2013 to be amended to improve ease of doing business

Market Reforms

* Investment basket of foreign portfolio investors in corporate bonds will also include unlisted debt securities, pass-through securities

* Proposes raising investment limit for foreign entities in local stock exchanges to 15 percent from 5 percent

* Government proposes developing an electronic platform for repo in corporate bonds in 2016/17

Infrastructure

* Allocates 2.21 trillion rupees for infrastructure development for 2016/17, up 22.5 percent on last year

* Allocation for roads and highways development at 550 billion rupees

* Capital expenditure on roads and rail development at 2.18 trillion rupees

Disinvestment

* Total stake sales in 2016/17 seen at 565 billion rupees

* To encourage central public enterprises to divest own assets for raising resources for new projects

* Strategic divestment seen at 205 billion rupees

Taxation

* Net revenue gain of 196.1 billion rupees seen from taxes in 2016/17

* Will not resort to retrospective taxation in future; one time tax dispute resolution proposed for retrospective taxation

* To rationalize corporate tax for new manufacturing companies

* To implement general anti avoidance tax rule from April 1, 2017

* To levy 20 percent ad valorem duty on locally produced crude oil versus current 4,500 rupees per tonne

* Security transaction tax on options raised to 0.05 percent

* Proposes to levy infrastructure cess of 1-4 percent on certain models of cars

* Raises factory gate tax on various tobacco products by 10-15 percent

* Proposes limited compliance window on undeclared income of domestic tax payers; new dispute resolution scheme to resolve tax disputes

* Thirteen cesses levied by various ministries having revenue collection of less than 5 million to be abolished

* Proposes to raise excise duty on aviation turbine fuel to 14 percent from 8 percent

* Considers scrapping export duty on low-grade iron ore

* Increases import duty on aluminum products to 7.5 percent from 5 percent

* Redemption of sovereign gold bonds by individuals will be exempt from capital gains tax

* Forex appreciation gains at redemption on rupee-denominated bonds by non-residents will be exempt from capital gains tax

Expenditure

* Allocates 2.49 trillion rupees for defense sector in 2016/17

Borrowing

* Gross market borrowing seen at 6 trillion rupees for 2016/17

* Net market borrowing seen at 4.25 trillion rupees for 2016/17

* Government to switch bonds worth 750 billion rupees in 2016/17

Subsidies

* Total subsidy seen at 2.5 trillion rupees in 2016/17

* Food subsidy seen at 1.35 trillion rupees

* Petroleum subsidy estimated at 269.5 billion rupees

* Fertilizer subsidy seen at 700 billion rupees

Investment

* 100 percent foreign direct investment to be allowed in food processing industry

* Promises further reforms in foreign direct investment policy in insurance, pension, asset recast companies

Gold

* Jaitley makes no mention of revising gold import duty in budget speech

* India raises concessional countervailing duty on gold doreËŠ bars to 8.75 percent from 8 percent

 

 

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