Lok Sabha in April-May, also broke the convention of not announcing major income tax changes when governments are in transition.
Finance Minister Piyush Goyal weathered a boisterous Opposition to present an interim budget on February 1 that sought to balance fiscal discipline with welfare necessities in an election year, as he announced a direct cash transfer plan for distressed farmers and a mega pension plan for unorganised sector workers.
The budget, the last before the country votes for a new Lok Sabha in April-May, also broke the convention of not announcing major income tax changes when governments are in transition.
Goyal promised to put more money in the hands of the salaried and middle class by doubling the income tax exemption limit Rs 5 lakh from Rs 2.5 lakh currently, implying those with an annual income of Rs 5 lakh will not have to pay any taxes.
He also raised the “standard deduction” – a flat amount on which taxes are not paid—to Rs 50,000 from Rs 40,000 annually. He also raised the income tax exemption on bank deposit interests to Rs 40,000 from Rs 10,000 currently.
There will also be no tax deducted at source on house rent upto Rs 2.4 lakh a year, while capital gains exemption on houses raised to Rs 2 crore.
“Our aim is to reduce the tax burden on the middle class”, Goyal said.
He presented a stirring account of the Modi-government’s economic and reform policies, generously peppering his 100 minute speech with details of signature initiatives such as Ayushman Bharat, Pradhan Mantri Jan Ausadhi Yojana, Make in India, Jan Dhan Scheme, Start Up India, MUDRA and the Insolvency and Bankruptcy Code (IBC).
Reiterating its commitment to rooting out corruption, the government vowed to continue the crackdown on India’s bustling parallel economy.
The Real Estate Regulation Act (RERA), the Benami Properties Act and the Fugitive Economic Offenders law have enabled this clampdown in a manner not seen during previous governments, he said.
Demonetisation, Goyal said, was part of this broader strategy that had yielded significant results, sounding a warning to those who continue to evade taxes. Demonetisation has come under renewed attack from the opposition that says the decision failed to check corruption and led to job losses.
“We have ushered in a new era of transparency”, he said. “We have walked the talk”.
The government sought to blunt the claims of lack of opportunities for the millions entering the job market every year by handing out statistics on formalisation of India’s labour market, self-employment opportunities through MUDRA loans, growing start-up entrepreneurship and jobs created by infrastructure projects such as roads and bridges.
FOCUS ON FISC
Goyal did not concede too much on the fiscal consolidation goals, something that stock markets raised a toast to.
Amid looming risks of slippage, the minister pledged to keep the fiscal deficit — a measure of how much a government borrows to meet its expenses—at 3.4 percent of GDP in 2019-20, from a revised 3.3 percent in 2018-19.
It is a deviation from the medium-term consolidation target the government set last year when Finance Minister Arun Jaitley said the fiscal deficit would be contained at 3.1 percent of GDP in 2019-20.
Goyal avoided the temptation of populist spending that can worsen the fisc, particularly when the stress is showing up. Revenues from the goods and services tax (GST) and disinvestment have remained well below the target, accentuating fiscal pressures. Despite this, the minister pegged the fiscal deficit for 2018-19 at 3.4 percent of GDP.
It could have been better, but for the additional setting aside of Rs 75,000 crore for farm income support scheme, Goyal said.
Markets cheered the adherence to fiscal discipline, with the BSE Sensex rising 400 points during the course of the budget speech.
A part of this, however, may have been achieved by window dressing the balance sheet by deferring capital expenditure and rolling over some bill payments to the next financial year.
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