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Arun Jaitley presented his first full budget under the most fortuitous of circumstances.  The rupee had stabilized, crude oil prices had come hurtling down, the government was in a majority and the party was winning elections left, right and center. Things could not have been more propitious. Did he seize the opportunity with his two hands or did he play a political game? Let’s take a look.

Social Engineering:

First up, the government despite its stinging criticism of MGNREGAis going to continue with the scheme. While I have no intentions to get into a debate on whether a dole is apt or not (after all social security schemes sponsored by the government is just that) its surprising that a party that had fairly strong views against MGNREGA is going to continue with it, whatever may be the smart sound bites that their leaders lay out in parliament. Verdict: Political smartness.

A new universal social security system for all Indians is on the anvil. The details aren’t as yet out. With increased longevity, thanks to improved medical care, with the distinct possibility of living longer post retirement than during their earning phase, there is an urgent need to have a social security scheme. Verdict: Welcome

Financial sector reforms:

A number of welcome measures in the financial sector have been named. Like, the government will set up a new Micro Units Development Refinance Agency (MUDRA) Bankcharged with the job of refinancing micro-finance institutions that lend to small business units.  This will help bring down the cost of doing business by these small units, assuming the agency refinances only those who offer competitive rates to the business units. Then there is the plan to set up a new electronic Trade Receivables Discounting System, which will finance trade receivables of Medium and Small Enterprises. This will go a long way to improve the liquidity in the MSME sector.  A comprehensive Bankruptcy Code that will meet global standards is on the anvil and this should make exiting from businesses easy. Finally, NBFCs registered with RBI and having asset size of `500 crore will be considered as ‘Financial Institution’ under the SARFAESI Act, 2002. Verdict: Welcome

Capital Markets and other investments:

In order to deepen the Indian Bond market, a Public Debt Management Agency (PDMA) will be set up which will bring India’s external borrowings and domestic debt under one roof. Further, the Forwards Markets Commission will be merged with SEBI to strengthen regulation of commodity forward markets. SEBI has historically had a good reputation and this move must be considered good. Verdict: Good.

Soon you will have a Gold Monetization Scheme, which will replace the present Gold Deposit and Gold metal Loan Schemes. The new scheme will allow the depositors of gold to earn interest in their metal accounts and the other party to raise money against the yellow metal. It’s an idea, which is quite old and is long overdue. It will turn an idle asset like gold, into a productive one. Verdict: Long overdue

Personal taxation

The middle class is to receive a slew of benefits. Like: deduction for insurance premium is being raised to Rs 25000 for others and to Rs 30,000 for senior citizens. Deduction for contribution to a Pension Fund and the New Pension Scheme is being raised to Rs 1.5 lakh. This will enable India to become a pensioned society.  Further, deduction on account of interest on house property loan (Self occupied property) is being raised to Rs 2,00,000. Verdict: Welcome.

On Employees Provident Fund (EPF) and Employees State Insurance Fund (ESI), interesting changes have been suggested. New Pension Scheme (NPS) is coming. An employee can now choose between contributing to EPF and the NPS.  Employees below a certain threshold of monthly income can opt out of contributing to EPF. With respect to ESI, the employee can choose between ESI and a Health Insurance product, recognized by the IRDA. It’s ridiculous to allow people at lower income strata to make a choice about having or not having ESI benefits.  Verdict: Neutral.

Black money:

This government came into power on the ticket of people’s anger against black money abroad. In the last nine months, there has been a feeling that the government is going soft. Now the budget brings in a proposal that suggests that holders of black money abroad will be punished with rigorous imprisonment up to 10 years. The offence is non-compoundable, the offenders cannot approach the Settlement Commission, and penalty for such concealment will be 300% of tax.  Verdict: Wonderful.

Of taxes and new laws

There is a promise to bring down corporate tax rate to 25% in the next four years. During that period a number of tax concessions applicable to the corporate assessee will be phased out. The Wealth Tax Act has been abolished with immediate effect. To compensate for this loss, the government is going to charge those with annual income of Rs 1 crore plus to pay additional surcharge of 2%. Adam Smith’s canon of convenience is at full display here. Verdict: Welcome

Service tax is being increased from 12.36% to 14%, in what can only be called a horribly retrograde step. I, for one, thought that it should sail down to 10%. Verdict: Retrograde

The enactment of a Direct Taxes Code (DTC), which was intended to simplify tax laws, has been given a clean burial. GST should kick in in the coming year and there are advance plans to set it in motion. The implementation of the General Anti Avoidance Rule (GAAR has been decided to defer the applicability of GAAR by two years. Verdict: Welcome


Ports in public sector will be encouraged, to corporatize, and become companies under the Companies Act.  Tax-free infrastructure bonds will be allowed for the projects in the rail, road and irrigation sectors. Plans are on to establish SETU as an Incubation Program to support start-up businesses, particularly in technology-driven areas. Verdict: Welcome

In short, this budget lays down a roadmap for growth and development. It’s easier to draw a roadmap, but it’s tougher to walk that path. If the government walks that path, it will walk into history.

V Pattabhi Ram

Click here to view my course on "WINNING WAYS"


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Pattabhi Ram
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