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Facing a tough task, Jaitley does what he always does well: balancing

By Avalokita Pandey | 2/1/2017 3:16 PM Wednesday

The common people may not have got a great deal out of Arun Jaitley's fourth Budget but somehow, the Finance Minister has managed to maintain a balance between people's expectations and the measures he could take. May be its a softened government mood post demonetisation and also steps taken looking at ensuing crucial elections in the five states.

Jaitley failed to live up to his promise as far as tax concessions are concerned. He did reduce tax rates in the minimum slab from 10 percent to 5 percent and gave a rebate of Rs 2,500 for tax-payers withdrawing salary between Rs 2.5 lakh to Rs 3 lakh but fell a bit short of expectations that he would exempt tax up to Rs 4 lakhs. 

However, the macro-level announcements are positive for the economy. 
First is the reduction in fiscal deficit, which will go down well with those who were talking about the principles of fiscal responsibility and budget management (FRBM) act. The Finance Minister moved the fiscal deficit target to 3.2 per cent for FY18 which will be lowered further to 3 per cent in FY19. 

Jaitley’s balancing act is visible where he increases capital expenditure outlay by 25.4 per cent but at the same time reduces borrowing from Rs 4.25 lakh crore to Rs 3.48 lakh crore. The move should ensure a growth impetus to the economy without triggering inflation and higher rates. 

The focus of the Budget was on rural economy, infrastructure, digital economy and broadening the tax base. Agro economy benefits from a targeted allocation and focus on the farmer's income rather than diffused spending on the sector as a whole. The affordable housing sector has been given infrastructure status. This will revive the housing sector, along with the interest subvention allowed earlier. 

Increased focus on transportation sector, which has a higher multiplier effect on the economy, will also contribute to GDP growth. Further, no changes in taxes on the stock markets and clarifications on Foreign portfolio investment (FPI) taxes will go down well with the market. What has, however, left a bad taste is that there has been no reduction in corporate tax rates, though rates have been reduced for small and medium-sized enterprises (SME) segment which accounts for 96 per cent of registered companies. 

Overall, it's an expansionary Budget, with continued focus on rural economy, infrastructure, employability and employment generation, all without much impact on honest tax payers.

 

Find More Articles on: Markets, DSIJ Mindshare, Research, Budget 2017

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