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Aap kahan hai? Game changer but needs to cut taxes to spur economy; Budget reflects manifesto

The union budget changes the thrust of Indian economy. It stresses on agriculture for the first time since 1991, which began an era of liberalization-globalization for industry and manufacturing as also neglect of the farm sector.
It is a fine budget. It could have been better with some relief in direct taxes to increase purchasing power of the rural and urban middle class. Taxing people with an income of about Rs 22,000 a month in an economy that has seen severe erosion due to high inflation since 2009 is not considered prudent.
In the final reply, finance minister Arun Jaitley may consider the income-tax threshold to be raised to at least Rs 3.5 lakh (Rs 29,0000 a month) from 2016-17 fiscal. It would not cause any loss to the government but can earn goodwill of the poor.
Despite this the 2016 budget is a major course correction as it gives credence to the back to village concept of Mahatma Gandhi and ekatma manavavad of Deen Dayal Upadhyay. It is an acceptance that the country cannot progress without participation of 54 to 58 percent people – 80 crore – dependent on farm-related activities.
It is possibly the beginning of implementation of BJP 2014 election manifesto. The party had said it would accord high priority to job creation and opportunities for entrepreneurship through labour-intensive manufacturing, traditional employment bases of agriculture, housing and steps for self-employment opportunities.
The doubling of allocation to agriculture and farmer welfare to Rs 35,984 from Rs 15,809 crore, Rs 86,500 crore for irrigation in the next five years, if implemented properly can be a game changer for Indian economy. It is expected to boost farmer’s income, relieve him from the distress, and reduce rural poverty. It also stresses on water utilization, new rural infrastructure and conserve soil fertility.
The fasal bima (crop bima) and reduced burden of loan repayment due to provisioning of Rs 15,000 crore towards interest subvention is likely to reduce farmers’ distress.
Even MNREGA has been tailored to meet the needs of rural areas and farming. Enhanced allocation of Rs 38,500 crore would be utilized to create ponds, dug wells and compost pits. If it augurs well it would increase farm labour demand and may ultimately wean away people from MNREGA to productive work.
Various other measures for increasing farm and dairy yield, better procurement practices, Pashudhan Sanjivani, cattle wellness, Nakul Swasthya Patra – animal health card, E-Pashudhan (cattle) Haat, e-market portal for connecting breeders and farmers, National Genomic Centre would also help the rural economy. The dairy sector would get government support of Rs 850 crore in the next few years.
The budget opens up FDI for farming and food sector. It has proposed to allow 100 percent FDI in marketing food products. The government says this would create vast employment opportunities. It is to be observed how the various organizations opposed to FDI react to it.
Each panchayat would get Rs 80 lakh and urban local body Rs 21 crore for bettering standard of living, sanitation and connectivity and ultimately better health in the coming years.
The budget reinforces the social sectors, including education and health. The allocation has been increase by 9 percent to Rs 1.51 lakh crore from last year’s Rs 1.39 lakh crore. Schemes for welfare of women has also seen 12 percent surge to Rs 1.01 lakh crore from Rs 90,000 crore.
The health insurance of Rs 1 lakh per family and Shyama Prasad Mukherjee Rurban Mission for improving rural infrastructure is likely to change the landscape for a cleaner and healthy India.
Higher education that has created a strong community of non-resident Indians gets priority for having employable youth and world class higher educational institutions, initially ten each in public and private sectors, to help these emerge as teaching and research organisations. An allocation of Rs 1000 crore has been made for higher education financing. There have been complaints about the competence level of graduates and postgraduates.
The budget incentivizes creation of new quality jobs in the formal sector. The central government will pay the employers’ contribution of 8.33 percent, Rs 1,000 crore in 2016-17, for all new employees to Employees Provident Fund Organisation (EPFO) for the first three years of their employment. It should apart from ensuring continuity of jobs and the needed social security also puts a check on the tendency of employers not to show new employees in their books, adding to the tension and stress among the young workers. The Economic Survey also stresses on this point.
The entrepreneurship has been given through 100 percent deduction of profits for start-ups, Rs 1.8 lakh crore loans through Mudra Yojana and major boost to scheduled castes/tribes and women in the stand-up programme.
The steps increase burden on the finance minister. He has also to pay 10 percent more, 42 percent, to states as share of taxes as well.
But he has made it up through introduction of many cesses. In 2016-17, cesses of Krishi Kalyan – Rs 5,000 crore, infrastructure – Rs 3,000 crore and others are to burden taxpayers 12 percent more and net revenue of Rs 1.94 lakh crore, almost one-tenth of the total budget of Rs 19.78 crore.
Higher taxes may act as dampener to the proposed positive steps and may even prove inflationary, a concern of the government. The government is sandwiched between welfare needs and fund crunch. It also has to understand that higher taxes reduce purchasing capacity. Buying a car is no more a luxury and putting a ‘sin’ tax on it might hit manufacturing, a priority of this government. Similarly making eating out expensive has led to closure of many restaurants and eating jaunts – almost acting contrary to what the government seeks to promote as entrepreneurship.
The government should reconsider lowering of service tax and levying of some other cesses. It also needs to consider removal of TDS on bank deposits. Interest accruals are mere hedging of value and not earnings. It is true globally it is a critical juncture and India stands apart for its domestic strength and demographic dividend.
Discussion on how to have more revenue through promoting overall economic activities need to be considered. Income tax ends up in more disputes and collection costs. A view on this also needs to be taken to completely break from Manmohanomics.

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