This year’s budget was perhaps the most anticipated one since the liberalization of the economy in the early 90s. All eyes were on Mr. Jaitley and the government to see how they would go about restarting the beleaguered economy after the shock demonetization move that brought the economy to a near standstill. The Finance Minister definitely had his work cut out for him and the initial response from the market has been very positive. As far as corporate tax rates are concerned, there was severe pressure on the government from all sides to lower the rate of taxation, especially given that the US and other advanced economies were getting ready to roll out massive tax cuts to attract investments. Jaitley certainly delivered on this front by reducing the tax rates for the MSME sector with turnover less than Rs. 50 crores to 25%, which is beneficial to more than 95% of all the businesses in India. The MSME sector was also most affected by demonetization and the tax cut must certainly come as a great relief. After having declared that India is largely a “tax non-compliant society”, Jaitley has, for the first time, given a concrete direction to increase the tax base in India. There is great news for individuals earning between Rs. 2.5 lakh and Rs. 5 lakh who saw their rate of taxation being halved from 10% to 5%. Those with incomes between Rs. 50 lakh and Rs. 1 crore are perhaps the most adversely affected by 10% surcharge that has been levied on their tax liability.
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Given that rural India was beyond doubt the most affected by demonetization and with an eye on the upcoming elections in some of the biggest states in India, Jaitley must have felt that he had no choice but to increase the allocation for MNREGA scheme to Rs. 48,000 crores. The government’s initial promise to do away with MNREGA is still a distant dream, given that the promise to create jobs has not really fructified. Hopefully, the increased allocation to MNREGA will help the rural economy to tide over the crisis it is currently facing..
Jaitley also announced a few measures in furtherance of the government’s avowed mission to tackle corruption and eliminate black money in India. So far as political funding is concerned, Jaitley has drastically reduced the limit for undisclosed cash donations to political parties from Rs. 20,000 to Rs. 2,000. There is also a proposal to amend the RBI Act for issue of electoral bonds for political funding, which is most interesting. He has also proposed a ban on all cash transactions above Rs. 3 lakh from the next financial year. Although these measures are more than welcome, perhaps a little more could have been done by the government, given how aggressive the government’s posturing has been on the so called fight against corruption and black money.
Continuing with the ongoing reforms on the FDI policy front, Jaitley proposed abolition of the Foreign Investment Promotion Board which is responsible for clearing all foreign investments which require government approval. When it does happen, it will be upto the respective ministries to clear foreign investments under the approval route. It is hoped that bureaucratic intervention will not be increased with this move.
All in all, Jaitley has done his bit to provide hope to the people of this country that this government is still serious about its promise on reforms, growth and development. The hope of a smaller government has not been realised though.
(Sandeep Parekh and Shashank Prabhakar are partner and senior associate at Finsec Law Advisors)