Midway into its term in office, the government's third Budget presented in Parliament on Monday sought to perk up rural incomes and give an ostensible thrust to the farm and social sectors amid the fear that the Modi magic may have run out of puff with the electorate. The government, however, shunned the temptation to be slack on the deficit targets and sought to bring a higher level of comfort to investors by going a small way towards reducing tax incidence on businesses and their compliance burden. It also addressed the mass of disputes and litigation in the areas of taxation and infrastructure and gave a leg-up to the \u201cMake in India\u201d project. Finance Minister Arun Jaitley\u2019s Budget speech had the clear imprint of Prime Minister Narendra Modi on it. He made some visible efforts at taxing the rich more and using the proceeds to finance rural and farm-sector schemes. Helped by rate-hikes-induced tax revenue buoyancy, Jaitley even made a modest attempt to improve the quality of the fiscal consolidation \u2014 breaking from the trend, the revenue deficit for FY16 was brought down below the target. At 49.6%, interest payments vis-a-vis net tax revenue are seen nearly 3 percentage points lower than budgeted, a level to be sustained in the next year. The less-than-expected allocation of Rs 25,000 crore for the recapitalisation of public sector banks and the minister's silence on the setting up of a holding company for these banks and creation of a bad bank that could take over their dodgy loans and force exit of defaulting promoters, however, unnerved the markets. The benchmark Sensex recovered after reporting heavy losses during the Budget speech to end lower by over 152 points on buying support from domestic institutions. The fiscal stance, welcomed by rating agencies Moody's and Standard & Poor's as meet and proper, is unlikely to be lost on the Reserve Bank of India too considering that it had stressed the need to coalesce the fiscal and monetary policies given its inflation-targeting approach. Many analysts expect a 50-basis-point cut in the repo rate in the course of the next year. Bond markets gained on the news that net government borrowing next fiscal would be rather modest at Rs 4.25 lakh crore. The biggest focus of this Budget is villages, the poor, farmers, women and youth. To bring a qualitative change in their lives, several schemes have been proposed: Narendra Modi, Prime Minister With little relief to individual taxpayers, the minister announced an amnesty scheme for taxpayers to disclose undisclosed income or asset and get immunity from prosecution by paying 45% of such income. Going by the plan to withdraw incentives over time and reduce tax rates, Jaitley announced sunset dates for special economic zone units (FY20) and developers (FY17) as well as for specified infrastructure projects in the power sector, reduced the accelerated depreciation to 40% and R&D deductions from 150% to 100%. Customs and excise duties have been rejigged on a host of items, steps towards the objective of Make in India. Further, Cenvat credit rules have been streamlined to reduce cascading of taxes. While the Budget for FY16, in a break from recent years, saw no compression but a minor upward revision, a 10.8% increase in expenditure is estimated for FY17 and a steeper 15.2% in Plan spending. Outlays have been hiked steeply for affordable housing, rural roads, irrigation and women and child development, and the rural job scheme has been well-funded too. But it was hard for Jaitley to claim to have given a public-investment-driven stimulus to the economy, as capital expenditure hasn't grown much. Relative to GDP, the Centre's capital spend (excluding grants to states for creation of capital assets) would in fact shrink from 1.75% in the current financial year to 1.64% in the next year. With the burden of the Seventh Pay Commission, feeble attempts to cut subsidies (to Rs 2.5 lakh crore in FY17 from Rs 2.58 lakh crore this year), the revenue expenditure could not be curbed satisfactorily, although the largesse to the rural and farm sectors could still help boost demand. Salaries and allowances of central government staff are estimated to rise a steep 57% to Rs 1.8 lakh crore in FY17 while the pension bill will jump 28% to Rs 1.23 lakh crore. Absent major reforms in fertilisers, subsidies could shoot up in FY17 given that oil prices could harden and 1.5 crore more poor households will get subsidised LPG. The Budget's revenue assumptions \u2014 based on an estimated nominal GDP growth of 11% that is higher than estimated by the Economic Survey \u2014 are not foolproof. While the proceeds of sale of government stakes in companies in FY17 is pegged at Rs 56,500 crore \u2014 including 20,500 crore from strategic sales \u2014 that looks an uphill task. Also, the estimate of spectrum revenue \u2014 Rs 98,995 crore compared with Rs 56,034 crore in the current fiscal \u2014 seems un-get-at-able as it assumes an unrealistic Rs 2.4 lakh as spectrum proceeds. Vodafone and Cairn, among all troubled by retrospective tax cases, will now have the option to pay the principal tax amounts (sans interest and penalty) and close the cases, though analysts were unsure if this would work. Jaitley, however, was not for any let-up on the ant-evasion policies: The plan to bring General Anti-Avoidance Rules (GAAR) from assessment year 2018 was reinforced; country-by-country reporting requirement for multinationals \u2014 under the multilateral Base Erosion and Profit Sharing (BEPS) framework to prevent shifting of corporate profits to low-tax regimes \u2014 was launched. He was also unresponsive to industry's demand for deferring ICDS, the inflexible tax accounting standards which would bar mark-to-market valuation of assets and require accelerated recognition of revenue and delayed recognition of expenses. Activation of the the Place of Effective Management (POEM) regime, designed to discourage the creation of shell companies with Indian shareholders in foreign jurisdictions to avoid tax residency in India, was deferred to FY17. Among the steps to simplify the tax administration were reduction of penalties across the board and a new dispute resolution scheme. These could help reduce enormous backlog of tax disputes at various levels \u2014 of the outstanding direct tax claims of Rs 8.3 lakh crore, 60% is disputed. Affordable housing has been given a shot in the arm with larger Budget outlay \u2014 Rs 20,075 crore under the Pradhan Mantri Awas Yojana \u2014 and other sops like 100% deduction for projects comprising smaller flats and extra interest deduction of Rs 50,000 for specified small house loans. Also, special purpose vehicles disbursing dividends to real estate investment trusts that invest in leased office and rental assets and helping the project developers to raise funds, has been accorded dividend distribution tax waiver, in what could jump-start activity in the segment. Infrastructure, which has remained in policy focus for the last few years but is still under-performing its potential, has been given a higher outlay of Rs 2.21 lakh crore in FY17, compared with Rs 1.8 lakh crore in F16 and helped by a new law to resolve disputes. The surcharge paid by the super-rich \u2014 those with a total annual income exceeding Rs 1crore \u2014 will now be 15% instead of 12%. Also, corporate leaders earning dividends above Rs 10 lakh will have to pay an additional 10% on the receipts that already suffered the dividend dividend distribution tax at the firm's level. The proceeds of the surcharge levied at 7.5% of undisclosed income will be used for the farm and the rural sectors. Similarly, the revenue from the 0.5% Krishi Kalyan cess \u2014 which effectively increased service tax to 15% \u2014 will be used exclusively to enhance the financing of agriculture and welfare of farmers. Pension wealth withdrawals up to 40% from the National Pension Systems will be exempt from tax, a move that would help enhance the NPS corpus which is now around Rs 1 lakh crore by attracting new subscribers. Withdrawals from Employees' Provident Fund (EPF) will also get tax exemption only up to 40% for contributions made after April 1, 2016, except in the case of those with salaries below Rs 15,000 a month. The Budget persisted with the trend of increasing transfers to states. With net transfers to states set to increase by Rs 1 lakh crore to Rs 9.2 lakh crore in FY17, the states are expected to complement the intended public-investment stimulus to the economy.