The Telegraph
Friday , July 11 , 2014
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Arun swims with PC, reforms on wait list

New Delhi, July 10: Finance minister Arun Jaitley today offered some relief to taxpayers in his maiden budget that set a record in terms of length with a long litany of schemes and allocations but left those expecting big reforms waiting for next year.

Jaitley raised the income tax exemption limit to Rs 2.5 lakh from Rs 2 lakh and investment limit to Rs 1.5 lakh from Rs 1 lakh under 80C that is eligible for tax rebate, describing these as “putting more money in the common man’s pocket”.

The tax rates were left untouched.

Cutting the deficit — the gap between government expenditure and income — getting a grip on inflation and stimulating growth were the major challenges before the finance minister.

Jaitley bravely picked up the gauntlet thrown down by his predecessor P. Chidambaram and opted to hold down the fiscal deficit at 4.1 per cent of the gross domestic product (GDP) this year.

The finance minister said that in 45 days, this was the best he could do as he had to work within the constraints associated with the targets set by his predecessor.

One of these he chose to ignore, however. There was no quotation from Thiruvalluvar, a Chidambaram favourite, or from anyone else.

It is not just in the adoption of the fiscal deficit number that Jaitley has followed in the footsteps of Chidambaram. His speech bristles with schemes and plans with token allocations, the figure Rs 100 crore proving to be his favourite, having been mentioned at least 28 times.

This is familiar territory, except that in naming schemes the BJP has introduced its own pantheon of Syama Prasad Mookerjee and Deendayal Upadhyaya, retiring the Nehru-Gandhi family.

In some other instances, plenty of hard work appears to have gone into fashioning acronym-driven names such as the “National Mission on Pilgrimage Rejuvenation and Spiritual Augmentation Drive (PRASAD)” and “National Heritage City Development and Augmentation Yojana (HRIDAY)”.

By committing to holding the deficit at 4.1 per cent, Jaitley will be hoping to tame inflation to an extent. He is also signalling the Narendra Modi government’s commitment to fiscal consolidation even though it will have to climb a mountain to crank up revenues in order to offset burgeoning expenditure.

“My predecessor has set up a very difficult task of reducing fiscal deficit to 4.1 per cent of GDP in the current year.… I have decided to accept this target as a challenge,” Jaitley said.

He went a step further and said he would traverse the glide path set out by the UPA government in its medium-term policy strategy statement that accompanied the interim budget presented in February, which commits to bringing down the fiscal deficit to 3 per cent by 2016-17.

“One fails only when one stops trying,” Jaitley added. “My road map for fiscal consolidation is a fiscal deficit of 3.6 per cent for 2015-16 and 3 per cent for 2016-17.”

But some sceptics felt that the focus on fiscal consolidation was a little misplaced as the economy needed to be fired up all over again.

Andrew Colquhoun, head of the Asia-Pacific Sovereigns Group at Fitch Ratings, said: “Fitch is surprised that… Jaitley has stuck with the outgoing government’s fiscal consolidation path. The agency is currently unsure how this can be met without further revenue-strengthening or expenditure-saving measures. The revenue measures that were announced actually have the net effect of reducing revenues by 0.1 per cent to 0.2 per cent of GDP.”

The word “growth” poured off Jaitley’s mouth 31 times and “investment” on as many, if not more, occasions. He said he had taken important steps that were necessary but not initiated in the last 10 years to put the economy back on track.

Prime Minister Narendra Modi said for a “moribund economy” the budget had come as “a sanjeevani (life-giving) and an arunoday (sunrise) for the last man in the line”.

As widely expected, the budget has raised the foreign investment limit in insurance to 49 per cent and allowed an equal proportion in defence.

But foreign investors wanted to hear the new government say unequivocally that it would not resort to retrospective taxation.

In 2012, the UPA regime recast a law with effect from 1962 to undermine a Supreme Court verdict that had gone in favour of Vodafone in a case arising from its buyout of a controlling stake in the telecom company once owned by Hutchison Whampoa. The government had then insisted it was entitled to a $2.2-billion withholding tax on the $11-billion deal struck in 2007.

Jaitley said the government would not ordinarily bring about any change with retrospective effect and wanted to provide a stable and predictable taxation regime, even as he asserted the government’s sovereign right to undertake retrospective legislation was “unquestionable”.

The government would set up a high-level committee to look into all new cases that the overzealous taxmen have been keen to launch in an effort to crank up revenues.

The stock market swung wildly during the budget presentation, with the sensex plunging at first, staging a recovery but ending the day 72 points down at 25372.75. Some analysts said the market was disappointed at the budget not containing any subsidy-cut signal.

Jaitley expects to tackle the subsidy question through an expenditure management commission that is expected to submit its interim report by the end of this fiscal.

The government is also looking to ratchet up non-tax revenues through disinvestment and the auction of radiowaves. Jaitley has budgeted for disinvestment receipts of Rs 63,425 crore even as he hopes to raise another Rs 45,000 crore from spectrum auctions.

One big change from the UPA days is the lack of announcements on entitlement schemes such as the NREGA.

Real estate and infrastructure have received tax incentives for new instruments — investment trusts. Banks have been allowed to offer long-term funding to infrastructure.

The direct tax proposals involve a sacrifice of Rs 22,200 crore while indirect tax proposals will yield Rs 7,525 crore.