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Presenting the first budget of the NDA government on Thursday, Finance Minister Arun Jaitley stuck to the three goals he had defined for himself.
He concentrated on fiscal consolidation, delivering — against most expectations — a fiscal deficit target of 4.1 per cent of GDP for 2014-15. By keeping government borrowing low and additional taxes only on spending items like dividends and cigarettes, Jaitley hopes to keep inflation low, reward savings and investment, and so push growth.
He will also hope his performance makes RBI Governor Raghuram Rajan cut rates — and please investors. Yet he made clear that this budget would not be a please-all and it showed. “The steps I will announce… are only the beginning of a journey towards a sustained growth of 7-8 per cent or above within the next 3-4 years,” he said early on in his speech.
To achieve the troika — of restoring the pace of growth, containing inflation and concentrating on fiscal consolidation — he raised the foreign direct investment cap for insurance and defence to 49 per cent, imposed an additional 3 per cent tax on dividends, put in place a host of protectionist duties on imports to spur domestic manufacturing, taxed travel by radio taxis, advertising through mobiles and online media and import of coal and retained import duty on gold. He restricted the sops to domestically manufactured LCD and LED TVs, mobiles and footwear.
His tax exercise leaves him poorer by Rs 14,675 crore but he has stuck close to the ambitious estimate of predecessor P Chidambaram of a nearly 20 per cent rise in tax revenue despite a nominal growth rate of only 13.4 per cent in economy this fiscal.
Jaitley expects to make up the slack with mop-ups through non-tax revenues including the revived Kissan Vikas Patra, which is like a bearer bond and was used to soak up black money in the last decade, and Rs 50,000 higher tax breaks for investment in Public Provident Fund.
He is banking on the hope that private investment will help add jobs and a government with a clear majority in Parliament will pass critical reform measures.
While initially the market tanked when he announced that the retrospective tax on companies like Vodafone would stay, the mood lifted when he declared that capital gains made by portfolio investors will not be taxed at the higher rate of business income and followed it up with tax breaks