India’s budget favours the middle class

As prudence is coupled with growth, Modi’s leadership aims to secure country’s future

There is perhaps no other part of the world where the annual budget is more keenly awaited or debated as India. The stock market is also keenly observed for an initial reaction. Soon after the conclusion of the Finance Minister’s speech, the Sensex shot up over 1,000 points, while the NIFTY went up over 275 points. The reasons are obvious. There is a huge government capex planned, which will pump in Rs10 lakh crores or Rs10 trillion of capital investment, representing 3.3 per cent of GDP, into the economy. The money will go mostly into infrastructure. In addition, the Railway Budget has also gone up to Rs2.4 trillion, nine times higher than 2013-2014. This massive government investment, partially to be matched by the private sector, should give a huge fillip to job-creation, in addition to overall growth.

Secondly, this budget is not likely to be inflationary. The budget deficit will be capped at a manageable 5.9 per cent from 6.5 per cent. There seem to be few discernible populist measures or freebies, despite the general elections coming up next year. Keeping inflation in check is going to be one of the challenges of this budget.

In addition, the tax slabs have been altered so that those with incomes up to Rs700,000 will have to pay no income tax. No wonder, the budget is perceived as clearly pro-middle class. Also because it has raised the benefits to senior citizens, doubling special interest rates for them on deposits up to Rs3 million. The Indian superrich are happy too. The income tax rates of those with taxable incomes of over Rs10 million have come down from 41 per cent to 39 per cent. It is hoped, therefore, that spending will go up, spurring the economy.

The budget also emphases MSME — Micro, Small and Medium Enterprises — the Green Economy, Cooperative Societies, opportunities for women, and, yes, millets. India wants to lead the millet revolution, emphasising the shift to rough and health-giving grains rather than over reliance on rice and wheat, which consume much more water and fertilisers. The disinvestment and monetisation targets of government assets have also been raised. Government hopes to earn over Rs500 billion by privatising public sector companies.

The budget does not rock the boat. For example, capital gains taxes have not been touched because they might destabilise the investment and savings plans of many. This, then, is a cautious, risk-averse budget, that is not quite populous, but strives to secure India’s growth rate, which is projected to be 10 per cent in the coming year. It is true that India is right now the fastest growing economy in the world. But India will have to incentivise exports and trade, if it is to keep growing in the changing world scenario. Overall, this is a confidence-inducing budget. India Inc. as well as the nation at large will now push ahead with India’s growth story, knowing that the government is fully in control and fully behind them. Under Modi’s leadership, India’s rise seems secure. Finance Minister, Nirmala Sitharaman and her team have done a really good job.