India’s finance minister gives a no-frills budget, focuses on political funds and affordable housing

Finance Minister Arun Jaitley unveiled a budget with a focus on more clean-ups in the system and streamlining foreign investment, and used the opportunity to push the government’s case for digitalizing the economy.

Click here to read Prime Minister Narendra Modi's views on the budget.

Here are the highlights of what he announced:

Political funding: Probably the biggest announcement from the finance minister. Political parties now cannot accept more than 2000 rupees (30 dollars) from a single entity and that cannot be cash. The central bank will issue electoral bonds, which can be bought by a donor and given to a political party. Jaitley’s bold attempt to clean up the obscure system of political funds will deliver a blow, no doubt, but it remains to be seen how it fares.

Oil: The government plans to create an “integrated oil major” by bringing together all the state companies in the business to take on bigger companies across the world. That includes explorers such as ONGC and Oil India as well as refiners such as IOC, BPCL and HPCL.  The government has eight listed companies in the oil and energy business, and their market value now is about $108 billion, bringing it closer to BP which is at $115 billion.

Affordable housing: The government has given companies building affordable housing (or houses for low-income citizens) the status of infrastructure companies - similar to those building roads and power plants. That gives them more access to low-cost funds and tax breaks that will help them sell cheaply. Here's an analysis by Anuj Puri, country head of JLL India, on how the moves will help bring in more homes for the poor.

Budget at a glance by Business Standard

Farmers: Jaitley stuck to expected lines for farmers. This is a big focus for any government in India, where two out of five people still depend on agriculture for their living. More farm loans, more lenders to farmers and easing of rules for selling of farm produce marked the finance minister’s plan for agriculture. Interestingly, even as he called out the small proportion of Indians paying tax, Jaitley refrained from adding the large number of farmers into the tax net.

Startups: Startups did get some sops too. A tax holiday for startups was extended, rules for carry forward losses were relaxed. Small businesses also got a tax cut, but that may not be relevant to most startups which are yet to show a profit.

Demonetization: Jaitley didn’t miss an opportunity to call out the government’s recent big-bang move to demonetize 86 percent of the cash in the system. According to Jaitley, only two-thirds of the demonetized deposits have returned to the system and a third of this from high-income individuals. He added that tax evasion will decrease after this move, but those numbers are yet to be seen.

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