Indian government cuts taxes, pledges to boost rural economy

Finance Minister Jaitley said the economy was doing well despite slowing growth in other emerging economie

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India’s finance minister pledged relief for middle class taxpayers and small and medium-sized companies on Wednesday, saying the government would spend billions of dollars to double farmers’ incomes, upgrade ramshackle infrastructure and provide cheap housing.

In presenting to Parliament the budget for fiscal year that starts April 1, Finance Minister Arun Jaitley said the economy was doing well despite slowing growth in other emerging economies and a massive demonetization order late last year that affected the country’s mostly cash-based business activities.

Jaitley projected economic growth of between 6.75 and 7.5 percent in 2017-18.

Since taking office in May 2014, Prime Minister Narendra Modi’s government has been pumping funds into boosting education, while increasing spending on roads, irrigation and other infrastructure. It has also been reforming India’s complicated tax regime.

The budget proposes total spending for the fiscal year of 21.47 trillion rupees ($315.74 billion). Jaitley said spending on highways would rise to 650 billion rupees ($9.54 billion) in 2017-18, up from 580 billion rupees in 2016-17.

Noting that India is “a non-compliance tax society” Jaitley said he hoped that cutting tax rates would persuade people to pay up. He announced a five percent reduction in tax rates for small and medium-sized businesses with annual turnover of up to 500 million rupees ($7.35 million).

He also abolished income tax for people earning up to 300,000 rupees ($4,410) a year.

C. Rangarajan, former governor of India’s central bank, said it was a fairly routine budget. “There have not been much changes on the revenue side. Nevertheless, I am happy that the fiscal deficit is maintained at 3.2 per cent. The original road map has set it at 3 percent.”

Rahul Gandhi, the opposition Congress Party leader, said he was disappointed the government did not say how it would create new jobs. However he welcomed the government’s proposal to improve transparency in electoral funding.

It calls for limiting the maximum amount cash donation a political party can receive to 2,000 rupees ($29) from each person. Donations can be made by check or online, Jaitley said.

Now, political parties can receive up to 20,000 rupees ($295) in cash from each donor without disclosing his or her name.