Budget 2016 focuses on farmers, ‘backbone of country’s food security’

No change in tax slabs, but relief to those who earn below Rs 5 lakh a year.

Union Finance Minister Arun Jaitley pledged to spend nearly Rs 36,000 crore to double the income of struggling farmers and also boost a rural employment scheme as he unveiled his annual budget on Monday under pressure to balance the much-needed spending with fiscal prudence.

India is now the world's fastest-growing major economy, but years of drought and a failure to create jobs for a burgeoning young population has left millions of rural Indians struggling and led to deadly protests in recent weeks.

Finance Minister Arun Jaitley said India's estimated 120 million farmers were the -"backbone of the country's food security-" as he pledged to spend 359 billion rupees ($5.2 billion) on the country's vast agriculture sector.

-"We need... to give back to our farmers a sense of income security,-" Jaitley told Parliament as he presented his third budget.

The initiative would increase the income of farmers over the next five years through a series of measures including boosting a crop insurance scheme, increasing access to markets and a massive injection of funding to village councils.

-"For rural development as a whole I have allocated 877.6 billion rupees ($12.7 billion) in this budget,-" he added.

That includes a major hike in spending on a rural employment scheme introduced under the last government and a pledge to ensure all the country's villages have electricity within two years.

Jaitley said the government would increase spending on the National Rural Employment Guarantee Scheme, which guarantees 100 days of employment on public works each year for any household that requests it.

He also allocated Rs 15,000 crore for interest subvention on the farm credit, Rs 5,500 crore for the new crop insurance scheme and Rs 500 crore to boost pulses output.

Jaitley said a unified agricultural market would be launched on April 14 and soil health cards will be provided to all 14 crore farmers by March 2017.

Jaitely also allocated a major share to infrastructure that includes Rs 2.21 lakh crore outlay, saying enhanced allocations coupled with reforms and steps will remove obstacles impeding the sector's growth.

lok sabhaMembers of the Lok Sabha in Parliament during the Union Budget presentation. (Photo: Video grab)

Presenting Budget for 2016-17 in Parliament, Jaitley said infrastructure is one of the strong pillars of economy and -"exemplary-" and -"proactive-" steps by government to remove hurdles resulted in India awarding highest ever road contracts in 2015 as well as highest ever sales of motor vehicles which are clearly -"signs of growth-". For the tax payer:

While there has been no change in personal Income Tax slabs, some relief has been given to those who earn below Rs 5 lakh a year. The ceiling of rebate u/s 87A raised to Rs 5,000 from Rs 2,000.

House rent deduction slab has also been raised from Rs 20,000 to Rs 60,000. First-time home buyers will get an additional deduction of Rs 50,000 on interest for loan up to Rs 35 lakh. The cost of the home, however, should not be more than Rs 50 lakh.

Jaitley also hiked the surcharge by 3 per cent on earnings above Rs 1 crore, levied a pollution cess on petrol, diesel cars and SUVs and offered a one-time compliance window for domestic black money holders slapping a tax and penalty of 45 per cent

Consolidating public sector banks:

Government will also unveil a roadmap for the consolidation of public sector banks (PSBs) which are expected to get an infusion of Rs 25,000 crore next fiscal, Arun Jaitley said today.

Besides, the government may consider bringing down its stake in state-owed IDBI Bank to below 50 per cent. -"Our Public Sector Banks will have to be strong and competitive. The Bank Board Bureau will be operationalised during 2016-17 and a roadmap for consolidation of Public Sector Banks will be spelt out,-" he said. He also added that the process of transformation of IDBI Bank has already started.

Stalled reforms:

The ruling Bharatiya Janata Party (BJP) faces crucial state elections this year and next, when the plight of farmers suffering from falling crop prices and several years of drought will play a major role.

It needs to perform well in those elections in order to push stalled economic reforms through the national parliament, where it lacks a majority.

Prime Minister Narendra Modi has made it a priority to boost India's economic growth, but investors have raised concerns about the pace of change and his right-wing government's third budget has been described as -"make or break-".

Economists had predicted the government would relax its commitment to rigorous fiscal discipline in order to boost spending.

But Jaitley said it would stick to its ambitious target to cut the fiscal deficit to 3.5 percent of GDP in 2016-2017.

Union Finance Minister Arun Jaitley (Photo: PTI)Union Finance Minister Arun Jaitley (Photo: PTI)

-"I have weighed the policy options and decided that prudence lies in adhering to fiscal deficit targets,-" he said.

India is seen as a relative bright spot in the world economy, after a slowdown in China, collapsing commodity prices and recession in other big emerging markets sent stock indexes tumbling.

But feeble global demand has caused its exports to shrink for 14 months in a row and private investment remains weak.

Pay hikes: The finance ministry had promised the 2016-17 budget would be -"growth-oriented-" in the face of a global climate that appears significantly more challenging than last year.

On Friday the annual pre-budget Economic Survey said gross domestic product (GDP) would expand between 7.0 percent and 7.75 percent in the next financial year, marking little change from this year's levels.

-"If the world slows down we will slow down as well,-" the government's chief economic adviser, Arvind Subramanian, told a news conference.

Investors are looking for concrete initiatives to make it easier to do business and are also expecting an announcement on how to break the impasse over Modi's flagship Goods and Services Tax (GST) which has stalled in an intensely polarised parliament.

Despite a major push to boost manufacturing, farming remains by far the biggest employer in India and the sector is struggling after two years of weak monsoon rains.

This month the Jats, traditionally a farming caste, sparked riots in northern India to press their demands for better access to government jobs and education. They say they are struggling to make a living in farming.

The BJP performed poorly in elections in the eastern state of Bihar last year and faces polls in other major farming states West Bengal and Uttar Pradesh, due this year and next.

The budget will likely set aside billions of dollars for a proposed 23 percent pay rise for millions of civil servants and retired ones recommended by a pay commission.