If govt was serious, parties wouldn’t get cash donations: Prashant Bhushan

Presenting the Budget on February 1, Finance Minister Arun Jaitley announced that political parties will not be allowed to accept donations of more than Rs 2,000 in cash from an individual donor. Earlier, parties could receive cash donations of up to Rs 20,000. On the face of it, the move is aimed at increasing transparency and accountability in donations received by political parties. Lawyer and political activist Prashant Bhushan speaks to Veenu Sandhu about whether this will indeed serve the purpose. Edited excerpts:

Will reducing the limit of cash donation make political funding transparent?

Nothing will come out of this because once the parties don’t have to declare who has given them the cash or how many people have given them the cash, they can declare a consolidated amount. For example, earlier they would say Rs 1,000 crore received in small donations under Rs 20,000. Now they will say Rs 1,000 crore received in small donations under Rs 2,000. So, it is not going to make any difference whether the limit is Rs 20,000 or Rs 2,000 or even Rs 1,000, Rs 500 or Rs 100. The Election Commission had recommended bringing down the limit to Rs 2,000 without understanding that it is not going to make any difference.

On top of this, the whole business of allowing electoral bonds makes it even more anonymous. With this, the names of even those people who donate large amounts, say Rs 1 lakh or Rs 5 lakh or Rs 10 crore, will not be known.

How will electoral bonds make the system more opaque?

The identity of the person who donates money through these bonds does not have to be disclosed by the political party. The party too need not know who the holder of that bond is. This then makes the identity of the donor anonymous, at least to the voter, the citizen. Only the issuing bank might know who the donor is, but that’s about it.

There is also no limit to the amount one can donate through electoral bonds.

So the whole objective is to conceal this from the people. Jaitley’s speech said that there have been complaints that donors are hounded or harassed; therefore, to conceal the identity of these donors, we are introducing these bonds.

Bonds may have to be purchased through cheques or digital accounts, but that will only be known to the banks that have issued those bonds. The bonds themselves will not reveal the identity of the donor. Therefore, when you make a donation to a political party through these bonds, it becomes an anonymous Union Budget 2017 donation so far as that political party is concerned. That’s why it makes the funding more opaque. Even the Election Commission will not come to know the identity of the donor.

Through a new amendment to the Foreign Contribution Regulation Act (FCRA), the government has also allowed foreign companies to donate to political parties.

How will this impact political funding?

This effectively allows political parties to accept foreign funding through subsidiaries of foreign companies in India. This way they have made political funding more opaque and more amenable to foreign influence, while trying to project that they are all for transparency by the gimmick of reducing the limit on cash donations.

These foreign companies can also buy bonds, in which case their identity remains concealed.

What would be an effective alternative?

The government is talking about shifting towards a cashless economy. In that case, all transactions should be through the bank, even for political funding. If they were serious about bringing about transparency, they should have said that there will be no donations whatsoever through cash. In that case, everything, down to the last paisa, would have been accounted for.

It appears the whole objective of this plan – of amending the Act -was to allow foreign funding to political parties. On the one hand, they are targeting NGOs that are doing development work, accusing them of accepting foreign funds by bypassing rules, and on the other they are allowing political parties to take foreign funds. In effect, they are giving foreign companies the power to call the shots in a political party.

There have been repeated demands to bring political parties under the ambit of the Right to Information Act.

The Chief Information Commissioner had said that all political parties should come under the Right to Information Act. Yet, no political party has implemented this, or even agreed to implement it. No political party has appointed a public information commissioner. The Bharatiya Janata Party, which is claiming to be leading from the front, is also conspicuous in not doing this. This government has been the worst offender. It wants political parties to take foreign funds. It wants no transparency in political funding.

Contract farming law may cover all agriculture commodities

The proposed model law on contract farming, which Finance Minister Arun Jaitley announced in his Budget speech on Wednesday, could encompass all the agricultural commodities and not restrict itself to only one or two commodities.

According to a senior official, the proposed legislation, which along with the improved model Agricultural Produce Market Committees (APMC) Act and the model land leasing Act, will form part of the Centre’s integrated approach to re-energise farming activity in rural areas and also double farmers income.

“A model law on contract farming would, therefore, be prepared and circulated among the states for adoption,” Jaitley said.

The legislation comes close on the heels of Centre’s attempt to amend the Land Acquisition Act, which had to abandon due to strong protest from Opposition parties. All the three pieces of legislation are model laws as land and agriculture are state subjects and the Centre has very little role to play on that.

“We will soon constitute a high-powered committee of experts to frame a law on contract farming and are confident that it would become a reality soon,” the official said.

Agriculture Minister Radha Mohan Singh, in an interaction with reporters, said the model law on contract farming will be formulated to make improvements in the policies related to agriculture.

At present, the model APMC Act has a provision to allow contract farming but the official said idea behind a separate model law is to ensure that APMCs themselves do not become arbitrators on contract farming.

“That apart, at present, most laws on contract farming framed by the state governments concern include one or two farm commodities and is only limited to marketing. But our model Budget Speech 2017 law will include all farm commodities and also will have a comprehensive piece of legislation starting right from distribution of seeds,” the official said.

The second legislation, which is a new model APMC Act, to replace the existing law is also in the advanced stage of formulation. Officials said it could be a big improvement from the existing APMC Act, which was framed more than a decade back. “The new model APMC Act will incorporate changes and will be more relevant to current market conditions,” said another official.

On the model land leasing law, the Centre is persuading state governments to enact it and has got the support of even Opposition party-governed states, such as Congress-ruled Karnataka and Left-ruled Kerala. The Bill in question aims at enabling farmers and farming groups to lease their land for cultivation through a legal document, without dilution of ownership.

Farming reform on the cards

The model law will subsume contract farming from the purview of APMC Act

The law would cover all the commodities

It would cover farming right from distribution of seeds to marketing of final produce

The present contract farming framework available in the country only covers marketing of produce

Idea behind the separate law is to ensure that APMCs themselves do not become arbitrators on contract farming

Jaitley taxes rich, gives to the poor

One set of taxpayers, albeit a small one, would be a tad unhappy with Finance Minister’s Union Budget 2016-17. With the Budget introducing a surcharge of 10 per cent for people with incomes of over Rs 50 lakh to one crore, there would be a rise of around 3 per cent in the income tax payout. The new calculation for income-tax rate for this slab will be: 30 per cent tax + 10 per cent surcharge on tax + 3 per cent cess on both tax and surcharge) or in total, 33.99 per cent. However, the vast majority of taxpayers with taxable incomes of Rs 2.5 lakh to Rs 5 lakh should be a happy lot as their tax burden is down by half.

Prior to this Budget, the government levied a surcharge (of 15 per cent) on those with an income above Rs 1 crore. This, say experts, is a sop from the government to compensate for the hardships of demonetisation. This reduction in tax rate will benefit people in all tax slabs. “For those in the income bracket less than Rs 5 lakh, the tax burden will be zero or it will half. For everyone in the above Rs 5 lakh income bracket, the tax bill will be reduced by minimum Rs 12,500,” says Archit Gupta, founder and chief executive officer, ClearTax.com.

One reason for reducing the tax rate applicable to the lowest income slab, says Gupta, could be to persuade more people to either file their returns for the first time or declare their income honestly. Another key announcement was that returns of those having income less than Rs 5 lakh will not be scrutinised unless Budget Results 2017 the tax authorities have specific information against the assessee. Experts view this too as an inducement to get more people to file tax returns.

Budget merger can’t hide rot in Railway finances

Its annual budget, followed extensively over decades for announcements of new train services, may have folded into the Union budget, but that couldn’t hide the rot in the Railways’ finances. It could be seen in the operating ratio (the extent to which total working expenses are covered by the gross traffic revenue) which deteriorated from 90.5 per cent in 2015-16 to 94.9 per cent in 2016-17 (revised estimates) and is projected to improve marginally to 94.6 per cent in 2017-18.

The situation could have been worse but for some accounting jugglery. In 2017-18, as the budgetary support from the government comes as equity and not debt, the Railways have saved on dividend payout. In 2015-16, the Railways had given dividends of Rs 8,722 crore. In 2016,17, there was a provision of Rs 9,731 crore in the budget estimates, but the revised estimates show zero payout, even though the accounting change is going to happen from the next financial year.

In spite of this relief, the Railways’ surplus (total receipts less total expenditure) for 2017-18 is projected at Rs 8,948 crore, which, though higher than Rs 7,695 crore in 2016-17 (RE), is below the surplus of Rs 10,505 crore in 2015-16.

Graph Finance Minister Arun Jaitley has budgeted for a 10 per cent rise in gross traffic receipts in 2017-18 over 2016-17 (RE), on the back of 4.4 rise in passenger revenues, and 8.5 per cent rise in freight revenues, even though the revised estimates for 2016-17 were way below the target for the year. The slowdown in the economy could also come in way of these targets.

Still, the capital expenditure of the Railways in 2017-18 has been fixed at Rs 1.31 lakh crore, up from Rs 1.21 lakh crore in 2016-17. This has increased the Railways’ dependence on the government for its capital outlay, from Rs 46,355 crore in 2016-17 (RE) to Rs 55,000 crore in 2017-18, putting the Union budget under stress.

The dismal financial situation didn’t keep Jaitley from announcing “transformative measures to make the Railways competitive”: end-to-end integrated transport solutions with other logistics companies for select commodities, customising rolling stock to transport perishable commodities, especially farm produce, competitive ticket booking, and removal of service charge on e-tickets booked through IRCTC.

He also announced that three profit-making railway PSUs – IRCTC, IRFC and Ircon – will be listed on the stock exchange during the course of the next financial year.

After the spate of train accidents, there was, as expected, special focus on rail safety. Jaitley announced the creation of a Rashtriya Rail Sanraksha Kosh which will have a corpus of Rs 1 lakh crore in five years. The government will provide the seed capital for this fund, while the rest of the money will have to be arranged by the Railway Budget 2017. According to a Railway Board member, the government will provide 75 per cent of the corpus.

In previous years, the Railway Budget used to be a full-fledged tamasha in itself, where law makers would listen in rapt attention as the minister would read out the list of new trains, gauge conversions and the like. This year, Railways took up not more than five minutes of Jaitley’s nearly two-hour-long budget speech.

There was no tinkering with freight rates or fares. The independent Rail Tariff Authority is likely to be in place in a few months’ time. “Tariffs will be fixed after taking into consideration costs, quality of service, social obligations and competition from other forms of transport,” Jaitley said.

Budget 2017: RIP – Rajiv Gandhi Equity Savings Scheme

The government has decided to end the Rajiv Gandhi Equity Savings Scheme (RGESS) under which first-time investors in equities could enjoy tax deduction up to Rs 25,000 for three successive years under Section 80CCG.

According to the Budget documents, the government has decided to jettison the scheme due to its failure to gain popularity among investors.

However, an assessee who has claimed deduction under this section for the assessment year 2017-18 and earlier assessment years shall be allowed deduction under it until the assessment year 2019-20.

Financial planners said that they did not recommend the scheme to their clients because of the numerous restrictions around it. “The scheme was only for first-time investors in equities. There was also an upper limit on the investor’s income, which could not exceed Rs 12 lakh. All these pre-conditions limited Budget Speech 2017 the number of people to whom the scheme could be recommended,” says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisor.

The scheme came with a lock-in of three years, with partial liquidity being allowed after the first year.

RGESS was launched in the 2012 Budget with the objective of attracting more investors to invest in equities. Initially, investors could only invest in direct equities to enjoy this tax benefit. Financial market experts at that time felt that first-time investors would be taking an inordinately high risk by investing only in equities.

After representations were made to the Finance Ministry, the scheme’s ambit was widened in the Budget of 2013 to include mutual funds. The income limit, which was initially set at Rs 10 lakh, was also hiked to Rs 12 lakh in that Budget.

Investors in the 30% tax bracket could enjoy tax saving of Rs 7,500, those in the 20% tax bracket could save up to Rs 5,000, and those in the 10% tax bracket could save up to Rs 2,500 by investing in this scheme.

But with the scheme failing to gain popularity, the government has decided to give it a burial. According to market experts, the government may also have decided to end this scheme as it is now keen to promote CPSE Exchange Traded Funds (ETFs) whose second tranche was sold recently. A second CPSE ETF comprising other stocks is also in the pipeline.

Mihir S Sharma: A Budget that didn’t go far enough

What will be the one takeaway from the Union Budget for 2017-18? It was a bit of a mixed bag, so different groups will probably focus on different things. But for global investors, there will no doubt be a focus on the finance minister’s decision to delay fiscal consolidation. The fiscal deficit for the coming year is pegged to be 3.2 per cent of gross domestic product (GDP) instead of three per cent. It is important to realise why this matters: Global investors will look at that number first, and perhaps look only at that number. It will be interpreted as a sign that the main economic “achievement” of the Narendra Modi government so far, its restoration of macro-economic stability, is being sacrificed at the altar of expediency. That this did not happen at a time of drought but following a year dominated by self-inflicted damage will be noted.

The Budget is also notable for its continued focus on a growth-promotion model that has so far failed. The infrastructure expenditure by the government has, according to Mr Jaitley, gone up by 25 per cent. However, there was little or no clarity provided on what institutional changes will be brought into the sector in order to incentivise Budget 2017 Results private sector investment to follow this government investor. Without that, growth will continue to slow.

Many sections hurt by demonetisation were given specific sops, including small and medium enterprises, real estate and so on. But the informal sector in general was left out. This is a reminder that the government cannot easily help India’s vast informal sector through fiscal measures, though it can easily harm it. Employment generation in India today, sadly, occurs through the informal sector. While one could hope that eventually the small informal sector becomes the formal, tax-paying MSME sector and can benefit from Jaitley’s various tax breaks, there’s no real sign of this happening fast enough.

Overall, in terms of actual economic policy, the Budget was typically competent – but few could claim it moved as far forward as the government needed to with this Budget. Time is running out. It would be a pity if the most radical and transformative reform that the Modi government can point to as its legacy is demonetisation.

Housing industry gets a budget balm: Nilesh Shah

Given the heightened expectations of various market participants, it is a credible achievement by Finance Minister to present a responsible budget. Union Budget 2017 has focused on balancing the need to boost consumption sector (by way of tax cuts to honest tax payer), continue the momentum in infrastructure spending, continued focus on rural areas without pandering to outright populism – all this while maintaining the path of fiscal prudence.

It was heartening to see the continued spending on capital expenditure, especially in sectors like roads, railways, digital infrastructure, which have long-term multiplier benefits. This has been a recurring theme from the first budget presented by Mr. Jaitley. It marks the importance of spending on capital formation rather than pander to demands for increase in revenue expenditure.

In my opinion, the sector that got a significant boost this budget, is affordable housing segment. Housing is one the biggest contributors to economic activity and has a significant ability to create jobs. While housing industry has been going through a rut in the last few years, this was one of most significantly impacted sectors post demonetisation. In this context, infrastructure status to affordable housing, increase in area norms (from built-up to carpet area) can provide a significant demand boost to the industry, especially in non-metros.

In light of upcoming state elections, there was a fear that government may use the budget to provide sops like farm-loan waiver, specific sops to poll bound states etc. Focus on rural areas – again not necessarily though dole-outs, but to enhance farmer productivity (like crop insurance, increase in farm ponds, dairy processing etc.), rural road network – augurs well for the longer-term.

Tax benefits for honest tax payer are long overdue Budget Highlights 2017. This benefit of Rs 15000-20000cr of tax revenue foregone provides a mini-boost to consumption sector. Coupled with fall in interest rates, this sets the stage for consumption theme to maintain its momentum.

From capital markets perspective, the fear of Long-term capital gains tax abated with this budget. Besides, listing of few PSU enterprises (especially in railways, general insurance) can provide attractive investment options for market participants. Besides, clarity to Foreign Portfolio Investors with regard to taxation should come as a relief.

However, recapitalization of PSU banks at Rs 10,000cr to me seems inadequate. Given the quantum of non-performing assets, PSU banks need strong capital position to grow credit. Though the FM said, they may revise the recapitalization quantum; it would have helped to provide a higher quantum right away. Given the burgeoning youth coming into employment every year, one would also have hoped for more schemes or sops focused on job creation.

However, in this balancing act of myriad expectations, the best act was the FM staying on the path of fiscal prudence. Market participants were hoping for a not-so significant deviation from 3% target announced in the earlier policy, and with FM sticking to lower net borrowing from market, they were not disappointed.

FM is betting big on an economic upturn: U R Bhat

I think it is a very good budget with emphasis on housing and rural development. There is some stability in terms of taxation for corporates. Every budget, there is some uncertainty in the markets as to how the corporates will be taxed. There were some expectations that the tax rates could probably be brought down, but then that has not been done. So, it is par for the course.

On the other hand, smaller companies that bore the brunt of demonetisation exercise have been given enough impetus in taxation. In terms of allocation, the money directed towards housing and rural India has been long due.

The other sector that has benefitted is banking. By addressing the non-performing assets (NPA) issue – allowable provision for non-performing asset of Banks increased from 7.5% to 8.5%; and interest taxable on actual receipt instead of accrual basis in respect of NPA accounts of all non-scheduled cooperative banks also to be treated at par with scheduled banks – are two significant steps, in my opinion. As a result, the banks will be liable to pay tax when they actually receive the funds instead of paying on an accrual basis.

Focus on rural development and spending on housing are the two central themes and the key points in Budget 2017. This is probably what was needed now, especially after demonetisation. I think the finance minister has addressed these two issues quite well in the budget.

However, the amount allocated towards banks’ recapitalisation (Rs 10,000 crore) seems less. This is one thing that the market was expecting to be higher than what has been allocated. But, if the FM Budget 2017-18 has given some incentive for NPA recovery – with an upturn in the economy, there is a case for some of these NPAs to become ‘performing’ assets over a period of time. In case this does materialise, I don’t think there is a case for allocating huge amount towards recapitalisation. That apart, the FM has promised to allocate more, if needed. In other words, the FM is betting big on an economic upturn.

As regards political funding, I am unsure how this will happen as the threshold levels of Rs 2,000 is quite a small amount. However, a beginning has been made – and that is a positive step.

The fiscal deficit target of 3.2% for FY18 also seems logical. Though there were expectations of 3%, given the demonetisation impact, this target of 3% looked a bit stiff to achieve. The net borrowing figure has been lowered, and that saw bond yields softening a bit. I expect the Reserve Bank of India (RBI) to cut interest rates in future. This should also augur well for the economy and the government’s fiscal arithmetic as Arun Jaitley is not a big believer in market borrowings.

The one thing that was missing was more details on demonetisation and its impact on the economy. I am unsure of if the government has the data yet. The government is expecting some inflow from the tax notices that they have sent.

The relief to the small-taxpayers in terms of halving the tax rates to 5% for those between Rs 2.5 lakh – Rs 5 lakh bracket is a very welcome step. The whole idea is to widen the tax base with a hypothesis that more people should be a part of the taxation mechanism. Lending stability to the taxation mechanism – for individuals and corporates – is one of the key elements in economic recovery.

Overall, I think it is a very fair budget.

Arun Jaitley attempts a clean-up job in Budget 2017

Presenting the Union Budget for 2017-18 on Wednesday, Finance Minister Arun Jaitley attempted a clean-up job across the board – including on macro-economic indicators, some troubled sectors, and on tax compliance. A major impact on the Budget-drafting process was quite evidently the decision by the government last November to demonetise high-value currency notes.

Jaitley chose to deviate from the exact path of fiscal consolidation slightly, budgeting a fiscal deficit of 3.2% of gross domestic product in 2017-18 instead of the previously projected 3%. However, he did still shrink the deficit, and promised to hit the 3% target in 2018-19. The six consecutive years of fiscal consolidation by successive governments add up to a visible and credible commitment to macro-economic stability in India.

Graph Jaitley stayed true to fiscal consolidation partly by keeping projected expenditure growth low, at only 6.5% – although overall nominal GDP growth has been projected at 11.75%. In order to finance union budget 2017 spending, Jaitley has relied heavily on personal income tax, expected to grow almost 25% in 2017-18.

This increase in personal income tax will come in spite of a halving in the tax rates payable by those with incomes between Rs 2.5 lakh and Rs 5 lakh, from ten to five%. This will be partly offset by an increase in the tax rates further up; a new slab of taxpayers has been created, with income between Rs 50 lakh and Rs 1 crore, who will pay a ten% surcharge on their taxes. Jaitley explained his tax cut as a “reward” for honest taxpayers, and presented statistics on the extent of tax evasion in India, which he called “largely a tax non-compliant society”. To reduce evasion, he banned cash transactions of more than Rs 3 lakh.

Other measures also bore the imprint of demonetisation. The FM said the Budget had been crafted to put a special focus on the rural and agricultural sector and the poor, among others – sections hit hard by the currency withdrawal. He declared an expansion of the electronic agricultural marketing mechanism for produce, and also of the funds allotted to irrigation. Over the year 2016-17, the rural employment guarantee scheme spent almost Rs 47,500, a 23% increase over the Budget allocations – a sign of possible rural distress. Jaitley allocated a similar amount to the scheme for 2017-18 as well.

The digital economy, also a focus of the demonetisation exercise, received further boosts from the Budget, with a regulator being promised within the Reserve Bank of India and specific tax incentives offered for digital payments. The last Budget provided some incentives to start-ups; this one relaxed the criteria for accessing them.

But perhaps the most important post-demonetisation political point in the Budget was a proposal to clean up the financing of political parties. The ceiling for individual donations in cash was proposed to be lowered to Rs 2,000 from Rs 20,000, and a system of “election bonds” announced which would both reduce the reliance on cash to fund elections and also preserve the secrecy of political donations.

Andrew Holland: Markets enjoying lack of negatives in Budget

There is nothing ground breaking, but there is nothing negative either. There is nothing that’s bad about this budget. That’s the reason why the markets saw a huge rally post the budget proposals were unveiled. There consistency on the affordable housing which is a key positive.

On the taxation front, I don’t see any big increase in anyone’s pay packet. On the contrary, those earning above Rs 50 lakh will pay an additional 10% surcharge. In a nutshell, the Budget Speech 2017 proposals have been a continuation of the policies that the government has followed over the years – i.e. spend on infrastructure and housing.

The abolition of Foreign Investment Promotion Board (FIPB) is a welcome step and this signals that India is more open to the outside world. The transparency is political funding is another welcome move. As far as I am concerned, there are no negatives in the budget proposals.

Clarification on offshore taxation proposals is a welcome step and the foreign investors are likely to see this as positive development. Most FIIs, in my view, will see the proposals as a continuation of the existing policies of the government – and that is a positive. The markets and investors are enjoying that there are no negatives in this budget.