World Economy

Five takeaways from India's budget spending plans to boost growth

Key Points
  • Indian Finance Minister Arun Jaitley presented his final full-year budget before next year's general elections.
  • Jaitley announced spending measures to improve the livelihood of farmers and the rural population.
  • He also said the government planned a massive healthcare coverage for low-income families.
  • Measures were also announced to improve India's infrastructure.
Money Sharma | AFP | Getty Images

Indian Finance Minister Arun Jaitley announced a budget on Thursday that focused on strengthening the country's rural and agricultural economy, ahead of a general election next year.

Jaitley unveiled a variety of spending measures to improve the livelihood of Indian farmers and the rural population, provide health care coverage to low-income families and bolster the country's infrastructure.

The aim, he said in a speech to the country's parliament, was to put India firmly on course for an economic growth rate topping 8 percent in the near future.

Here are five key takeaways from Jaitley's budget announcement for the coming fiscal year.

Agriculture and the rural economy

Farmers were the big winners in Thursday's budget announcement.

Apart from raising the minimum support price for all crops, the government proposed raising credit for the agricultural sector to 11 trillion rupees ($172.3 billion) for the upcoming fiscal year.

The government has planned to set up a Rs. 20 billion fund to develop, and upgrade, agricultural market infrastructure. Another Rs. 5 billion would be allocated to promote farmer producer organizations, agriculture logistics, processing facilities and professional management.

India also planned to loosen restrictions on the export of agricultural commodities to realize a market potential as high as $100 billion.

Measures to improve the livelihood of India's rural, low-income groups were also announced on Thursday. Those include plans to provide free electricity and cooking gas to low-income households and build more toilets to promote sanitation and hygiene.

Jaitley said the government aimed to spend about Rs.14.34 trillion for the "creation of livelihood and infrastructure in rural areas."

Massive government-funded health care

The government announced two major initiatives to improve the quality of health care in India. First, a Rs. 12 billion scheme would set up 150,000 health and wellness centers around the country to make healthcare more accessible to the masses. Those centers would also provide free essential drugs and diagnostic services.

Secondly, India planned to launch a program that would increase government-funded healthcare coverage for more than 100 million low-income families. Each family would receive government-funded medical coverage of up to Rs. 500,000 for secondary and tertiary care hospitalization.

Tax relief for some corporations

Thursday's budget reduced corporate tax to 25 percent for companies that reported a turnover of up to Rs. 2.5 billion in fiscal 2017. The move will likely benefit micro, small and medium enterprises, many of which suffered as a result of India's currency and tax reforms in recent years.

As a result of that tax cut, Jaitley said the government would forego an estimated revenue of Rs. 70 billion in fiscal 2019. Companies with a turnover of more than Rs. 2.5 billion will be taxed at 30 percent.

On the other hand, Jaitley announced an increase in customs duty on certain imported items to bolster the government's Make in India initiative. Those ranged from electronics to edible oils and accessories. For example, customs duty on mobile phones would be increased from 15 to 20 percent — certain imported components of mobile phones and television sets would be taxed at 15 percent.

Infrastructure spending

Jaitley said India needed to invest more than Rs. 50 trillion in infrastructure to increase its GDP growth and improve connectivity through roads, railways, ports and airports. India planned to develop about 35,000 kilometers of roads connecting the country's interior and backward areas at an estimated cost of Rs. 5.35 trillion.

Since India's railway budget was merged with the union budget, Jaitley said the government planned to spend nearly Rs. 1.5 trillion on improving the infrastructure and carrying capacity for trains.

Long-term capital gains tax

In an unexpected move, Jaitley said the government would impose a 10 percent tax on any profits exceeding Rs. 100,000 from shares held for more than a year, without indexing. Gains from stocks held for less than 12 months will continue to be taxed at 15 percent.