India

India Budget 2017: Promise to boost rural spending

India farmer Image copyright AP
Image caption Mr Jaitley said agriculture was expected to grow at 4.1% in 2016-17

India's government has unveiled its annual budget, with promises to boost rural spending and pull more people out of poverty.

It comes months after the controversial withdrawal of high value banknotes which caused chaos in the economy, hurting farmers and the poor most.

Finance Minister Arun Jaitley allocated funds to bring more irrigation, roads, electricity and sanitation to villages.

Farmers would also have more access to credit, he said.

Spending to get out of trouble

The government also plans to spend a record $7.09bn (£5.69bn) on a scheme which guarantees every rural household 100 days of work each year.

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Media captionFor the first time, Indian's finance minister said the banknote ban had been "disruptive"

Overall rural and farm spending would be increased by 24% as part of the government's plan to double farm incomes over five years, Mr Jaitley added.

Tax plan

The finance minister also revealed plans to halve income tax rates for people earning between 250,000 rupees to 500,000 rupees ($3700; £2945 to $7,400; £5888) annually, which Mr Jaitley said should also encourage more people to pay tax.

"The present burden of taxation is mainly on the taxpayer and the salaried employees who are showing their income correctly," he told parliament.

"Therefore post-demonetisation, there is a legitimate expectation of this class of people to reduce their burden of taxation. Also an argument is made that if nominal rate of taxation is kept at a lower slab, more people will prefer to come in the tax rate."

It is not clear how many people the move would impact, but India has a long-running problem of collecting income tax.

In 2013, the latest year for which data is available, only 2% of Indians completed a tax return and only 1% paid tax.

Image copyright EPA

Other proposals announced in the budget speech included:

  • Cutting tax rates on small and medium-sized companies
  • Banning cash transactions for sums above 300,000 rupees ($4440; £3533)
  • Political funding reforms including a cap on the cash donated to a political party by a single source

Nothing for foreign investors: Analysis by Shilpa Kannan, BBC News, Delhi

Arun Jaitley had to do a balancing act between the need to stimulate India's growth and ensuring that the country's spending is under control.

But I've been at an event run by one of India's biggest business groups, the CII, and the mood is one of general disappointment.

The finance minister had promised to gradually bring down corporation tax from 30% to 25% - but he didn't do it last year and it didn't happen this year either.

Many here are saying there was nothing in for foreign or domestic investors. They fear a flee of money from India.


'Bright spot'

India's economy is expected to grow by 6.5% in the year to March 2017, down from 7.6% the previous financial year, a key economic report revealed ahead of the budget.

However, the country was a "bright spot" in the world economy, Mr Jaitley said, adding that the impact on growth from the government's cash crackdown would wear off soon.

He said the currency ban was a "a bold and decisive measure" and would leaded to larger GDP, more tax revenues and a cleaner economy.

The dramatic move to scrap 500 ($7.60) and 1,000 rupee notes was intended to crack down on corruption and so-called black money or illegal cash holdings.

But the Economic Survey, released on Tuesday and written by the government's chief economic adviser, admitted the rupee withdrawal had been bad for economy. in the short term.

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