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India shows its budget in a wake of cash crackdown

India shows its budget in a wake of cash crackdownIndia unveiled a budget on Wednesday to help the poor with hikes in government spending and cuts in taxes as the country is trying to minimize the effect of recent crackdown on "black money".

Finance Minister Arun Jaitley announced increases in spending on rural areas, infrastructure and fighting poverty, and sought to assure lawmakers and the country that the economic impact of the government would wear off soon.

Jaitley halved the basic personal income tax rate, and cut taxes on small firms that account for 96 percent of India's businesses, while imposing an income-tax surcharge on the better off.

"This budget is yet again devoted to the wellbeing of villages, farmers and the poor," the 66-year-old PM Modi said in a national TV address after Jaitley delivered his two-hour budget speech.

Jaitley raised the target for the federal fiscal deficit to 3.2 percent of gross domestic product in 2017/18 - effectively postponing the goal of bringing it down to 3 percent.

Indian shares rose 1.5 percent after Jaitley unveiled a range of incentives to boost infrastructure investment and develop the rural economy. But government bonds ticked lower on concerns over the higher deficit.

Jaitley hiked capital investment by 25.4 percent, and announced a 24 percent increase in rural and farm spending. Health spending will rise by 28 percent.

But there was no extra room to increase support for India's troubled state banks. Jaitley said he would pump in 100 billion rupees ($1.5 billion), in line with earlier plans.

On the tax side, Jaitley's standout announcements were the halving of the lowest rate of personal tax to 5 percent that applies on incomes between 250,000 and 500,000 rupees ($3,700-$7,400). Better-off taxpayers will pay a 10 percent surcharge.

Small businesses with turnover up to 500 million rupees a year will see their tax rate cut to 25 percent from 30 percent. Taken together, the cuts in direct taxes would cost the public purse close to $3 billion.

In a surprise move, Jaitley said India would abolish the Foreign Investment Promotion Board, in a move to cut a layer of bureaucracy and make it easier to do business in India, which ranks a lowly 130th in a World Bank league table.

Jaitley also announced a tightening of rules governing the funding of political parties, which are notorious for relying on undeclared donations to cover the vast expense of campaigning in the world's largest democracy. This included slashing the maximum cash donation to 2,000 rupees ($30) and requiring parties to file income tax returns.
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