How does Union Budget affect Bengaluru?

From increased service taxes and import duties to boost to low cost housing sector, Arun Jaitley has introduced many measures in his budget. How will these impact the city of Bengaluru?

While the jury is out on the third Union Budget by Finance Minister Arun Jaitley, one aspect stands out: it brought little news, either good or bad, for cities.

However it is important to note that budgets are not essential for the city level expenditures. The provision relevant for cities such as public health, land tenures, local government, etc fall under the State List of Indian Constitution. In the case of Bengaluru, it is the Karnataka State budget or the Bruhat Bengaluru Mahanagara Palike budget that has more impact on the ground than the Union Budget.

Having said that, the Ministry of Urban Development has been provided 45% more allocations as compared to the last budget. This increase in the budget has been due to larger provisions made for the existing schemes such as Atal Mission for Rejuvenation for Urban Transformation (AMRUT), Mission for development of 100 Smart Cities and Metro projects. The allotment last year was Rs 143 crore when Jawaharlal Nehru National Urban Renewal Mission was clubbed with the Smart Cities Mission. After JNNURM was replaced with Atal Mission for Rejuvenation for Urban Transformation in June 2015, this year the allotment made was a phenomenal Rs. 4090 crore. However, these allotments are hardly enough to cover for expenditure requirements of the city.

Thrust to low cost urban housing projects

The Finance Ministry’s commitment to help the rural poor is extended to the urban realm as well, most significantly, through the instrument of affordable housing. The government has tried to incentivise the supply of affordable housing in urban areas. It is rightly observed that the effort to increase housing supply through construction works will also generate jobs and increase the aggregate demand in the economy.

The Finance minister announced “100% deduction for profits to an undertaking from a housing  project  for  flats  upto  30  sq. metres  in  four  metro  cities  and  60  sq.metres  in other  cities,  approved  during  June  2016  to  March  2019…”  In the same vein, Arun Jaitley also proposed “to give deduction  for additional interest of Rs. 50,000 per annum for loans up to Rs 35 lakh sanctioned during the next  financial  year, provided the value of the house does not exceed Rs.50 lakh.”

Uniquely, the government has also proposed a standard deduction of 30% against the amount received on account of unrealised rent while computing the house property income.  The various tax exemptions for first-time home owners and tenants will definitely help the middle-class.

The housing loan scheme of extra 50,000 rebate for the loans below 35 lakh may not help most beneficiaries who want to buy houses within the city of Bengaluru, because the housing in the central business district and surrounding areas costs more than Rs 50 lakhs. But they can look for affordable decent housing in the peripheral areas or next level cities.

In general, life in a city is likely to become costlier with eating out, entertainment etc becoming costlier, courtesy increased service taxes.

One-day incorporation of companies to help start ups

A significant part of the finance minister’s speech focused on encouraging startups in India. The good news for the IT capital is that the budget is generous on startups and Micro, Small and Medium Enterprises (MSMEs). The benefits under the budget range from tax exemption for startups for first three years to allocation of 1500 crore for development of small entrepreneurs under the Prandhan Mantri Mudra Yojana.

Although well-intended, these steps do not hold much weight. Instead, a more relevant step taken by the Finance minister has been in the form of 1-day incorporation plan via a mobile app. Incorporating a new business is one of the biggest barriers faced by the MSMEs and startups in terms of the cost of doing business. Hence it is important that enough focus is provided in increasing the ease of doing business in the city.

Cars to be costly: Will it affect the buyers’ behaviour?

In addition to boosting the startups, the budget also attempts to reduce congestion and traffic by increasing taxes and introducing an additional 1 per cent ‘luxury tax’ on all cars above Rs 10 lakh. However, the attempt fails to understand the nuances involved in the city traffic. Traffic in the city is dependent on various factors such as transport options available, the policing and enforcement of traffic rules, the type of vehicles that dominate the road etc.

Moreover, a minor increase in prices of luxury goods does not affect the buyer who is already spending a huge sum. The Union government does not hold enough levers to affect any of the relevant factors affecting city traffic.

Like traffic, sanitation is also a city problem beyond the grip of  the union government. The Swachh Bharat Abhiyan was started by Union government to eliminate open defecation and manual scavenging, apply modern scientific methods for waste disposal and solid waste management, achieve healthy sanitation, and change the behaviour and mindsets of people about cleanliness. It is less of a policy than a campaign.

Much depends on city and state budgets

This FY the Finance Ministry has allocated Rs. 11,300 crores for the Swachh Bharat Mission. Once the Union government allocates this money to the state, it is the prerogative of the state governments to implement the project at the city level. Karnataka was allocated Rs. 80.1 crore for the financial year 2014-15 which was reduced to Rs 30.86 crore. Despite the low allocation, the city of Mysore from Karnataka managed to top the list of the cleanest cities in India.

While this budget has done something for cities in terms of housing, infrastructure, and congestion, the more relevant budget to look out for is the State Budget of Karnataka, which is due in March. Much depends on how the state government decides to utilise the money allocated to it under the Central Schemes, how it uses the provisions made by the Fourteenth Finance Commission, and how much financial resources it devolves to governing institutions such as Bruhat Bengaluru Mahanagara Palike and parastatal institutions such as Bangalore Development Authority.

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