India’s finance minister pledged to raise spending on the rural poor and halved the basic rate of income tax in his annual budget Wednesday, seeking to ease the pain of a shock move to ban high-value banknotes.
Arun Jaitley defended so-called demonetization, saying it would increase revenues by forcing people to declare untaxed wealth, but conceded it had hit the economy and promised relief for the poor and middle classes ahead of key polls.
Jaitley pledged to double the income of farmers, who have been hard hit by the currency ban, in the next five years and bring 10 million households out of poverty by 2019.
He also promised more affordable housing for the poor and halved the basic rate of income tax to five percent.
The finance minister said tax evasion had become India’s “new normal” as he laid out further measures to increase the number of people paying their taxes after last November’s currency ban.
He said the rate cut was intended to reward those already paying income tax, and encourage more to do so. The basic tax rate applies to those with annual incomes of between Rs250,000 ($3,700) and Rs500,000 ($7,415).
Analysts said the budget was in line with expectations that the government would target communities worst hit by the move, with elections beginning in the key battleground state of Uttar Pradesh (UP) later this month.
“That is applying a balm to this segment, which is broadly the lower middle class and which has been more vulnerable to the cash ban,” said Sunil Sinha, principal economist at India Ratings & Research, referring to the tax cut.
“This is what has been the flavor of the budget — to reduce the pain of demonetization.”
Jaitley relaxed India’s fiscal deficit target to 3.2 percent for the financial year 2017/18, citing the increase in government spending, but said it would be back on track for a 3-percent deficit the following financial year. 
Targeting corruption, Jaitley announced a ban on cash transactions worth more than Rs300,000 ($4,449) and said the government was considering new legislation to seize the assets of “big time offenders” who flee abroad.

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