The 2018 Union Budget, presented by Finance Minister Arun Jaitley, is the first budget after rollout of economic reforms like GST, PSU bank recapitalization, and the last full-year budget before national polls in 2019. As expected, a strong element of populism was witnessed in the budget which was broadly focused on agriculture, rural development, health, education, employment, MSME and infrastructure. The Government has taken up initiatives to direct the benefits of structural changes and growth to reach farmers, poor and vulnerable sections of the society and to uplift the under-developed regions. This budget would help boost farm income and rural infrastructure.
A gamut of measures like setting the MSP at 1.5x the production cost for kharif crops, allocation of Rs 14 bn for enhancing food processing and Rs 11000 bn credit for farm sector are some of the big ticket announcements that came as boost to the agricultural sector. The government has decided to follow a cluster-based approach for stimulating agricultural production. To realize India’s agri-exports potential of US $100 bn against current exports of US $30 bn, export of agri-commodities will also be liberalized.
Another sector which emerged as a big winner of the budget was the social sector. Healthcare and education received their share of focus through a huge National Healthcare Protection Scheme, allocation of Rs 1000 bn for revitalizing and upgrading education centre over the next four years, digitalization of education and training of teachers. Despite the larger belief that the main focus of the budget would be on the agricultural economy, the infrastructure sector remained one of the largest target areas. A big infrastructure spending push with an investment of Rs 5970 bn, boost to affordable housing and hike in budgetary allocation on railways will contribute to much needed strengthening of the economy.
All this came at a cost of fiscal slippage - the fiscal deficit target is 3.3% of GDP in 2018-19. As for taxes, the corporate sector, which was expecting a tax cut on commensurate lines as that of the US economy, was partly obliged. Corporate tax for all companies with a turnover of upto Rs 250 crs has been reduced to 25%, a move to boost MSME sector. This proved to be a major disappointment to large firms which will still be taxed at 30%. The fear of equity losing its long-term capital gain tax benefits turned out to be a reality with introduction of long term capital gain tax (without abolition of securities transaction tax) – in case where long term capital asset is in the nature of an equity share or where it is in the nature of a unit of an equity oriented fund or a unit of a business trust - of 10% each, which could dampen market sentiment in the near term. Another disappointment for populace was that no change in the income tax rates for salaried class was announced. In a pre-budget 2018 survey, 13 out of 21 participants believed income tax slabs to be revised in the budget. Introduction of standard deduction of Rs. 40,000 a year would not really incentivize salaried class.
After raising over Rs 912.53 bn as against the disinvestment target of Rs 725 bn for 2017-18, it was expected that the government would set an even more ambitious disinvestment target this year; it did peg it at Rs 1000 bn for 2017-18 and at Rs 800 bn for 2018-19. Customs duty on mobile phones and various electrical components was hiked, much in line with anticipation of market experts, in a bid to boost domestic electronics manufacturing under GOI’s ‘Make in India’ scheme.
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While being liberal in its announcements for rural India, the budget has been frugal in its giveaways to the middle class and the corporate sector. Even though a lot was left wanting, especially on the investment front, the budget managed to address quite a few economic challenges that India faces. The ambitious rural package in this budget emphasizing on several key issues like doubling income of farmers by 2022, bigger outlays for education schemes, prioritizing healthcare and other basic amenities rolled out will usher in a new age for Indian rural population. By targeting the rural economy and the poor, it can be said that it was a budget for the masses.