Union Budget 2018: An Overview
By: Subhajit Mishra
Former US President Jimmy Carter once famously said, “Go out on a limb. That’s where the fruit is.” However, Union Finance Minister Arun Jaitley did not specifically find the need to go out on a limb while preparing this year’s budget because he probably felt that the Indian economy needed to stand steady for the time being rather than be leaping for high-hanging fruits. The Indian economy, which was still adjusting to what was the biggest change in the indirect taxation system in the history of Independent India with the rollout of the Goods and Services Tax (GST), probably needed a budget to steady the economy and that is what FM Arun Jaitley seemed to have delivered. Safe is the word for this year’s budget.
At the beginning of his budget speech, Finance Minister Arun Jaitley stated the primary focus of this year’s budget to be the following:
· strengthening agriculture and rural economy
· provision of good healthcare to economically less privileged
· infrastructure creation
· working with the states to improve the quality of education in the country
Now, let us take a look at how much of that promise has been delivered on and what impact this budget will have on our economy and the different sections of the society involved.
Agriculture and Rural Economy
The prime focus of this year’s budget has been agriculture and the rural economy. The government has introduced a slew of measures for the agricultural sector the most important of which is the assurance on MSP. The Union Budget has promised that minimum support prices for all crops will be fixed to guarantee a 50% return over their production costs. It also includes farming companies getting a tax holiday for a period of 5 years. The government has made an additional allocation of almost Rs 1,000 crore for extending and strengthening irrigation facilities, and improving groundwater management in rural areas. All this makes for a good reading for the rural economy and agricultural sector but it comes at a cost. On the fiscal deficit, the budget estimate of 3.2% of GDP for this year has been revised to 3.5 per cent — the second year in a row that the government has pushed back its stated fiscal commitment to push through its spending aimed at the Indian hinterland.
Healthcare
The showpiece of the Modi government’s pre-poll Budget is an ambitious National Health Protection Scheme (NHPS) for over 10 crore “poor and vulnerable” families — an estimated 50 crore individual beneficiaries — with coverage of up to Rs 5 lakh per family per year. Described as “the world’s largest government-funded healthcare programme.” Union Finance Minister Arun Jaitley also announced one medical college for every three Parliamentary constituencies, and at least one in every state. The NHPS is expected to be the mother of all insurance schemes in the country with sum assured estimated to touch Rs 50 lakh crore, almost one-third of India’s stock market value, or market capitalisation. The success of the scheme will largely depend on the pricing — the premium to be charged — and the settlement of claims.
Defence
The government has increased the defence budget by 5.91 per cent for FY 2018–19 to Rs 2,95,511.41 crore, the allocation is estimated at around 1.58 per cent of the country’s GDP — the lowest since 1962. An additional amount of Rs 1,08,853.30 crore has been provided for defence pensions. The defence budget, which will account for 12.10 per cent of the total central government expenditure. Union Home Ministry’s budgetary provisions have been pegged at over Rs 92,600 crore for the next fiscal, a hike of 10.5 per cent over 2017–18, with a special emphasis on improving infrastructure of the police forces. Rs 1,750 crore has been allocated for the development of border infrastructure, amidst tension along the Indo-Pak and Sino-Indian borders.
Tax
A 10% taxation was imposed long-term capital gains exceeding Rs 1 lakh arising from sale of listed equity shares or units of equity-oriented mutual funds. The Finance minister suggested this as part of a strategy to route business surpluses to manufacturing and real economy sectors, away from financial assets. The Union Budget for 2018–19 proposes a hike in customs duty on 46 items including mobile phones, automobiles and components, imitation jewellery, video game consoles, smart watches, electronic items such as TV/LED panels and fruit juice, a move aimed at protecting the domestic industry. The hiked duty on the wide range of items is estimated to result in revenue flow of about Rs 6,000 crore annually. The Union Budget was disappointing for salaried taxpayers, with the government not making any changes to the existing structure of personal income tax rates for individuals.
Railways and Aviation
Capital spending has been pegged at Rs 1.5 lakh crore for railways for FY 2018–19. Unlike the last Budget, the Railways plan to allocate resources on broad categories while detailed projects will be fitted into them later. In aviation sector, apart from its push to expand airport infrastructure in priority areas to promote the regional connectivity scheme, the Centre has also proposed expansion of airport capacity by more than five times to handle a billion trips a year, compared with nearly 180 million trips now with the growing air passenger traffic in India, which, while being seen as an opportunity, is also considered to be a challenge given the limited capacity at larger airports such as Delhi and Mumbai, which are nearing saturation.
Industry
In a big boost to the small and medium enterprises, the finance minister Arun Jaitley announced a reduction in corporate tax rate from existing 30 per cent to 25 per cent, for companies with turnover of up to Rs 250 crore. While the decision will benefit the entire class of micro, small and medium enterprises that account for almost 99% of companies filing their tax returns, it will lead to an estimated revenue loss of Rs 7,000 crore in the financial year 2018–19. The markets, however, were left disappointed with the announcement as they expected a reduction in corporate tax rates across the board. While the Budget has been pro-poor, it is a bit of a missed opportunity when it comes to the investor community and corporates as they did not see much happening on that front. In a move that could benefit the ecosystem for entrepreneurs, the Union Budget for 2018–19 has not only extended tax exemption for start-ups by two years but also changed the definition to widen the ambit beyond technology-related venture. Startups that are incorporated on or after April 1st, 2016 but before April 1st, 2021 will be eligible for this benefit.
Conclusion
Increased investment in sectors like agriculture and healthcare were expected in this budget, with the salaried class of India also expecting a change to the existing structure of personal income tax rates for individuals. While there has been prudent increase in investment in different sectors, the biggest disappointment from this budget was government not making any changes to the existing structure of personal income tax rates. With this being the last full Budget before the Lok Sabha 2019 elections, Arun Jaitley was expected to deliver a budget to reinforce the Narendra Modi government as one with pro-poor credentials and dissipate mounting pressure to address discontent over falling farm income and economic slowdown. And he has duly delivered along those lines.
