Union Budget 2018-19 - Key Takeaways

Jayanta Roy Chowdhury

 With elections due in seven state assemblies this  year and a General Election next year, the budget was expected to stoop to please. Union Finance Minister Mr. Arun Jaitley did not disappoint on that score - the budget for 2018-2019 was loaded with a slew of bonanzas for farmers whose crop price support is to be expanded and raised and a health insurance scheme which is being billed as the world's largest promising to cover some 500 million people.

Some Rs 14.34 lakh crore have been allocated for agriculture, rural infrastructure and rural housing. The spending thrust in rural India  could create employment of 321 crore person days, 3.17 lakh kilometers of rural roads, 51 lakh new rural houses, 1.88 crore toilets, and provide 1.75 crore new household electric connections.

The minimum support price, a guaranteed price the Government pays to farmers for select food crop is likely to be expanded, the budget indicated promising a price which would be 50 %  over and above costs, for most Kharif or Monsoon crops.  The price acts as a benchmark for agricultural prices all over the country and while this could mean more income for farmers, economists fear it could also push up prices.

Explained Mr. Jaitley later in the day in a remarkably candid comment : "rural and farming communities were our primary focus." With some 70 % of India's electorate living in rural areas such a refocusing through the budget was expected by most analysts.

Mr. Jaitley had another worry to try address through his  budget - jobs. Two disruptive economic events - Demonetisation and a new GST tax system -  are believed to have slowed down the economy. To help small and medium businesses which shed the most jobs as they were the worst hit by the twin disruptions of demonetization and GST, the Government slashed taxes on firms with a turnover of up to Rs 250 crore from 30 % to 25 % and promised to pay the firms' share of provident fund contribution for new employees for a year. 

However, where Jaitley's budget fell short and got a thumbs down was in the numbers game. A Rs 50,000 crore shortfall in the GST collections, inability to earn revenues on a number of counts including spectrum auction meant it slipped on its own fiscal deficit targets.  This year, instead of a fiscal deficit of 3.2% of GDP it will end the year with 3.5% and next year the deficit is expected to continue to be high at 3.3%.

"Just 11 months of GST tax revenues (instead of a full year) and a set of structural reforms (read demonetization and GST) had their own impact on the fiscal numbers," admitted Mr. Jaitley.

This Catch 22 situation where the Government wants to spend more to please but has its hands constrained by lack of a sure ability to raise taxes meant little give-aways for the middle class.

The salaried middle class were awarded a re-introduction of a Standard Deduction of Rs 40,000 a year, in lieu of miscellenous medical expenses and transport allowance. However the gain after calculating the possible savings is not expected to be more than a few hundred rupees in taxes saved per month.

Modicare

The much awaited health insurance scheme for 100 million families or 500 million poor worth a cover of about Rs 5 lakh a family or Rs. 1 lakh per person, was more in the nature of an announcement for the time being. For the time being a token budgeted expenditure of Rs 2000 crore has been provided but this could be increased once the full calculations for the scheme is worked out.

The scheme officially called the National Health Protection Scheme, has been dubbed 'Modicare' on social media will be a government-funded health care programme. This scheme addresses secondary and tertiary care hospitalisation and covers both "prevention and health promotion", Mr. Jaitley said.

The Modicare nickname comes as a variant of the term Obamacare, or the Affordable Care Act, which was enacted in 2010 in the US by President Barrack Obama to ensure that all Americans - have access to affordable health insurance. It offered consumers discounts - called 'tax credits' - on government-sponsored health insurance plans, albeit with certain caveats. It also expanded the Medicaid assistance program to include more people who could not afford to pay for health care.

Farmers Budget

In an attempt to win over the rural masses, the Union Budget 2018-19 has turned its focus to measures to boost agricultural production and rural economy, new projects as well as enhanced support for existing schemes to the tune of Rs 14.34 lakh crore.

Finance Minister Arun Jaitley presenting the Modi government's last full-year budget before the 2019 Lok Sabha polls, focused on boosting employment, connectivity, housing, toilets and electricity connections in rural areas.

"The focus of the government next year will be to provide maximum livelihood opportunities in rural areas by spending more on livelihood, agricultural and allied activities and construction of rural infrastructure," Mr. Jaitley said.

"In the year 2018-19, for creation of livelihood and infrastructure in rural areas, total amount to be spent by the ministries will be Rs 14.34 lakh crore, including extra-budgetary and non-budgetary resources of Rs 11.98 lakh crore," he added.

Besides employment due to farming activities and self employment, the expenditure is aimed at creating employment of 321 crore person days, 3.17 lakh kilometers of rural roads, 51 lakh new rural houses, 1.88 crore toilets and provide 1.75 crore new household electric connections besides boosting agricultural growth.

One of the first steps Mr. Jaitley announced was setting the minimum support price (MSP) at 1.5 times the cost of production of the kharif (summer) crops, which include maize, soya bean and pulses. He said the MSPs of most of rabi (winter sown) crops have already been raised.

Mr. Jaitley said the government will ensure farmers get MSP even if prices fall, for which Niti Aayog will discuss with state governments the putting in place of an institutional mechanism to ensure that farmers get better prices for their produce.

He also announced an increase in agricultural credit by 10 per cent to Rs 11 lakh crore. Referring to 86% farmers in India who Jaitley described as small and marginal, he said efforts will be made to link them to markets to get adequate remuneration for their produce.

He said the government will develop and upgrade the existing 22,000 rural haats into Gramin Agricultural Markets (GrAMs). Physical infrastructure will be strengthened in these GrAMs using Mahatma Gandhi National Rural Employment Guarantee Act and other schemes.

The GrAMs will be electronically linked to e-NAM (national agriculture market) and exempted from regulations of APMCs (Agricultural Produce Marketing Committee). They will provide farmers facility to make direct sale to consumers and bulk purchasers.

The government has brought forward the target of connecting all eligible habitations with an all-weather road under Pradhan Mantri Gramin Sadak Yojana (PMGSY) to March, 2019 from March 2022 and has now decided to widen the ambit of the scheme further to include major link routes which connect habitations to agricultural and rural markets (GrAMs), higher secondary schools and hospitals.

Among the other measures announced by the finance minister were development and upgradation of 22,000 rural haats or markets for which he set aside Rs. 2,000 crore. He further announced a provision of Rs. 500 crore for "Operation Green" to promote agriculture logistics.

The government will also make efforts to link villages and rural roads to agriculture markets, secondary schools and hospitals under the Pradhan Mantri Gram Sadak Yojana (PMGSY), Mr. Jaitley said.

The corpus of funds available to women in self-help groups was Rs. 42,000 crore in 2016-17, Jaitley said, adding that this would be increased to Rs. 75,000 crore by March 2019.

The government also announced an increase in funds allocated for the National Rural Livelihood Mission under the rural development ministry to Rs5,750 crore in 2018-19, from Rs. 4,500 crore in 2017-18.

Mr. Jaitley allocated Rs 55,000 crore for Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS) for the financial year 2018-19, signalling the government's continued intent to address concerns of rural distress in a politically significant year. In Budget 2017-18, the finance ministry had initially allocated Rs. 48,000 crore for the world's largest job guarantee scheme.

The finance minister announced an allocation of Rs. 2,600 crore to ensure irrigation facilities in 96 irrigation deprived districts, besides funds to boost fisheries and animal farming. The raft of measures announced by Jaitley come after farmers in several states protested a crash in crop prices last year.

The government will set up fisheries and aqua-culture infra fund and animal husbandry infra fund with an outlay of Rs. 10,000 crore.  Jaitley also doubled the allocation of food processing ministry to Rs. 1,400 crore.

To partially make up for tax-give-aways to the small and medium businesses, the Government also brought back the Long Term capital Gains tax in a milder form - a 10 % tax on capital gains of Rs 1 lakh and more in a year, allowing grandfathering of investments up to end-January.  The move is expected to earn the Government around Rs 20,000 crore in the first year.

Fiscal Framework

The Government has finally decided to stop letting itself be straight-jacketed by a fiscal framework and opt for a relaxed time-frame now that its global sovereign ratings has been recently raised.

Instead of meeting this year's fiscal deficit target of 3.2% of GDP, the Government has decided to relax it to 3.5%. This however was inevitable       given the fact that it was falling short of revenue on various heads to the extent of Rs. 1,17,714 crore.

In notes circulated, the finance ministry explains that : " there has been a slight bump up in the fiscal deficit figure from the budgeted amount of  Rs. 546531 crore (3.2 per cent of GDP) in BE 2017-18 to Rs. 594849 crore (3.5 per cent of GDP) in RE 2017-18. The increase in the fiscal deficit over and above the figures that have been budgeted in BE 2017-18 is mainly because of the spill over impact of the new indirect tax regime. This is a one-time cost imposed on the fiscal by the change to a new system for paying indirect taxes."

Analysts said the relaxed fiscal stance has been taken after a rating upgrade by Moody's. The direction of fiscal deficit announced in the Budget is in line with our forecast. We expect that fiscal deficit targets will be broadly achieved," Global rating agency Moody's said in a note.

Moody's Investors Service upgraded India's sovereign credit rating for the first time in nearly 14 years in November, saying continued progress on economic and institutional reforms would boost the country's growth potential. Moody's rates India at "Baa2" with a "stable" outlook.

The Government is also now setting back its fiscal deficit target to 3.3% for next year and does not hope to bring the fiscal deficit target to 3% till 2021, instead of next year ! Direct taxes have been projected to increase to Rs. 1150000 crore in BE 2018-19. This implies a growth of 14.4 per cent in 2018-19 compared to RE 2017-18. The increase in direct taxes is expected to be from both the arms of direct tax, namely Corporate Income Tax and Personal Income Tax. These have been budgeted to increase to Rs. 621000 crore and Rs. 529000 crore respectively.

Indirect taxes in BE 2018-19 are expected to be Rs. 1116000 crore. It is anticipated that the GST revenues will be Rs. 743900 crore in  2018-19 compared to Rs. 444631 crore,  in 2017-18.  The non-GST component of the indirect taxes would be Rs. 372100 crore in 2018-19. It is expected that Indirect taxes will grow by 17.3 per cent in 2018-19 over the previous year.

Similarly, the government now is not trying to reduce its debt-to-GDP ratio to the prescribed 40% within the next three years.

Total outstanding liabilities of the Central Government has now been re-calibrated at about 50.1 per cent of GDP in  2017- 18 and is expected to  fall to about 48.8 per cent at the end of the financial year 2018-19. "Keeping in view the fiscal estimates in the medium-term, the total outstanding liabilities have been estimated to decline to about 46.7 per cent and 44.6 per cent of GDP at the end of FY 2019-20 and 2020-21 respectively. As proposed in new framework, the Central Government will endeavour to reduce its debt/total outstanding liabilities to 40 per cent of GDP by financial year  2024-25," North bloc said.

(The Author is a Senior Journarlist and Economic Commentator)