Story Of The Week

The Highlights of the Union Budget 2018

“For a student, it is absolutely essential to be well versed with the facts and figures of the Union Budget 18”

Dr. S.P. Sharma

Chief Economist, PHDCCI

With the closure of an eventful last year, all eyes were set for the budget to be disclosed on 1st February. This year’s budget came against various reforms and fiscal stress. Growth had bottomed out, and the key drivers had to be decided by the budget.

The government had breached the fiscal deficit of GDP target of 3%. The fiscal deficit, as opposed to a budgeted 3.2%, stood at 3.5% in fiscal 2018. This breach was despite a cut in capital expenditure. Thus, if the government had stuck to its targeted Capex, the fiscal deficit would have been higher. Further, the revenue spending of the economy has increased with the cost of productive spending. Thus, the fiscal consolidation path has got stretched. The government now expects to achieve 3% fiscal deficit by 2021.

This year, the key focus of the budget has been on the Rural Sector with measures pertaining to supporting rural demand and infrastructure. Other key announcements include The National Health Protection Scheme <NHPS>, lowering of corporate taxes for MSME and imposition of long-term Capital Gains Tax.

As Mr. R.K. Dubey said in the Post Budget Session organized at IMI, the implications and interpretations of the budget will depend on the people interpreting it. The budget greatly supports the rural economy, but the road will get tougher for the middle class.

The middle class, which has been enjoying a plethora of Subsidies, may see its pockets getting loose, as pointed out by Dr. Rajat Kathuria.

In today’s story, we will be trying to analyze few sectors with respect to the budget.

Agriculture

The rural sector has seen some of the key initiatives in the budget. According to the budget, the Minimum Support price(MSP) for Kharif crops will be at least 1.5 times the production cost.

  • According to CRISIL, this will increase the exchequer’s bill by nearly Rs 7,000 crores. Further, the payment between mandi price and MSP to farmers could increase the government’s burden by over Rs 20000 crore.

On the Irrigation front, the allocation to Pradhan Mantri Krishi Sichayi Yojna has been increased 26% to 9324 crores. The fund will be split between Ministry of Water Resources, Department of Agriculture, Cooperation and Farmers’ Welfare, and Department of Land Resources.

In rural infrastructure, an Agri Market Infrastructure fund has been set up with an outlay of Rs 2000 crores to be utilized for developing infrastructure in the 22000 GrAMs and 585 agriculture produce market communities.

In all mega food parks (42), state of the art testing facilities will be set up.

For addressing the price volatility of perishable commodities, Rs 500 crore outlay will be announced.

Further, there has been a farmer subsidy allocated at Rs 70900 crores.

  • The timely payment of subsidies will lead to the reduction in the working capital requirement of fertilizer companies.

Financials

Under Pradhan Mantri Mudra Yojna (PMMY) and Agriculture sector, high credit targets have been set.

PMMY: The 3 lakh crore allocation will Benefit micro enterprises. Further, the 11 Lakh Crore Rs allocation to the agriculture sector is expected to have no major impact.

Under the National Housing Bank, affordable housing fund will be set up, this will boost real estate sector.

Three Public Sector General Insurance companies: National Insurance Company Ltd, United India Assurance Company Ltd and Oriental India Insurance Company Ltd to be merged. This Would lead to better capital usage and operating efficiency

A five-fold increase in TDS Limit will be  Beneficial to senior citizens

SEBI will mandate large corporates to meet 1/4th of their requirements (financial) from the bond market. This step is expected to provide the necessary support to the MSME sector

Infrastructure

In this Budget, the allocations for the Infrastructure sector has enhanced to Rs. 5.97 lakh crore; a 20 percent increase from the last year allocation of Rs. 4.94 lakh crore. This time a major allocation has been made for the transport sector.

The Urban renewal programme, Smart Cities got increased allocation of more than Rs 6,169 crore while under the Urban Rejuvenation Mission, Atal Mission for Rejuvenation and Urban Transformation (AMRUT), the proposed allocation is Rs. 6,000 crore.

According to Arun Jaitley, his ministry will leverage the long-term debt provider for infrastructure projects, India Infrastructure Finance Corporation Limited (IIFCL) for investment in education and health infrastructure.

Talking about the Road sector, the National Highways Authority of India (NHAI) will consider raising funds to the Bharatmala project which aims to build about 35,000 km of highways in Phase 1 at a cost of Rs. 5,35,000 crore.

Coming to the Civil Aviation Sector, with the growing domestic air passenger traffic in the last three years, the budget proposed a new NABH(NextGen Airports for Bharat) Nirman initiative for expansion of airport capacity by more than five times to handle a billion trips in a year.

The proposal of Government to develop ten prominent tourist sites as Iconic Tourism Destinations can be seen as a big boost to tourism in India. And the proposed decision of setting up 5,00,000 Wi-Fi hotspots can provide broadband access to 5 crore rural citizens.

Oil and Gas

A Proposal to release additional 3 crores free LPG connections to poor women in Pradhan Mantri Ujjwala Yojna (PMUY) scheme. This will increase the benefits to 8 crore families from 5 crores.

  • LPG Consumption may rise due to additional rollout of LPG connections

Social welfare surcharge of 10% on aggregate duties of customs on imported goods (except petrol & diesel). This will replace 3% education CESS.

  • Social Welfare Surcharge may marginally increase input prices of imported LNG and some other Petroleum Products   

MSME

Reduction in corporate tax from 30% to 25% for companies having a turnover less than 250 crores.

  • Will help MSMEs to increase margins.

Pradhan Mantri Mudra Yojna:  Target set at Rs 3 Lakh Crore. Thus, the focus of this sector is on easy credit availability and lower tax rates

Healthcare

National Health Protection Scheme (NHPS):

Considered to be the largest healthcare programme, NHPS to provide cover for 10 crore families, which turns out to be 50 crore people of up to Rs 5 lakh per family per annum, for healthcare/hospitalization expenses. Going by NITI Aayog CEO, Mr. Amitabh Kant words, this scheme can create lakhs of jobs and bring accountability to the public health system in India.

Higher allocation under the RSBY (Rashtriya Swasthya Bima Yojna) to 2000 crore in fiscal 2019 from 1000 Crores in 2018.

  • Expected to increase health insurance penetration among below poverty line families.

The Government is planning to set up 1,000 more Jan Aushadhi stores, the affordability of drugs for the consumers will increase. The share of generic drugs in domestic sales will remain low at 4-5%

Conclusion

There has been a significant improvement in efforts for the growth of SMEs by measures like cut in corporate tax rates. This can help in positive consumption growth.

Considering a holistic outlook, the fiscal slippage may undermine macro stability, which is facing risks due to external developments. There are huge risks involved in rising Oil Prices, GST related glitches, capital inflows risks due to correction in asset prices and below normal monsoon.

With the government breaching the fiscal deficit target, the slippage was accounting for various reasons. These included lower receipts from dividends, profits and spectrum sales. Further, the government overshot revenue expenditures and could collect less from oil excise than budgeted. Due to this, the expenditure has worsened with the share of revenue in total expenditure rising to 80%. Critically, the share of production spending has come down.

In all, the overall growth of the economy is expected to be driven by factors outside the budget. The budget will support growth by raising rural demand, which has been the primary focus with measures including MSP, spending on Agri- infrastructure and export liberalization of agricultural products.

 

 

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