Budget 2018 – Just in time or damage control


Since the start of the budget speech of Mr Jaitley, I had my eyes glued on the movement of stock market. It felt like I was looking at my ECG reading. The stock markets did receive a shock treatment.

The FM started with how well the economy has done under the current government and also recalled measure which have impacted the Indian economy, like - GST, RERA, FDI, demonetisation, etc., and how India is one of the fastest growing economies in the world and we are geared to achieve over 8 % growth as manufacturing, services and exports back on good growth path.

I won’t totally agree here with our FM, as subdued macro-economic variables helped them out the most. We need to remember that during the 2014 elections, the macro –economic variables didn’t support our economy at all. But 1 thing this government has been spot on about is, be it good or bad – ‘Timing’.

Coming back to the budget, this was India's first budget post GST. As a predictable story of every budget before elections, Mr. Jaitley said – “This year's budget will particularly focus on agriculture”. This was also fuelled by loss of seats in rural areas in recently concluded state elections and upcoming state elections too.

Keeping in line with government’s commitment to the welfare of farmers and doubling farmers’ income by 2022, and as the theme of this budget being agriculture and rural economy centric, the FM announced new schemes and measures:

MSP for all unannounced kharif crops will be one and half times of their production cost like majority of rabi crops.

Institutional Farm Credit raised to 11 lakh crores in 2018-19 from 8.5 lakh crore in 2014 - 15.

22,000 rural haats to be developed and upgraded into Gramin Agricultural Markets to protect the interests of 86% small and marginal farmers.

Agri-Market Infrastructure Fund with a corpus of Rs.2000 crore will be setup for developing and upgrading agricultural marketing.

Centre to work with state governments to facilitate farmers for installing solar water pumps to irrigate their fields.

“Operation Greens” with an outlay of 500 crores launched to address price fluctuations in potato, tomato and onion for benefit of farmers and consumers.

Two New Funds of Rs 10,000 crore announced for Fisheries and Aqua Culture Infrastructure Development Fund (FAIDF) and Animal Husbandry Infrastructure Development Fund (AHIDF) for financing infrastructure requirement of the sectors.

Re-structured National Bamboo Mission gets Rs.1290 crore to promote bamboo sector in a holistic manner.

Export of agri-commodities to be liberalized.

These steps will help the farmers and rural economy generating higher benefits and productive employment for the farmers.

Going ahead, the areas which got major push were healthcare and education. India has been a laggard and also has been unable to reinvent or renovate in both the areas. Mr. Jaitley said “Technology will be the biggest driver in improving the quality of education” while announcing schemes for education:

Revitalising Infrastructure and Systems in Education (RISE) by 2022 with a total investment of Rs. 1, 00,000 crores in next four years.

Eklavya schools to be started for Scheduled Tribe populations.

Scheme to identify bright students pursuing B Tech in premiere engineering institutes, and providing them higher-education opportunities in the IITs and IISC.

Specialised Railway University to be set up at Vadodara.

Integrated B.Ed. programme for teachers.

The healthcare sector created the headlines as the FM has envisioned a major overhaul.

World’s largest government funded health care programme titled National Health Protection Scheme to cover over 10 crore poor and vulnerable families providing coverage up to 5 lakh rupees per family per year.

Aayushman Bharat Program under which Rs 1200 crore has been allocated to set up 1.5 lakh centres to provide health care facilities closer to home.

Rs 600 crore allocated to Tuberculosis patients undergoing treatment.

To upgrade present government medical colleges and set up 1 medical college for every 3 parliamentary constituencies. 24 new medical colleges also to be set up.

Deduction U/s 80 D increased INR 50,000 for senior citizens.

Coming to infrastructure, Mr. Jaitley said Infrastructure is the growth driver of economy. And as the country is stuttering to revive the economy after GST and job market woes, infrastructural spending is the need of the hour. In order to boost the manufacturing and infrastructure the FM estimates that in excess of Rs.50 lakh crore is needed for the country.

INR 5.97 lakh crore has been allocated in this budget for infrastructure.

INR 7,149 crore for textile sector.

Target of INR 3 lakh crore for lending under PM Mudra Yojana.

BharatMala Project to develop the road infrastructure which has been initiated last October 2017.

INR 1.48 lakh crore for Railway capex.

INR 45,000 crores for suburban and metro railways.

Regional airports construction under UDAAN.

The defence has been allocated INR 2.82 lakh crores. Defence has been pushed in Make in India too. This should help create jobs as well.

The corporates and markets actually bore the brunt of this budget. The return of LTCG is a blow for markets in the short term, but I think it should work out fine in the long term. The stock market has already wiped out over INR 10 lakh crore of investors’ money since the budget. The main reasons attributable to it are –

LTCG on gains in excess of INR 1 lakh @ 10%.

Slipping from fiscal deficit target of 3.2% to 3.5%.

Increase in education cess to 4%

Increase in customs duty for mobile phones to 20%.

Reduced corporate Tax of 25% extended to companies with turnover up to INR 250 crores in FY 16-17.

Retrospective amendment for compliances under ICDS.

No change in tax slab rates.

For me, I think this was bound to happen as the government wanted to plug the rampant misuse of LTCG exemptions. Also, earnings from GST have been going down. The implementation of E-way bill has been in trail phase for some time now. Given the rapid bullish growth of the stock markets, it was essential for a correction or consolidation, to curb out possibility of any bubble.

The government had a very limited window in order to pan out a budget keeping in mind the rural and agrarian sector for the upcoming state elections. Although the economy is showing some signs of revival, but a definite push was needed given the jobless growth in the past 4 years, which has been severely hurting the micro economic variables and vital pillars of the economy. The macro-economic variables also would be more unpredictable in the recent future, as the global economy would also go into consolidation phase.

Whether the government would be incumbent for another term would be known soon enough, but the economy is in no condition to survive a repeat of blips. PM Modi might have just struck the right cord at WEF in Davos when he had said that the opposite of globalization is happening. We might just be about to witness it.