Finance Minister Arun Jaitley, in the general budget 2018-19, contrary to the expectations, made no populist announcements. A budget is a mixed bag of policy decisions, resource allocation as well as tax proposals and if we see the document tabled in the Lok Sabha, it is more drifted towards policy measures which indicate the government’s preference.
The Modi Government is being criticised by the Opposition for its failure to create jobs but the prime minister has maintained that even providing an opportunity for self-employment is equivalent to creating jobs. If we see the budget in this context, we will find that government has made it clear that agriculture and rural economy will remain its priority.
The agriculture sector generates the highest number of employees in our country and it was necessary to ensure a meaningful return to people engaged in this activity. Since this sector is not organised, its contribution to the economy goes unnoticed but no one can deny the fact that government’s intervention in the form of increased budgetary allocation and pledge to increase the minimum support price (MSP) for agriculture produce was need of the time. Increasing the MSP carries the risk of pushing the inflation but Jaitley has assured that it will be taken care of by the government.
The government support is needed for uplifting the marginalised people and provide social security to them. World’s largest health care programme has been announced by the government which is expected to cover more than 50 crore beneficiaries. The health insurance cover of Rs 5 lakh a family per annum will be provided under this scheme. Similarly, the government has increased the allocation of funds for the welfare of scheduled caste and scheduled tribes (combined amount is app. Rs 96,000 crore).
Budget guided by mission to strengthen agriculture, rural development, health, education, employment, MSME and infrastructure sectors
The Government says, a series of structural reforms will propel India among the fastest growing economies of the world. The nation is firmly on course to achieve over 8% growth as manufacturing, services and exports back on good growth path. MSP for all unannounced kharif crops will be one and a half times of their production cost like majority of rabi crops: Institutional Farm Credit raised to 11 lakh crore 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. “Operation Green” launched to address price fluctuations in potato, tomato and onion for benefit of farmers and consumers.
Allocation to infrastructure sector has been increased from Rs 4.94 lakh crores last year to Rs 5.97 lakh crore. It needs to be mentioned here that no major projects have been announced by the government with the focus seems to be on disaggregated infrastructure development. This will help in generating employment also.
So far as tax proposals are concerned, taxing long-term capital gain is a courageous and bold move. However, it must be emphasised that interest of small investors is kept in mind while proposing amendment because gain over and above Rs one lakh has been proposed to make taxable. Plugging the loophole used by entities to avoid the tax by taking the reverse merger route is also a good move.
Last year government introduced a scheme of taxing the medium & small companies at a lower rate. Now the benefit of this lower rate of tax has been extended to entities which are having an annual turnover of up to Rs 250 crores. If we see the profile of business entities operating in India, almost 99 percent of all companies which file tax can get benefited by this provision. Lowering the tax rates means leaving more cash with corporates to enable investments and job creation. The government has increased customs duty on a range of products and social welfare surcharge has been levied uniformly for almost all the products (very few items are
excluded). This will discourage import and it aims to promote make in India.
On the tax administration front, implementation of E-Assessment countrywide is a big step towards promoting digitisation. Initially, it was launched as a pilot project in few cities, but now it has been proposed to be implemented across the country.
This was the first budget after the introduction of GST but since all the policy decisions relating to GST are taken by GST Council, proposals on indirect taxes were kept limited to customs only. There was another big decision in the form of demonetisation and its tangible benefit in the form of an increase in taxpayers is visible now. Though the entire addition in the list of new taxpayers can’t be attributed to demonetisation but it is worthwhile to mention that growth of 29 per cent was registered in the number of new taxpayers.
Certain sections of the society are criticising the budget saying that the Modi government has ignored middle class and BJP has not kept its poll promise of increasing the tax slab. However, if we see the tax slab increase during the Congress and the BJP Government terms, it would be concluded that the BJP has given more to the middle class as compared to the Congress. Basic exemption limit was increased from Rs 1.6 lakh to Rs 2 lakh over the period of 2009 to 2014 while it has been increased to Rs 2.5 lakh in this government. Apart from this, there are benefits also which have been given by the NDA Government (e.g. higher deductions under chapter VIA). The most significant relief which this government has given to the middle class is in the form of lower inflation and therefore, any analysis should be based after considering all the parameters. The government must have sufficient resources for extending the benefit to any particular class of society and unplanned expenditure like bank recapitalisation, which is a legacy for the Modi Government is a deterrent.
In view of the upcoming Lok Sabha elections everyone was expecting a populist budget but sticking to prudence it terms of quality of expenditure is a big-bang reform in itself. Although finance minister missed the fiscal deficit target but he passed the test of giving preference to prudence over electoral compulsion.
(The writer is a Chartered Accountant)