Budget 2018: Has Modi govt sounded the election bugle?

Budget 2018: Has Modi govt sounded the election bugle?

By Aman Malik

  • 01 Feb 2018
Budget 2018: Has Modi govt sounded the election bugle?
Arun Jaitley | Credit: Shah Junaid/VCCircle

Finance minister Arun Jaitley on Thursday unveiled a pro-poor, pro-farmer budget ahead of the general elections due in 2019.

In the run up to the B-day, Jaitley was widely expected to deliver a sops-heavy budget, while addressing fiscal constraints. And, with deft handling of the challenges at hand, he took the necessary risks to achieve pretty much what was expected of him, that too, in a pre-election year.

The finance minister revised the fiscal deficit target for 2018-19 to 3.3% of gross domestic product from 3%. This, after breaching the 3.2% target for the current financial year to 3.5%.


A breakdown of the budget numbers also shows that the government’s effective revenue deficit for 2017-18 more than doubled to Rs 2.49 lakh crore, against the budgeted Rs 1.25 lakh crore, while the total expenditure went up marginally to Rs 22.17 lakh crore against the Rs 21.46 lakh crore set aside in last year’s budget.

Despite the odds, Jaitley delivered a populist budget. His announcements of a minimum support price of 1.5 times the production cost should bring some cheer to the farmer community, besides the increase in institutional credit for the farm sector to Rs 11 lakh crore.

This apart, the government, according to Jatiley, also plans to connect more than 22,000 rural hubs across India with the agricultural produce marketing committees to help small farmers, besides setting up an agricultural market fund of Rs 2,000 crore.


The schemes, which promise to benefit the poor, would invariably require the government to increase its spending significantly, at a time when meeting the fiscal deficit targets remains a worry.

But, while Jaitley drew upon the skills of the deft politician he is, to woo certain sections of the populace, he also invoked the essence of being the country’s finance minister by introducing and increasing levies to fill the Centre’s coffers to feed the PM’s and his government’s pet schemes.


The highlight of this year’s budget, however, was a universal healthcare insurance plan that aims to benefit 100 million families. Jaitley said each family will now be able to avail an annual healthcare insurance cover of up to Rs 5 lakh, which would effectively help 500 million people, or about 40% Indians.

Garima Pande, national leader for business tax services at audit and consulting firm EY India, said the budget proposals “largely deliver on the populist agenda”, with increased focus on strengthening the agricultural and rural economy, healthcare, infrastructure and education in the country.

The finance minister also decided to play Santa to senior citizens as he increased the tax exemption limit on interest incomes from Rs 10,000 to Rs 50,000, while allowing them a Rs 50,000 rebate on taxable income for health insurance spends and Rs 1 lakh for spends on critical illnesses.


Amar Ambani, partner and head of research at IIFL Wealth, said that the focus on the rural economy and on farmers as well as the world’s largest healthcare protection plan are “big vote-swinging” moves.

“Clearly, the government is getting election-ready.”

Sudhakar Shanbhag, chief Investment officer, Kotak Mahindra Life Insurance Co. Limited agrees. “Union Budget 2018 was very important since the challenge was to address political compulsions, with about eight states going to elections this year, and another four in the first half of 2019, besides the general elections. So, there was a need to restore macroeconomic stability with increasing inflation, crude oil prices, CAD (current account deficit) and fiscal deficit under pressure, while focusing on growth and address the stress on rural and farm sectors.”


According to Shanbhag, from a market perspective, the fiscal deficit number of 3.5% for 2017-18 was a “bit higher than expected while the target of 3.3% for 2018-19 is along expected lines”. “The introduction of long-term capital gains tax at 10% and a distribution tax on equity mutual funds are negative at the margin, but the grandfathering of gains up to January 31, 2018, is a good measure to ensure no panic sales are done to realise gains.” he added.

Equity markets, Shanbhag said, will now move back its focus on earnings, which are expected to be in the “mid-teens” for 2018-19 and 2019-20. “It will have to gauge the impact of flows in domestic markets due to change in LTCG (long-term capital gains), while FIIs (foreign institutional investors) will continue to allocate. Debt markets over the next year will face the brunt of macro deterioration at a margin compared to 2017-18.”

In a major sop for MSMEs, companies with an annual turnover of Rs 250 crore, or less, will now have to pay 25%corporate tax, against the existing 30%. The education sector also got a share of Jaitley’s largesse as he proposed to invest Rs 1 lakh crore over the next four years.

As far as marquee capex spends go, the finance minister set aside Rs 2.04 lakh crore for 99 cities under the so-called ‘smart cities’ scheme, Rs 1.48 lakh crore was set aside for the railways, while Rs 9,975 crore has been allocated for various social security schemes.

Overall, the budget marked Rs 5.97 trillion for infrastructure spending, and extra budgetary allocation.

However, while Jaitley tried pleasing the farmers, the poor and small businesses, he imposed long-term capital gains tax of 10% on stock market transactions of more than Rs 1 lakh. The government expects to gain Rs 20,000 crore from this move, he said.

The finance minister has also set a disinvestment target of Rs 80,000 crore for the coming year. He said the current year’s target of Rs 72,500 crore had been exceeded, with the exchequer netting in excess of Rs 1 lakh crore.

Jaitley further said that the government will list 14 state-run companies, besides combining three state-owned insurers – National Insurance, Oriental Insurance and United India Insurance – and list the merged entity on the bourses.

While there were no changes to the personal income tax slabs for salaried individuals, the finance minister allowed a standard deduction of Rs 40,000, which will effectively replace existing exemptions of Rs 34,200 in respect of transport allowance and reimbursement of miscellaneous medical expenses.

In what will be bad news for Bitcoin enthusiasts, the finance minister said that the government does not consider cryptocurrencies as legal tender and will take action to eliminate their trade. He, however, added that the government will explore the use of ‘blockchain’, the underlying technology behind cryptocurrencies for ushering in a digital economy. He also said that NITI Aayog, the government’s think tank, will establish a national programme for research into artificial intelligence.

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