Article: Budget 2018: Hits and Misses

#Budget 2018

Budget 2018: Hits and Misses

A quick look at what the Budget 2018 got right, and what it didn't
Budget 2018: Hits and Misses

In what is being hailed a ‘pro-poor’ budget, Finance Minister (FM) Arun Jaitley announced the proposal on February 1. We take a quick look at some of the hits and misses of the budget, and explore a few of them in detail:

Tax Incentives: Miss

Leaving the Personal Income Tax slabs unchanged, the FM chose to marginally increase the health and education cess across all categories, which would offset any potential relief that could have been provided by the increase of the standard deduction to Rs. 40,000 (from the current nearly  Rs. 34,000 as transport and medical reimbursement). Hence, salaried employees have had practically no tax reductions in the budget, but might actually end up paying marginally more. You can look at the pre and post budget total payable tax on personal income here.

Furthermore, by not lowering corporate taxes for big corporations, and reintroducing the long-term capital gains on stocks and equity mutual fund units, with a proposal to tax gains of more than Rs. 1 lakh in the equity market at a rate of 10% led to some momentary turbulence in the stock market as well. The tax will not be applied retrospectively, and gains up to January 31, however, will be grandfathered (calculated using the existing law). Additionally, the introduction of 10% dividend distribution tax on dividend income is likely to put them at par with long-term capital gain as well.

Senior citizens did get some relief, as the government has increased the tax exemption limit for interest income from banks and post offices from Rs. 10,000 to Rs. 50,000 and also increased the tax reduction on health insurance and medical expenditure under Sections 80D and 80 DDB. Lastly, the introduction of e-assessment has been announced for all taxpayers in the budget.

Job Creation: Mixed Bag

While the announcement of government pitching in the 12% EPF contributions for new employees across all sectors for the next three years (with a cut-off limit of Rs. 15,000 per month) and the proposal to reduce the contribution of women employees from the current 12% to 8% are expected to result in indirect increase in employment, the government also seems to have focussed adequately to focus on the rural economy, and the manufacturing sector to ensure that the coming year is not haunted by joblessness. However, the widely-anticipated National Employment Policy, which was expected to be rolled out this year, was missing.

MSMEs and Start-Ups: Hit

In a big hit for the MSME sector, a corporate tax rate of 25% has been extended to companies with a turnover up to Rs. 250 crore (as opposed to Rs. 50 crores) in 2016-17. This will effectively ensure that 99% of the companies that file returns will be taxed at 25%, as opposed to the 30% corporate tax. The decision is expected to result in a loss of Rs. 7,000 crore to the exchequer. The FM did mention a phased reduction in the future, though. The budget also extended the tax exemption for start-ups by two years and also changed the definition of start-ups to benefit non-tech enterprises with the benefits as well.

Fiscal Deficit: Miss

In what is being touted as the biggest miss of the budget, the government revised its fiscal deficit (the difference between total revenue and expenditure) to 3.5% (from previously, 3.2%). The initial shock in the stock market has been attributed to same, for it took many by surprise, especially given the track record of the current government, which did not hesitate to take hard measures when it came to fiscal prudence. The estimated fiscal deficit for the next year has been estimated at 3.2% (also up from the original 3% projection.)

Agriculture, Infrastructure, and Digital Industry: Hit

With the increase in Minimum Support Price (MSP), allocation of dedicated funds for market development, bamboo promotion, and fisheries and animal husbandry infrastructure, the agriculture sector had much to cheer about. The initiation of ‘Operation Greens’ to connect farmers and consumers has also been lauded. Rail and road sectors got an all-time high allocation and deep-pocketed provisions to develop airport infrastructure; broadband services were also announced. Niti Aayog’s initiation of a national program that will research and develop in the field of artificial intelligence is also being appreciated. However, all stakeholders, especially in agriculture are awaiting clarifications regarding the proposals to fully understand the benefits of the announcements.

Gender Empowerment: Miss

A critique of the budget has been its near-absent focus on gender empowerment. Barring the reduction in EFP rate for women employees, no other major policy intervention has been proposed. As this report also explains, allocations to the Nirbhaya Fund, maternity benefit scheme and gender-specific farming policies have been estimated to be inadequate. The lack of gender-specific policies has garnered more attention this year, following the pink cover of the Economic Survey which was launched a couple of days before the Budget, setting expectations for some major announcements.

Education: Hit

Proposals to move towards digital classrooms, invest in training of teachers and allocate resources for infrastructural development in the education sector have been met with widespread acclaim. The merger of Sarva Shiksha Abhiyan and Rashtriya Madhyamik Shiksha Abhiyan has been proposed for better planning and execution of important education policies and programs. Furthermore, in another major move, Centrally Funded Institutions will have access to a wider pool of resources, by undertaking loans as opposed to infrastructure grants. IITs, IIMs, NITs and Central Universities will be able to avail loans to the total amount of Rs. 1,00,000 crore – as opposed to the present Rs. 10,000 crore limit per year.

Healthcare: Hit

Probably the most impressive social security proposal that was announced by the FM was the initiation of National Health Protection Scheme, which will allow 10 crore families (thereby, almost 50 crore individuals) with healthcare services. The scheme is expected to be the largest of its kind and will offer up to Rs. 5 lakh per family per year for medical expenses. While the economics of the scheme are yet to be clarified and straightened out, it is nonetheless, a milestone in India’s social security framework.

Crypto-currency: Miss

The FM unequivocally stated that the government doesn’t recognize crypto-currencies as legal tender, and went on to state that the same is being used for illegitimate activities. He proposed to take measures to eliminate the use of such crypto assets to fund such activities and as a payments system, however, vowing to increase the use of block-chain technology in payment systems and government functioning. This has, in all practicality, spelt the death of crypto-currencies in India, and is indicative of an impending law that might ban the same. While this might seem like a protective counter-measure in the short run, the reality is that globally such currencies have garnered a lot of attention and importance, even if as sources of investment with lucrative returns. By its very nature, banning the currency might prove to be futile in the long run.

The FM himself clearly announced that the budget is aimed at the “Agri, rural, health, education, employment, MSME and infrastructure sectors of the Indian economy.” In that sense, it aims to provide a wide range of benefits to different sectors and stakeholders. Nonetheless, the lack of incentives for the working class and the middle class, and the focus on reigniting the rural economy, which bore the maximum brunt of demonetization and GST, are both equally evident.

(This is the last of an eight-part series, the People Matters: Budget 2018 Series. This part concludes the series.)

 

Topics: Budget 2018, Featured, Jobs, C-Suite, Employee Relations

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