7
There were three key pillars for the current year’s budget.
These were Transform, Energise and Clean India—with
emphasis on farming and rural population, the youth, the poor
and the underprivileged, infrastructure, the financial sector,
digital economy, effective governance, fiscal management and
benefits to the honest tax payer.
Agriculture, rural growth, infrastructure & housing and job
creation also were the key themes of this budget, together
with a strong dose of social sector spending.
Rural India has
been impacted by the recent demonetisation exercise, despite
which sowing of rabi crops have been strong. The clear intention
of the government was to help the farming community by giving
them higher access to credit, offering better crop insurance and
improving productivity (by setting up more soil testing labs).
The
government has already stated that it is looking to double
farmers’ incomes (from the previous budget) in the next five
years. While no new scheme was announced, the focus was
to drive and expand
key schemes like the Pradhan Mantri Fasal
Bima Yojana (PMFBY), Pradhan Mantri Krishi Sinchai Yojana
(PMKSY) and interest subvention schemes for farmers, so as to
ensure that the rural populace was shielded from the vagaries
of nature and had a better quality of life. The PMKSY allocation
for FY18BE was raised by 42.1% over FY17RE to
R
73.7 bn. The
budget spoke about setting up of more National Agriculture
Markets for farmers to ensure better prices for their produce.
The
focus of the government on improving rural economy was
buttressed by the announcement of bringing 10 mn households
out of poverty and making 50,000 gram panchayats free
of poverty by 2019. The government’s allocation to rural
employment schemes like MGNREGA was at an all-time high
of
R
480 bn for FY18BE, which was 24.6% higher than FY17BE.
To also improve the living conditions of the rural populace, the
allocation to the Pradhan Mantri Awas Yojna was raised by 53%
to
R
150 bn. This was envisaged to lead to more construction
related employment in the rural economy. Also, socially important
schemes like skill training, sanitation and drinking water saw strong
mention in the budget. The overall allocation to the agriculture and
rural sectors in the budget stood at
R
1.87 trillion.
We think that
by focusing on its successful schemes, the government is
likely to meaningfully impact rural India in terms of improving
income levels and demand conditions.
Another key element of the budget was education of youth
and skill development. The need for highly skilled manpower
has always been there, and with the government wanting to
drive manufacturing growth in the economy, skill development
becomes a key imperative. Also, at times there have been severe
mismatches between the skills available and those required,
which have led to some amount of frictional joblessness. Skills
training would fulfil two important needs of the economic cycle:
higher productivity and increased job creation. Accordingly,
initiatives like Swayam (IT-based self-learning platform),
setting up of national testing agencis, extension of Pradhan
Mantri Kaushal Kendras, Skill Strengthening for Industrial
Value Enhancement and Skill Acquisition and Knowledge
Awareness for Livelihood Promotion Programmes (SANKALP)
were undertaken in the budget. For the SANKALP initiative,
R
40 bn was allocated, which would provide market relevant
training to 35 mn youth.
Another big focus area of the government was infrastructure
and housing. Investment in infrastructure is key to pushing the
Make in India agenda of the government, and it would also help
in driving economic growth and capex cycle. The total outlay
for infrastructure creation in the budget was to the tune of
R
3.96 trillion, reflecting a growth of 10.2% over FY17RE.
Within the infrastructure sector, the focus was on roads,
shipping and railways which together would entail a capex
of
R
2.41 trillion. The total investment in the road sector is
projected to be
R
649 bn, which reflects a growth of 23.7% over
FY17RE.
For FY18, the total capital and development expenditure
for railways has been pegged at
R
1.3 trillion, including
R
550 bn
provided by the government.
Railway tracks of 3,500 km are
projected to be commissioned in FY18 and a new metro rail
policy is to be announced, with focus on an innovative model
of implementation and financing. The government plans to
construct and develop 2,000 km of coastal roads, apart from
normal highway construction.
Apart from this, the government
has allocated
R
100 bn (up by 66.7% over FY17RE) for connecting
1,50,000 gram panchayats though high speed broadband under
Bharatnet. This would give a big fillip to the government’s plan
of digital connectivity. Housing, which is the second highest
employment generator in the formal economy, also got a big
boost. This was especially in the ‘affordable housing’ category,
where the government announced increase of carpet area
(for getting income tax benefits from housing companies) and
accorded infrastructure status to the sector. For the purpose
of computation of long-term capital gains from transfer of
property, the budget also proposed a lower holding period
of two years from three years, with a shift of base year for
indexation from 1.4.1981 to 1.4.2001.
It also proposed to extend
the basket of financial instruments in which capital gains can be
invested, without payment of tax. This would give a strong boost
to the housing sector and would help the economy create more
jobs and boost economic activity.
The total allocation to capital
expenditure in the budget grew by 25% over FY17BE and by
10.4% over FY17RE.
This was the year when the corporate sector was anticipating the
government to continue to cut the rate of corporate tax, given the
government’s roadmap to ultimately reduce it to 25% + surcharge
and cess. However, given the fiscal consolidation imperative and
the intent of giving a big fillip to the MSME sector (which bore
the largest brunt of the demonetisation exercise), the government
only
reduced the corporate tax rate for companies with annual
turnovers of up to
R
500 mn to 25%+ surcharge and cess.
The government believes that this would benefit about 96%
of the companies that file income tax returns.
The government
T
he
U
nion
B
udget
2017-18
