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  • India Union Budget 2018

India Union Budget 2018

The Finance Minister, Mr Arun Jaitley tabled the last full annual budget before the ensuing general elections that is to take place, by May 2019. In light of the latest experience of the elections in the state of Gujarat- the home state of the Prime Minister, Mr Narendra Modi where the BJP Government won by a thin margin, it was but expected that the Government would wisen up to the mood of the people, with a large focus on alleviation of the poor, farmers and general welfare of the people of India.

True to this agenda, the FM delivered on the promise by rolling out several initiatives in this direction. For the farmers, the FM has promised to deliver Minimum Support Price (MSP) with the objective that the farmers should realise at least 50% more than the cost of produce. The fixing of MSP should provide a stable environment for the farmers, who in the past have hugely suffered on account of the vagaries of market driven prices.

On the welfare front, continuing the stress on health, education and social protection, the FM recommended a major initiative - Revitalising of Infrastructure and Systems in Education (RISE) by 2022, with a staggering investment of US $ 15 billion over the next 4 years. Also, on healthcare, the FM announced the launch of a flagship initiative - National Health Protection Scheme that would cover 100 million poor and vulnerable families that could potentially mean 500 million beneficiaries providing a coverage of up to INR 0.5Mn (US$ 7,600) per family for secondary and tertiary care hospitalisation. This could generate millions of new jobs, especially for women.

This Government won majority with the people of India in 2014 on the back of promises of reform and development of infrastructure. The FM pointed out that in order to bring the economy onto the fast track, an investment of INR 50tn (US $ 770 billion) is required to connect and integrate the nation with a network of roads, airports, railways etc. This budget continued the momentum of improving the infrastructure and the initiative of 100 smart cities with state of the art, tech driven eco-system continues to bag budgetary allocation. Likewise, the FM also has committed significant investment in the development of the road network by adding 35,000 km in Phase I, continued investment in modernising and re-development of 600 major railway stations and additionally significant investment in increasing the airport capacity by more than 5 times to handle a billion trips a year.

Back on the technology and digital India platform, a favourite theme of the Prime Minister, the FM announced several initiatives to augment cyber and physical systems connecting 0.1Mn gram panchayats (small town governing bodies) with high speed optical fiber network, adopting 5G technologies and explore the use of block chain technology pro-actively, for ushering in the digital economy.

In comparison with the previous ones, this Budget has been light on tax proposals. Importantly it did not deliver on the hyped expectation of corporate tax rate cut, mirroring similar cuts across the world with the latest being the roll out by the US Tax Cuts and Jobs Act, unveiled in December last year which slashed the corporate tax rate to 21% from 35%. To be fair, the FM was constrained in many ways, as the revenue from the newly introduced GST framework that taxes goods and services has yet to settle down before an aggression in rate cuts could be contemplated. In the long run, India would have much to lose if it does not align to the world order of reduced tax rates in the wake of increased competition vying for investment from businesses. Lastly, the elephant in the room is back with a 10% tax rate on long term gains which was earlier dispensed with the introduction of security transaction tax. It is not far to correlate this tax proposal to the bullish capital market that continues to conquer new peaks nearly every fortnight.

With elections round the corner, this Budget was expected to be moderate in delivery on promise and less on aggressive measures to boost economic growth.  Overall, the budgetary proposal was a reflection of the NDA Government’s vision for India. However, with the disillusioning tax proposals announced, one needs to see how India manages to maintain its scaled-up ranking in the ‘Ease of Doing Business’ league.

Hear, BDO India Managing Partner – Milind Kothari give his views on the 2018 Budget proposal.