My take on the budget 2018

All budgets in India are a product of both Economics and politics and it was expected widely that this budget would be same. The Finance minister, I would say, has largely fulfilled this expectation. He has given a budget which is addressing almost all sections of society and tried his best to address the pain areas as best as he could. Yes, there are issues which the urban salaried middle class investor can grumble about, but they have had it good for several years now and could probably do with some hardships.

Before getting into the specifics of the budget let us try to understand the social, economic and political context under which it was being delivered:-

  • This is the last full budget of the current government as the next one can only be a Vote on account. Therefore, whatever policy decisions had to be taken could only be done in this budget.
  • The agrarian distress in rural India is all too real, evidenced by farmer suicides and loan defaults. This has given rise to social tensions and BJP had already felt the backlash in electoral terms in Gujarat.
  • In urban areas too, the general consensus is that the rich have got richer and the income inequality has grown significantly. It is easy to see, both through data and anecdotally, that one section of people have a lot and the majority have very little.
  • Job creation has simply not happened because the growth in GDP had been way less than we hoped for. To a large extent demonetisation and GST, fundamentally good measures both, suffered from serious implementation lacunae and was responsible for the muted GDP growth.
  • Though the government tried to promote entrepreneurship through Mudra loans and the like, the off-take was not at the desired levels. Also with Indians getting better educated the aspiration is nowadays for jobs in most families and this was not being met.
  • Politically the BJP was in a no win situation even though they were in power at the centre and 19 states. In most of north India they had maxed out in the 2014 elections and could only go down from there. Their main rivals, the Congress, on the other hand, had done very poorly in 2014 and could only improve.
  • Now that BJP is the incumbent government, they have to protect their turf and public anger would be against them. The veterans in the party were always wary of a 2004 like situation, where they lost heavily against all odds.
  • With this backdrop, the FM had to produce a budget that would enthuse majority of the Indian populace. In case the reactions were great this will give BJP a chance to advance the elections, if not they still had some time left for course correction.

Let us now look at the main provisions of the budget. You will notice that the first part of FM’s speech almost sounds like an election manifesto, except that these are not mere promises but announcements in a budget, for which financial allocations are there.

  • Better realisation for farmers in selling their kharif crop. MSP of at least 50 % more than cost may have an upward impact on inflation but will definitely go a long way to reduce farmer distress.
  • A humongous national healthcare protection scheme for 10 crore families. The poor often lose their all in illness and this will ensure that they are shielded from it.
  • Bigger outlays for SC/ST and education scheme for ST.
  • Free gas connections for 8 crore poor women.
  • Initiatives for fisheries, animal husbandry. Job creating incentives foe apparel, leather and footwear industries.
  • A big rail project for Bengaluru courtesy poll bound Karnataka.
  • Much of these are very good but they require resources which had to come from taxation in various forms.¬†

The fiscal slippage this year made the target next year a more conservative 3.3 %. Though corporate companies with turnover of less than 250 crores benefited from a tax rate of 25 %, there was nothing for larger companies. Similarly, individual tax payers got very little, the Standard deduction of 40000 Rs was in reality only a benefit of 30000 Rs. The LTCG on equities were an unkind cut, especially if you see that the STT has not been discontinued either. This can easily have a dampening effect on the huge MF inflows we have been seeing month on month, for the past few years.

The senior citizens have fared a little better this time. The 50000 Rs tax exemption from FD interest income, the 8 % interest on Senior citizen FD and the increased limit on 50000 Rs for health insurance are all good measures.

Finally, though this is an election budget there is really very little for the urban salaried investor in it. However, they probably are not too important in the scheme of elections and the BJP seems to have the other bases covered. If the monsoons are good, the BJP may well be tempted to call early elections. Will they win ? Only time will tell.

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