In the view of the 2019 Lok Sabha elections, Finance Minister Arun Jaitley in his 2018-19 budget on Thursday proposed a major health insurance scheme for the poor, a higher minimum support price and a step up of Rs 1 lakh crore as institutional credit for farmers along with a spend of nearly Rs 6 lakh crore on infrastructure development.
To pay for this seeming bout of generosity, albeit with vote-banks in mind, the finance minister has mopped up huge sums through three or four simple steps, mostly aimed at the middle class. While providing some sops to salaried individuals and pensioners, it has aimed to raise Rs 11,000 crore by increasing cess on income of individuals, from three to four per cent. Additionally, it has aimed to raise money by imposing a 10 per cent Social Welfare Surcharge on all imported goods.
At the same time, the finance minister has eyed the share-owning and investing class by removing an exemption on long term capital gains to possibly raise over Rs 36,000 crore in a full year -- by taxing at 10 per cent shares held for more than a year, exempting only profit of up to Rs 1 lakh. The stock markets reacted sharply initially to the move, later recovering.
The four per cent health and education cess replaces the 2 per cent cess for primary education and 1 per cent cess for secondary and higher education on individuals and corporates to take care of the needs of education and health of BPL and rural families.
Similarly, the Social Welfare Surcharge of 10 per cent on all customs duties replaces the education cess on imported goods. He also raised the customs duty on mobile phones by 5 per cent to 20 per cent. He also levied a 15 per cent duty on some of the parts and accessories of mobile phones and TV sets to promote creation of more jobs under the "Make in India" programme.
In line with the BJP's poll promise before coming to power in 2014, the Finance Minister announced that the Minimum Support Price (MSP) for unannounced kharif crops will be 1.5 times the input cost and stepped up the institutional credit for the sector to Rs 11 lakh crore -- 1 lakh crore more than last year.
"Now, we have decided to implement this resolution as a principle for the rest of crops. I am pleased to announce that as per pre-determined principle, the government has decided to keep MSP for the all unannounced crops of kharif at least at one and half times of their production cost. I am confident that this historic decision will prove an important step towards doubling the income of our farmers," Jaitley said.
Leaving the individual taxation slabs and rates untouched, Jaitley in his last full budget before the 2019 elections proposed to reintroduce a standard deduction of Rs 40,000 for salaried tax payers in lieu of present exemption of transport allowance and reimbursement of miscellaneous medical expenses that will involve a revenue sacrifice of Rs 8,000 crore to benefit 2.5 crore people.
In a bid to help senior citizens, the budget proposes to increase the exemption of interest income on deposits with banks and post offices from Rs 10,000 to 50,000 and there will be no TDS deducted on them. The limit for health insurance premium and medical expenditure will go up to Rs 50,000 from Rs 30,000.
For certain illnesses, in case of senior citizens and very senior citizens, the limit will go up to Rs 60,000 and Rs 80,000 respectively, The concessions will cost the government Rs 4,000 crore.
In keeping with his earlier announcement of reducing corporate taxation rate, the Finance Minister reduced the rate for all companies with turnover of up to Rs 250 crore, up from Rs 50 crore. He said this would take care of almost 99 per cent of the companies and would have a negative impact of Rs 7,000 crore on government finances. Only about 250 companies would have a turnover above the cut-off level and would continue to pay 30 per cent tax. An ID on lines of Aadhaar would also be set up for companies, Jaitley said.
For the Railways, whose budget was merged with the general budget since last year, the capital expenditure has been fixed at Rs 1,48,528 crore for 2018-19 with a large part devoted to capacity creation. Some 18,000 km of doubling, third and fourth line works and 5,000 km of guage conversion will be taken up to transform almost the entire network into broad guage.
PM Modi praises Budget
Prime Minister Narendra Modi hailed the Finance Minister for presenting an all-friendly budget 2018-19 with the focus on agriculture, health and small businesses. "This budget is farmer-friendly, common citizen-friendly, business environment-friendly and development-friendly."
Announcing the flagship National Health Protection Scheme, which he billed as the world's largest government funded healthcare programme, Jaitley said the government proposed to cover over 10 crore poor and vulnerable families (approximately 50 crore beneficiaries) providing coverage up to Rs 5 lakh per family per year for secondary and tertiary care hospitalisation.
In another populist measure, the Finance Minister announced that as part of Prime Minister's Ujjwala Scheme the government proposed to increase the target of providing free LPG connections to eight crore poor women, three crore up from the original target.
He said the focus of the government in the next fiscal will be on providing maximum livelihood opportunities in the rural areas by spending more on livelihood, agriculture and allied activities and construction of rural infrastructure.
"In the year 2018-19, for creation of livelihood and infrastructure in rural areas, total amount to be spent by the ministries will be Rs 14.34 lakh crore, including extra-budgetary and non-budgetary resources of Rs 11.98 lakh crore. Apart from employment due to farming activities and self employment, this expenditure will create employment of 321 crore person days, 3.17 lakh km of rural roads, 51 lakh new rural houses, 1.88 crore toilets, and provide 1.75 crore new household electric connections besides boosting agricultural growth."
In a labour welfare measure, the minister announced extension of contribution of 8.33 per cent of employee provident fund for new employees by the government for three years to all the sectors and raised it to 12 per cent.
In order to create employment and aid growth, the Finance Minister said, the government's estimated budgetary and extra budgetary expenditure on infrastructure for 2018-19 was being increased to Rs 5.97 lakh crore against estimated expenditure of Rs 4.94 lakh crore last year.
The Finance Minister indicated a slippage in fiscal deficit for the current year revising it from 3.2 per cent to 3.5 per cent and from 3 per cent to 3.3 per cent (Rs 5.95 lakh crore) of the GDP next year, implying that the government will be borrowing more to balance its books.
The government has set a target of Rs 80,000 crore divestment target for 2018-19, the finance minister said adding that target for 2018-19 had exceed the target of Rs 72,500 crore and would touch Rs 1 lakh crore. Despite that, he did keep his aim low for the next year. He announced that the three public sector insurance companies would be merged. The merged entity is expected to be listed at some stage.
The minister started his speech by reading out the achievements made by the government, saying: "We"are now a $2.5 trillion economy, and we are firmly on path to achieve 8 per cent plus growth soon. We hope to grow at 7.2 per cent to 7.5 per cent in the second half of 2017-18. Our exports are expected to grow at about 15 per cent in 2017-18."
Congress slams Budget
The Congress slammed the Union Budget, terming the promise of Rs 5 lakh for health care for poor families as "a big jumla", and said there was "tokenism" on creating jobs and nothing to indicate rise in farmers income.
Congress leader and former finance minister P Chidambaram told reporters here that the Budget had no tax relief to the average tax payer and no measures to boost exports. He also expressed his deep disappointment about some major schemes having reduced outlays.
Referring to Finance Minister Arun Jaitley's Budget speech in which he said the government will launch a flagship national health protection scheme to cover 10 crore poor and vulnerable families, Chidambaram said it will entail huge expenditure but no money has been provided for it by the government.
"The promise of Rs 5 lakh per family for secondary and tertiary healthcare is a big jumla. The target group is 10 crore families. Assuming each family will avail of Rs 50,000 - one tenth of Rs 5 lakh - the amount required per year will be Rs 5 lakh crore," he said.
He said if the insurance companies will foot the bill, the estimated premium at Rs 5,000 to Rs 15,000 per family will require an outgo from Rs 50,000 crore to Rs 1.5 lakh crore per year. "Is the Finance Minister serious?" he asked.
"Where is money provided? Money has not been provided even for paying the premium," Chidambaram said, adding that Jaitley and the NDA government had touted it as the world's biggest healthcare scheme.
The Congress leader said he did not hear any measures to boost exports in the Budget speech. "Because the government has run out of ideas to boost exports, the Finance Minister has imposed additional customs duties. The Prime Minister's speech and the spirit of Davos has been forgotten within a few days," he said.
India Union Budget 2018 Live Coverage: As it happened, Highlights, Budget Speech, who said what & more
Chidambaram said there is a promise to increase the minimum support price (MSP) 1.5 times but there were no details.
"The Swaminathan committee has been remembered in the last year of government's tenure. Besides, Rs 2,000 crore for e-markets and Rs 500 crore for operation Green, whenever the cabinet will approves the schemes, amounts to a pittance. There is nothing to indicate that farmers real income will rise," he said.
The Congress leader said that agriculture distress will continue and deepen, "putting in peril lives of majority of people primarily dependent on agriculture".
Referring to jobs on which the Congress has frequently attacked the government, Chidambaram said that Jaitley had no new ideas and "has fallen back on tried and failed Mudra scheme".
"The average size of Mudra loan is Rs 43,000. This is tokenism and will not create even one job. More Mudra loans will mean more tokenism but no additional jobs."
He said there was nothing in the Budget to boost private investment or to encourage banks to lend and investors to borrow for new investment. "The FM seems to have given up on private investment altogether," he said.
Chidambaram said there is no tax relief to the average tax payer.
"Only corporates with income up to Rs 250 crore get tax relief of five percent. For individuals, standard deduction is back but long term capital gains tax is also back," he said.
"For the middle class earner and saver, one cancels the other. Actually, by way of long term capital gains tax and four per cent cess, the tax payers will pay the government Rs 31,000 crore more whereas the gain through standard deduction will only be Rs 8,000 crore," he added.
Chidambaram said some major schemes that will get constant or reduced outlays were Mahatma Gandhi National Rural Employment Guarantee Act, Pradhan Mantri Awas Yojana, National Drinking Water Mission, Swachh Bharat mission, National Health Mission, Mid-Day meal scheme, interest subsidy for short-term farm credit, north eastern investment promotion, price stabilisation fund and Gram Jyoti Yojana.
"The most disappointing part of the Budget is cut in the outlays of major schemes for 2018-19," he said, adding that Jaitley "will have much to explain" during debate on the Budget in Parliament.
The opposition parties also reacted sharply to the government's proposed budget with Congress leader P. Chidambaram saying Jaitley had failed the fiscal consolidation test that will have "serious consequences" on the economic growth rate.
CPI-M leader Sitaram Yechury said the budget was "unconnected to ground realities" and "is a textbook exercise in post-truth". However, the India Inc largely welcomed Jaitley's budget.
India Inc hails Budget
India Inc has welcomed the Union Budget 2018-19 and praised the populist approach of focussing on infrastructure and rural India.
However, what came as disappointment for the industry was that the government did not provide any relief in the income tax rates for 2018-19, along with the imposition of long-term capital gains (LTCG) tax on equities exceeding Rs 1 lakh at 10 per cent.
Here is what the industry players have to say:
Sandeep Jajodia, President, Assocham: "Finance Minister Arun Jaitley has placed a huge emphasis on agriculture and rural India, allocating bulk of resources to interior landscape, while helping the middle class, salaried employees along with relief to senior citizens, measures which would boost consumer demand and help revive economic growth."
Chanda Kochhar, MD and CEO, ICICI Bank: "The wide-ranging measures announced for various segments of the rural economy will boost income levels and create gainful and sustainable employment. This, in turn, will help increase consumption levels in the economy."
Anshuman Magazine, Chairman, India and South East Asia, CBRE: "It is fair to say that this year's budget is populist, focusing on providing social security at the grass-roots level. The various announcements and funding provided are towards promoting further growth of small-scale industries as well as improving infrastructure, particularly across rural India."
Neeru Ahuja, Partner, Deloitte India: "On the taxation side, industry and individuals are a little disappointed that no significant tax relief has been provided in spite of increased compliance by taxpayers. Even the standard deduction given is in lieu of two other deductions that have been taken away."
K Suresh, President, Association of National Exchanges Members of India: "While the tax (LTCG) will adversely affect serious investors funding the India Growth story, it won't have any impact on short-term traders. Instead of introducing LTCG in its current form, the government could have done better by changing the tenure of this tax or given the corresponding benefit by re-introducing 88E to take the deduction of STT (Securities Transaction Tax)"
Joy Rankothge, Vice President, Credit Strategy, Moody's Investors Service: "The direction of the fiscal deficit announced in the Budget is in line with our forecasts. The government continues to aim for a gradual narrowing of the central government deficit to 3.5 per cent and 3.3 per cent in fiscal 2018 and 2019. We expect that the fiscal deficit targets will be broadly achieved.
"This year's divestments exceeding targets marks a break in a recent trend of missing ambitious targets. Moving forward, increased divestments could contribute to higher government revenues, greater efficiencies within state-owned enterprises and help reduce the government's high debt burden."
Manish Agarwal, Partner and Leader-Infrastructure, PwC India: "Rs 50 lakh crore for infrastructure is welcome as it reaffirms continued funding of various initiatives in roads, railways and urban infrastructure. Quantum leap in airport capacity is a key requirement to keep pace with the rapid growth in aviation.
"Other initiatives, outside the Budget, to revive private sector play in these sectors, will complement and further the impact of the Budget allocations."
Ashishkumar Chauhan, MD and CEO, BSE: "Overall, this is a positive budget, with continued focus on fiscal prudence, boosting the manufacturing sector, augmenting MSME's, improving healthcare and skill development. Impetus to GIFT City IFSC, Gold Exchanges, Disinvestment, ETF's for debt financing and measures to reviving corporate bond markets augers well for the capital markets."
Subho Ray, President, Internet and Mobile Association of India: "For the second year in running, the Union Budget recognises the importance of digital services and gives a direction. It is now up to the relevant departments to act on these directions and help realise the targets envisaged in Budget 2018."
Nilaya Varma, Partner and Head, Government and Healthcare, KPMG in India: "The Union Budget 2018-19 focuses on an integrated social reform agenda. Proposals on agriculture, gender, rural infrastructure, when implemented, can help bridge the income and gender divides. While people can have views on the long-term implications of demonetisation, the 12.6 per cent increase in direct tax collection along with 85 lakh new taxpayers is a good sign and can help widen the direct tax base."
CP Gurnani, Managing Director and CEO, Tech Mahindra: "Budget 2018 is overall positive and 'common man-centric' with clear boost to rural, health and insurance sectors. Specific to the information technology industry, the steps taken to strengthen the presence of Fintech in the MSME space and the plans for Smart Cities such as Smart City Command Centres, Smart Roads and Solar Power shows that we are on our way to achieving our goal of being a trillion-dollar digital economy by 2025."
Ramesh Mamgain, Area Vice President, India and Saarc Region, Commvault: "Doubling allocations towards Digital India and enhancing the National Mission on Cyberspace Security sets the tone to protect the data of India Inc and its citizens. Unique IDs for companies will definitely go a long way in contributing towards interest of the nation and increasing transparency by corporates."
Gopal Srinivasan, Chairman, Indian Private Equity and Venture Capital Association (IVCA): "We welcome the decision towards parity on long-term capital gains (LTCG) between listed and unlisted stocks. The 10 per cent rate is a first step. We hope that eventually, risk taking, long term capital invested in unlisted companies will ultimately be taxed at the same rates as public market equity."
Sunil Duggal, CEO, Dabur India: "Overall, the Union Budget 2017-18 is on expected lines and is focused on improving the quality of life in rural India. The Budgetary allocation for cultivation of specialised medicinal and aromatic plants is another big positive and will help promote India's ayurvedic heritage."
Arun Gupta, CEO and Founder of MoMagic Technologies: "This budget has recognised the importance of artificial intelligence, machine learning and robotics as tools to further growth at national level. NITI Aayog's plan to establish a national programme to direct efforts in artificial intelligence is a welcome move which will push investments and research in this space and will put India on the right path for tech innovation."
Gautam Kalani, Director Corporate Finance, Lotus Greens India: "There are indirect benefits through major announcement in infrastructure but it lacks any direct benefit for the real estate vertical. Once again, major disappointment was the non-granting of the industry status to the sector."
Harsh Pati Singhania, Director, JK Organisation: "The Finance Minister has also duly addressed the current job situation in the country. Besides extending the fixed-term contract hiring to all sectors, the government will also contribute 12 per cent of the wages of the new employees in the Employees Provident Fund for all the sectors for the next three years."
Vivek Nirmal, Joint Managing Director & CEO, Prabhat Dairy: "We are glad at the government's proposal for funds allocation which would help dairy farmers involved in animal husbandry. This move is a boost to dairy farmers as it will further enhance the yield from animals, quality milk and hence, more income for farmers."
Anand Kandadai, Executive Vice President, Cleartrip: "The Budget does seem to have some promising measures and provisions for the Indian tourism and hospitality industry that has emerged as one of the key drivers of growth. It is heartening to see the government backing up the ambitious UDAN plan with budgetary provisions for airports. What is noteworthy is that the thought process has been comprehensive, and in addition to connectivity there is a separate mention of expanding airport capacity by five times, which is a pressing problem, for many congested airports of the country.
(With inputs from IANS)