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Why is Union Budget 2018 crucial for Modi government

The Narendra Modi government will present its last full budget on February 1 – the first after the implementation of the Goods and Services Tax (GST).

Written by: Abhinav Gupta, New Delhi [ Updated: January 31, 2018 17:01 IST ]
The Narendra Modi government will present its last full budget on February 1 – the first after the implementation of GST.

The Narendra Modi government will present its last full budget on February 1 – the first after the implementation of the Goods and Services Tax (GST).

While the Budget session will begin from January 29, the Union Budget will be presented on February 1, a day after the Economic Survey is tabled in Parliament.

The fifth budget, to be presented by Finance Minister Arun Jaitley, means a lot for the NDA government as it comes ahead of the 2019 General elections, and in a year when eight state assemblies – Meghalaya, Tripura, Mizoram, Nagaland, Karnataka, Madhya Pradesh, Chhattisgarh and Rajasthan – go to polls.

Another major issue to look out for in the upcoming budget for the Modi government will be the fall in the GST revenue. Even though direct tax collections grew by over 18 per cent in the first nine months of the fiscal year, the dip in GST collection is a major concern.

As per the official data, the revenue from GST was Rs 80,808 crore in December 2017 – a 14 per cent drop from August collection after the GST was rolled out in July last year.

Structural economic reforms such as demonetization and GST have slowed the economy and squeezed revenue receipts, resulting in rising fiscal pressures. The government might not meet the fiscal deficit target of this year. It is, however, targeting to curb the fiscal deficit to 3.2 per cent of the GDP.

With the upcoming budget being the first after GST, there is pressure on the government to take up legislative reforms to ensure effective implementation. Other than the usual expectations of corporate tax rate cuts and revamping of the deductions, there is need of rationalization of the GST rates and reforms in the GST procedural framework.

Also, the budget needs to include solutions for vexed problems such as rural distress, weak employment and revival of private investments.

The budge, which comes close on the heels of a tough electoral fight in PM Modi’s home state Gujarat, is expected to please everyone. An obvious reason will be the mighty scare that the government got in a state where it has been in power for over two decades amid agricultural crisis and rural distress accentuated by the loss of employment on account of poor growth in manufacturing and farm sectors.

The results in a handful of Gujarat districts highlighted farmers’ issues that the government needs to address on. Whether or not the Budget turns out to be a populist one, higher spending on rural India is the need of the hour.

It may be worth mentioning here that rural distress was the biggest reason behind the defeat of the Atal Bihari Vajpayee government, which went to the Lok Sabha polls in 2004 with the Indian Shining campaign.

Rural distress in Punjab and then in Gujarat have given enough indications to the Modi government that if the burden on farms does not improve, retaining power in 2019 may turn out to be a Herculean task.

The Union Budget 2018 is also likely to be "election budget" for the Modi government. Having been accused of being anti-Dalit, it is likely to focus on the welfare schemes targeting Scheduled Castes (SCs) and Scheduled Tribes (STs) population.

According to a Deutsche Bank report, the government’s priority will be to accelerate growth momentum as well as employment generation this pre-election year, and social sectors are expected to see preferential allocations.

According to the global financial services major, the Narendra Modi government's priorities are expected to shift from reforms to specified policy initiatives aimed at improving job opportunities and growth numbers.

"Following the GST implementation, we expect the Modi administration's focus to shift from reforms to policy implementation and adherence to specified policy initiatives aimed at employment generation and growth revival as we head into 2019, when the national election is scheduled," Deutsche Bank said in a research report.

The key focus areas for the government will be growth acceleration, employment generation and improving agricultural income.

As per the report, farming income growth has moderated over the last few years and has resulted in a sharp erosion of rural purchasing power and accordingly, the government is expected to announce "targeted measures" to boost farm incomes and make agriculture remunerative.

This also holds importance in the backdrop of the recently-held Gujarat Assembly elections, which saw the BJP lagging in rural areas that are battling falling farm incomes and dearth of jobs.

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