Budget 2018 analysis : Priority to Rural India and Health
Why in the news ?
Finance minister presented the annual financial statement (Budget) with more focus on Farmers, health and education.
What is Budget
According to Article 112 of the Indian Constitution, the Union Budget of a year, also referred to as the annual financial statement, is a statement of the estimated receipts and expenditure of the government for that particular year.
The Government presents it on the first day of February so that it could be materialized before the commencement of new financial year in April. Till 2016 it was presented on the last working day of February by the Finance Minister of India in Parliamen
The budget, which is presented by means of the Finance bill and the Appropriation bill has to be passed by both the Houses before it can come into effect from April 1, the start of India's financial year.
Agriculture and related activities
Following consecutive years of low crop prices which led to farmer protests in several states, finance minister Arun Jaitley on Thursday announced that the government will fix minimum support prices (MSP) at 50% over costs—ceding to a major demand of farmer organizations.
Going a step ahead the finance minister also said that the government will ensure that farmers reap the benefits of higher MSP, either via direct procurement of crops or by paying them the difference between MSP and market prices
The budget directed government think tank NITI Aayog “to put in place a foolproof mechanism so that farmers get an adequate price for their produce”.
To help farmers receive better prices for their harvest, the budget also promised to create an “institutional mechanism” which will forecast future prices and demand, develop policies for use of futures and options, expand use of warehouse depository systems and take decisions relating to exports and imports.
Overall, budgetary allocation for the agriculture ministry went up by about 15%, from Rs 50,264 crore in 2017-18 (revised estimates or RE) to Rs 57,600 crore in 2018-19 (budget estimates or BE).
Among major schemes, outlays on crop insurance were raised from Rs 10,698 crore (2017-18 RE) to Rs 13,000 crore (2018-19 BE), while those on micro irrigation were raised from Rs 3,000 crore to Rs 4,000 crore
However, funding for the price stabilization mechanism used to procure pulses (under the food ministry) was slashed from Rs3,500 crore to Rs1,500 crore.
In other measures, the finance minister announced the creation of a Rs2,000 crore agri-market infrastructure fund to connect 22,000 rural markets to the electronic national agriculture market (eNAM) platform.
Finance minister also announced plans to develop acluster-based model of horticulture to assist groups of farmers all the way from production to marketing.
To address production and price fluctuations in onion, potatoes and tomatoes—the most widely consumed vegetables—the budget announced a new programme,Operation Greens, (Rs 500 crore) that he said would be similar to Operation Flood for promoting dairy.
To give a boost to fisheries and animal husbandry, the finance minister announced a Rs 10,000 crore fund under apex rural bank NABARD. The budget also set a target of disbursing Rs11 trillion toward agriculture credit in 2018-19, a 10% rise over the previous year’s target.
To help Indian farmers benefit from higher exports, the budget promised to liberalize farm export policies and help set up state-of-the-art testing facilities in mega food parks.
Called the green gold, the bamboo has been in focus for the wrong reasons in the northeast. The allocation of Rs 1,290 crore for a restructured National Bamboo Mission (NBM) has raised hopes for a range of bamboo-based industries — from food processing to construction.
The Budget did not refer to schemes like the flagship Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), the budget fine print shows that the government has allocated Rs 55,000 crore for it—an increase of Rs7,000 crore over the allocation in 2017-18 (BE).
Health
Concerned about the consequent “impoverishment of poor and vulnerable families”, Finance Minister said while announcing the National Health Protection Scheme that will cover over 10 crore poor and vulnerable families, or around 50 crore people.
Adequate funds will be provided for the scheme, set to be the world’s largest governmentfunded healthcare programme, he said.
This scheme will be an improvement over the Rashtriya Swasthya Bima Yojana (RSBY) that provided a cover or sum insured of Rs30,000. The new health insurance scheme offers a sum insured of Rs 5 lakh and will work like a floater policy much like the RSBY.
A floater policy considers the entire family as a unit. So, if one member of the family makes use of the cover, the sum insured will reduce by that much amount.
Finance minister announcing the proposed National Health Protection Scheme and committing Rs 1,200 crore for health and wellness centres.
Comprehensive health care, including for non-communicable diseases and maternal and child health services, and free essential drugs and diagnostic services are to be provided at the centres.
It all covered under the ‘Ayushman Bharat’ programme to address health holistically, in primary, secondary and tertiary care system, covering both prevention and health promotion.
Education
According to Finance Minister, education is a priority area for the government and allocated Rs85,010 crore for the sector for the year starting 1 April.
The budget allocation for 2018-19 is, however, less than 4% higher than the revised budget estimate of the current year. The 2017-18 budget estimate had pegged an outlay of Rs79,685.95 crore, which was later revised to Rs81,868 crore.
The low hike in the education outlay was hinted at in the Economic Survey presented last month, which said the government does not have much fiscal space to spend big on social sectors including education.
However, Finance Minister announced an initiative, called Revitalising Infrastructure and Systems in Education (RISE), with a total investment of Rs 1,00,000 crore in the next four years in order to step up investments in research and related infrastructure in premier educational institutions, including health institutions.
Higher Education Financing Agency (HEFA) would be suitably structured for funding this initiative.
HEFA, which has already begun to approve project proposals from key institutions, is aimed at boosting institutional infrastructure, especially state-of-the-art laboratories, in key institutions such as the Indian Institutes of Technology, the Indian Institutes of Management, and the Indian Institutes of Information Technology.
The Prime Minister’s Research Fellowship scheme to provide high fellowship amounts to 1000 B. Tech students to pursue PhD in IITs and IISc — of which Finance minister made a mention — is also aimed at facilitating cutting edge research
The idea, an official said, is to make India produce better research and make its institutions climb up in global rankings.
Health Insurance for senior citizens
The Budget did include a number of concessions for senior citizens.
“A life with dignity is a right of every individual, in general, more so for the senior citizens,” Finance Minister said in his Budget speech.
“To take care of those who cared for us is one of the highest honours,” he stressed, before laying out a series of steps to give them a ‘dignified life.’
Finance minister made an effort to ease the cash flows of senior citizens that are largely dependent on interest income. The exemption limit on interest income on bank and post office deposits has been raised from Rs 10,000 to Rs 50,000 a year.
The deduction available for health insurance premium and medical expenditure has been raised from Rs 30,000 to Rs 50,000.
Deductions for medical expenditure on certain critical illnesses have been hiked to Rs 1 lakh for all senior citizens, up from the prevailing levels of Rs 60,000 for senior citizens and Rs 80,000 for very senior citizens.
While these concessions are worth Rs 4,000 crore, the government also extended the Pradhan Mantri Vaya Vandana Yojana up to March 2020, which assures an 8% return, and raised the investment cap from Rs 7.5 lakh to Rs 15 lakh.
Merging of Insurance firms
The Budget 2018 announced the merger of three state-run general insurance companies: National Insurance Co. Ltd, United India Insurance Co. Ltd and Oriental India Insurance Co. Ltd; before listing them on the stock exchanges as a part of its disinvestment programme.
The suggestion for consolidation came from the All India Insurance Employees Association (AIIEA) – would result in elimination of competition between the three PSU companies, reducing marketing expenses, raising cost efficiencies, streamlining of processes and systems by adopting the best prevailing, and finally, enabling an increase in the risk retention capacity, which directly results in saving in the cash outflow of reinsurance premiums.
Infrastructure
India will invest as much as Rs 5.97 trillion in creating and upgrading infrastructure in the next financial year, finance minister said in his budget speech.
Infrastructure development has been one of the focus areas of the government. Starting with an allocation of around Rs1.81 trillion in 2014-15, expenditure towards infrastructure reached Rs4.94 trillion in 2017-18.
To raise resources, state-owned firms will access the equity and bond markets. The budget also levied a Rs 8 per litre road and infrastructure cess on imported petrol and diesel.
These measures will be operationalised given that India will face a $526 billion infrastructure investment gap by 2040, according to the latest Economic Survey.
“Reserve Bank of India has issued guidelines to nudge corporates to access the bond market. Sebi (Securities and Exchange Board of India) will also consider mandating, beginning with large corporates, to meet about one-fourth of their financing needs from the bond market,” Finance minister added.
During 2017-18, the cabinet approved the ambitious Bharatmala (roads) scheme to strengthen the roads network, for which the government will raise Rs5.35 trillion as equity from the market.
India needs funds for ambitious plans such as Sagarmala (ports) and Bharatmala to improve its transport infrastructure.
To raise equity from the market for its mature road assets, NHAI will consider organizing its road assets into special purpose vehicles and use innovative monetizing structures like toll, operate and transfer (TOT) and Infrastructure Investment Funds (InvITs)
While the total investment for Bharatmala is estimated at Rs10 trillion—the largest ever outlay for a government road construction scheme—an additional Rs8 trillion of investments will be needed for Sagarmala until 2035.
The country has a road network of 3.3 million km, the second largest globally. India has been constructing highways at a rate of 27-28km per day, with the aim of speeding up the construction rate to 41km per day.
Civil Aviation
The Budgetary allocation for the Civil Aviation Ministry has been almost tripled to Rs 6,602.86 crore for 2018-19, with about 67% of the funds being provisioned for the purchase of two new aircraft for VVIP flights.
The government also announced a new initiative -NABH Nirman - under which it proposes to expand airport capacity in the country by more than five times to handle a billion trips a year.
Balance sheet of AAI [Airports Authority of India] shall be leveraged to raise more resources for funding this expansion.
In the last three years, domestic air passenger traffic grew at 18% a year and the airline companies placed orders for more than 900 aircraft.
On regional connectivity scheme UDAN, FM said 56 unserved airports and 31 unserved helipads across India would be connected.
The government has increased the allocation to fund the scheme by five times to Rs 1,014 crore.
“This proposal is for revival of 50 airports and viability gap funding for northeast connectivity,” the Budget document said.
An amount of Rs 650 crore is proposed to be invested in the State carrier, Air India, for which disinvestment process is being kicked off during the next financial year.
Railways
The Union budget has allocated a record Rs1.48 trillion for Indian Railways to raise its carrying capacity and improve the train travel experience.
Of this, Rs1.46 trillion is capital expenditure, while Rs2,028 crore is to reimburse operating losses on strategic lines and reimburse IRCTC (Indian Railway Catering and Tourism Corporation) for the operational cost of e-ticketing
A large part of these funds will be utilised for capacity addition. The government has decided to double 18,000 km of tracks and to work on third and fourth lines on several sect
Also redeveloping 600 railway stations, equipping them with Wi-Fi and CCTV cameras; introduction of modern train-sets; and escalators for stations with footfalls over 25,000.
Railways will step up the use of technologies like ‘fog safe’ and train protection and warning system, and eliminate 4,267 unmanned level crossings in the next two years.
The Budget also made provision for acquisition of 12,000 wagons, 5,160 coaches and approximately 700 locomotives during 201819.
The Finance Minister said work on the eastern and western dedicated freight corridors was in full swing.
However, the budget was silent on accounting reforms in Railways, non-formation of railway regulatory authority, reduction in passenger earnings and new trains.
The budget also had good news for suburban railways.
Finance minister said Mumbai’s suburban rail system is being expanded at cost of Rs10,000 crore, and an additional suburban network worth Rs40,000 crore was also being planned, including elevated corridors. Similarly, 160 km of suburban rail network worth Rs17,000 crore has been planned for Bengaluru.
Affordable Housing
Setting up of an Affordable Housing Fund and construction of more than 51 lakh houses in rural areas under a government scheme were two key announcements on the housing front in the Budget.
Government will establish a dedicated Affordable Housing Fund (AHF) under the National Housing Bank, funded from priority sector lending shortfall and fully serviced bonds authorised by the Centre.
Housing for all by 2022 : On the Prime Minister Awas Yojana, a programme with a target to ensure housing for all by 2022, FM pointed out that “a roof for his family is another concern of the poor".
Under the Scheme, 51 lakh houses in 201718 and 51 lakh more in 201819 would be constructed in rural areas.
In urban areas, assistance has been sanctioned to construct 37 lakh houses. The move is bound to have positive impact on raw material manufacturers such as cement and steel firms.
Digital India
Finance Minister proposed to double the expenditure on the government’s flagship Digital India programme to Rs 3,073 crore for the next fiscal against Rs 1,425.63 crore in 2017-18.
“Global economy is transforming into a digital economy thanks to development of cuttingedge technologies in digital space – machine learning, artificial intelligence, Internet of things, 3D printing and the like,”FM said.
Terming it as a technology-oriented budget, some experts said, “Budget 2018 gives recognition to the emerging sectors like Edutech, Agritech and Healthtech in India”.
Under Digital India, a maximum of Rs 864.22 crore will be spent on promotion of electronics manufacturing, followed by Rs 425 crore on delivering e-governance services, Rs 400 crore on the government’s digital literacy programme and Rs 300 crore on development on manpower.
The Government also proposes to set up 5 lakh wi-fi hotspots which will provide broadband access to 5 crore rural citizens.
Finance minister said that the NITI Aayog would initiate a national programme to direct efforts in the area of artificial intelligence, including research and development of its applications.
Additionally, the Department of Science & Technology will launch a Mission on Cyber Physical Systems to support establishment of centres of excellence that will invest in research, training and skilling in robotics, artificial intelligence, digital manufacturing, big data analysis, quantum communication and internet of thing
The Budget proposed an allocation of around Rs 14,500 crore to strengthen telecom infrastructure projects, including BharatNet, during the upcoming fiscal.
Of this, Rs 4,500 has been allocated for building a dedicated optical fibre based communications network for defence forces in lieu of airwaves vacated for civilian use.
“To harness the benefit of emerging new technologies, particularly the ‘Fifth Generation’ (5G) technologies and its adoption, the Department of Telecom will support establishment of an indigenous 5G Test Bed at IIT, Chennai,” FM said. An amount of nearly Rs 135 crore has been provisioned for the same.
The government expects revenue of Rs 48,661.42 crore from the telecom sector, which is reeling under financial stress. Telecom operators pay licence fees and spectrum usage charges to the government.
Space
At Rs 10,783 crore, the Department of Space (DoS) gets its biggest outlay to date and also the best yearly increase in five years -of 18.6%. It is also well above the Rs 9,093 crore allocated last February.
Looking at only the outlays since 2013, the DoS sequentially received an increase of 40%, 6.6% 2%, 8%, 14% and now, 18.6% over the respective previous year.
This segment includes money towards centres involved in satellites, launch vehicles, propulsion, launch, postlaunch satellite tracking; besides operational projects and those under development.
Satellites are the backbone of national and social activities such as communication, television and radio broadcasts, telephony, Internet connectivity, location and disaster relief support, military security, resource mapping, planning, decision making and to set up big infrastructure projects.
Around 100 departments have begun to intensively tap satellitebased information.
Under Space Sciences, Rs 230 crore has been earmarked together for the proposed second Mars Orbiter Mission, a Venus mission plan, a space docking experiment, small satellites, Xray polarimeter satellite called XpoSat, climate programme and sponsored research.
Space applications, which include payload development and remote sensing, received Rs 1,746.25 up from Rs 1,586.46.
Push to MSMEs
The Centre has allocated Rs 3,794 crore for micro, small and medium enterprises (MSME) sector towards credit support, capital and interest subsidy as well as to spur innovation.
In a bid to reduce tax burden on MSMEs and help generate more employment, Finance minister proposed to extend the benefit of reduced corporate tax rate of 25% to companies which had reported turnover up to Rs 250 crore (extended from previous Rs 50 crore)during the financial year 2016-17.
“This will benet the entire class of MSMEs, which accounts for almost 99% of companies filing their tax returns. The estimate of revenue forgone due to this measure is Rs 7,000 crore during 2018 19,” he said.
He further added that the lower corporate income tax rate for 99% of the companies would leave them with higher investible surplus which, in turn, would create more jobs
Custom duties hike
Reversing the trend in Budget 2018, Finance Minister has increased customs duty on several imported products, a move that would adversely impact a segment of consumers.
The higher customs duty would make the products expensive. The Finance Minister also proposed to increase customs duty on mobile phones from 15% to 20%, on some of their parts and accessories to 15% and many other items.
The prices of imported high end mobile phones like iPhone would be costlier by 4 to 5%.
Customs duty had also been increased on food items, electronics, auto components, footwear, perfume and furniture.
Imported cars and motorcycles would also become more expensive. Silver and gold would also become costlier.
Also, prices of imported fruit juices, fruits and vegetables would rise.
Prices of sun glasses and truck and bus radial tyres would also go up. Diamond, imitation jewellery and smart watches would be expensive.
Savings
The Centre will contribute 12% of the wages of new employees under the Employees Provident Fund Organisation across sectors for the next three years.
Making the announcement while presenting the 2018-19 Union Budget, Finance Minister said creating job opportunities and facilitating employment generation had been at the core of the government.
The Centre also made amendments to the provisions of Employees Provident Fund and Miscellaneous Provisions Act to reduce women employees’ contribution to 8% for first three years of their employment against the existing 12% or 10% with no change in employers’ contribution.
Investment
For stock market investors, the biggest announcement in the Union Budget 201819 was the reintroduction of the long-term capital gains (LTCG) tax that would see investors paying 10% tax on the gains made by selling shares even after holding them for more than a year.
However, to offer a partial relief to investors, the government has proposed that all gains up to January 31 would be grandfathered. In other words, the gains would be computed based on the share price on January 31.
Finance minister has said that long-term capital gains exceeding Rs 1 lakh would be taxed at 10% without the benefit of indexation. Indexation refers to adjusting the gains against inflation, which brings down the real quantum of gains.
Mutual Fund : The government has proposed a 10% tax on dividends doled out by equity-oriented mutual funds as part of its overall levy of taxes on equity investments.
This will provide a level-playing field across growth-oriented funds and dividend distributing funds,” said Finance Minister.
A dampener for the mutual fund industry that has been seeing a steady flow of inflows, the move would also deter some amount of misselling wherein investors put in money in a particular scheme only for getting regular dividends.
Fiscal deficit targets
Finance minister has set the fiscal deficit target for 2018-19 at 3.3% of the gross domestic product (GDP) to accommodate higher demand for expenditure against the earlier target of 3%.
The government also revised the deficit target for the year ending in March 2018 to 3.5% of GDP from the targeted 3.2%.
In his last full budget, Finance minister also accepted key recommendations of the N.K. Singh Committee on fiscal discipline to reduce debt-to-GDP ratio to 40% by 2024-25 from 50.1% in 2017-18 and has introduced amendments to the present Fiscal Responsibility and Budget Management Act
The government now aims to reduce its debt-to-GDP ratio to 48.8% in 2018-19, 46.7% in 2019-20 and 44.6% in 2020-21, while fiscal deficit as a percentage of GDP is targeted to be reduced to 3.3%, 3.1% and 3%, respectively during the same period.
The government also marginally increased its borrowing programme to Rs6.06 trillion for the next fiscal from Rs6.05 trillion in the current fiscal year.
However, the last full Budget of the government missed the fiscal deficit target of 3.2% for 201718. This was attributed to revenues to be received under the Goods and Services Tax (GST) for 11 months, instead of 12. The revenue for March will be received in April. The shortfall in GST revenue was Rs 50,000 crore.
Hits and Misses : brief analysis
There were few happy faces in India after the Budget speech got over, except for the senior citizens.
Budget 2018 has given a big push to Bharat and tightened India a bit more.
Bharat has got targeted spends on a whole range of items, from electrification to a massive health insurance programme—probably the biggest in the world.
Senior citizens should be happy. The morning laughing club should be laughing harder. They have reason to because they are possibly the only middle India cohort that gets to take home more money. Interest income for them will be exempt from tax up to Rs50,000, up from Rs10,000.
The Pradhan Mantri Vaya Vandana Yojana has been extended till March 2020, and the Rs7.5 lakh-limit is doubled.
These are important changes for a generation that is sitting on pension corpuses that were earned on pre-liberalization salaries, and which is finding today’s costs prohibitive.
The Budget proposes a health insurance scheme that will cover 10 crore poor families with an insurance cover of Rs 5 lakh each. Since such a cover would mean an annual premium of at least Rs 10,000, it is doubtful that it is backed by actual outlays in the Budget.
Moreover, basic health care must be provided through government hospitals and not through insurance that pays for care at private hospitals.
Salary earners were first patted on the back by the FM when he said that they pay an average of Rs76,306 in tax in a year as compared to the business and professional tax payers who pay a paltry Rs25,753. To make amends he gave a standard deduction of Rs40,000.
But this is in lieu of transport and medical expenses and is also
Posted by Jawwad Kazi on 2nd Feb 2018
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