India - Union Budget F18
The
economic survey and Union budget proposals have brought a feel good factor to
the economy after the deep impact of the demoentisation on the Economic
performance of India. There was an
effort to address most affected segments of the society including Farmers,
SME’s and various measures were announced to ensure the development of various
sectors of the society.
The budget proposal has 10 distinct themes: Farmers; rural population;
energizing youth; poor and underprivileged; infrastructure; financial sector;
digital economy; public service; prudent fiscal management; and tax
administration. Under each of this, detailed action plans have to be drawn up
and implemented faster with close monitoring of implementation of these
schemes.
A Consolidated
outcome budget for all ministries has been created. Fiscal deficit for F18 is
projected to be at 3.2% of GDP and Revenue deficit for F18 is projected at 1.9%.
The targets set are indicating the tight fiscal management.
There
is a need to get back to 8% GDP growth and regain the growth momentum. Despite,
the projection for GDP in the budget is lower, there is always a scope to look
at measures which can take our economic growth back to higher levels.
One
of the strategies stated in the budget is to use the data collected from
Demonetisation process to bring more assesses into tax net and increase the tax
collected from the existing assesses. Apart
from using measures like VDS other
schemes and penalties, even by brining to the notice of assesses that from the
data government has the knowledge of the income, communicating the same to
assesses that they have to pay higher, the compliance of tax payment could be
increased by several notches.
The
demonetization itself has brought the effects, which would have been realized
if the GST was implemented. Again, introducing GST in the proposed form, is
likely to create uncertainty in the environment and making the formulation of
plans by Corporates.
The
time frame for implementation of GST is very short and there is a need to build
capacity not only with corporates and even with suppliers to the large
corporates. This is a mammoth task and the government has to increase its
reliance on professional agencies for capacity building.
There is a Surplus
liquidity in banking system now after demonetization and the Public sector
banks require further huge capital. The allocation of Rs.10,000 for
recapitalization is very less and the government has to consider allocation of
at least Rs.25,000 cr, which would help to raise additional Rs.2,25,000 cr
through other sources of funding.
There is a
proposal in the budget to spend more in rural areas, especially for improving
the productivity of the farms and creating employment opportunities in other
areas. This is the need of the hour and under every crop, we should set an
objective to reach the best productivity of the crop in the world. This would
help to increase the growth in agriculture to at least 6% p.a. Farmer credit fixed at record level of Rs10
trillion, will ensure adequate credit flow to underserved areas in India.
The Mission
Antyodaya to bring 1 crore households of poverty is a good move and it will
increase the consumption levels in the Rural economy.
It is heartening
to note that , the allocation to the MGNREGA is at the record level of Rs48,000 crore and the participation of women
now at 55% compared to less than 50% in the previous year. This will also keep
many families out of poverty line.
In India, education is one of the sectors which had contributed to the
development of IT and high tech sectors in India. There is an emphasis on Education and plan to introduce System of measuring annual learning outcomes,
emphasis on science augurs well for skill development. Innovation fund for
secondary education is again a good concept.
Realty. The decision to give infrastructure status for Affordable
housing and redefining the scope to take
carpet area of 30 Sq.m in four metros and 60 sq.m in other towns is a good
proposal , which will give a fillip to housing development.
Infrastructure. Now the government has decided to look at Transport
sector in an integrated manner and brought a concept of Railway tying up all
other modes of transport would bring down the logistics costs. Total allocation to transport sector at Rs2 trillion.
Total capex and
development expenditure of railways is planned at Rs1.31 trillion and lot of
emphasis on Passenger safety. The
government will set up a Safety fund corpus . Railway lines of 3,500km will be
commissioned compared to just 800 Km in the previous year. There is also a plan
to list the Railway related PSU’s , which will provide additional funds from
issue of shares to the public.
Roads . There is
an Allocation for national highways of
Rs64,000 crore and the road development will increase the connectivity . There
is also a plan to improve the rural connectivity in a big way.
Civil Aviation. Airports
Authority of India Act to be amended to enable monetization of land resources.
Foreign
Investment Promotion Board (FIPB) to be abolished. This is a good move and it
confirms the government’s intent to open more sectors for FDI. This will
attract more investors from abroad.
PSU’s. There is
a plan to List PSUs which are not listed
today and to create integrated public sector oil major.
PSUs have lot of assets and market value will be running into many trillion of
Rupees. Capitalisation of land available with PSUs have to be taken up on
priority basis.
SME’s. Under Pradhan
Mantri Mudra Yojana: Lending target at Rs2.44 trillion. Already , lot of funds
were disbursed under this scheme. Increasing the target, would help to support
the growth of SMEs.
Digital Economy. The intent of the government is very good. But trends
across the world indicate that even developed economies have high reliance on
cash transactions to support the economic growth. In India , the major
entrepreneurial class is from the Trading sector and their dependence of cash
as a working capital is very high. Restricting the cash payment to Rs.3 lakhs
will constrain the trading activities in Tier II, III, IV cities and rural
areas. Further , we are still not fully ready with Cyber security
infrastructure to execute transactions on a country wide basis. In the light of
the above, in addition to promoting digital , even the cash economy requires
support to keep our economic growth at high levels.
Political
funding. Maximum amount of cash donation that can be received is Rs2,000,
political parties can receive donations by cheques or digitally; amendment
proposed to RBI Act to issue electoral bonds, every party has to file returns
within specified time. This is a radical reform as far as electoral reforms and
political reforms are concerned.
Personal income
tax: Rate reduced to 5% for income bracket of Rs2.5-5 lakh, All other
categories to get uniform benefit of Rs12,500 per person and there is a
proposal to levy surcharge on income
bracket Rs50 lakh-Rs1 crore.
FPI category 1
and 2 investors exempted from indirect transfer provisions is a good proposal
to keep the interest of foreign investors intact. As expected , the capital
gain treatment changes which would have affected the confidence of foreign
investors was avoided.
Concessional
withholding rate will be extended to 30 June 2020 for ECB’s and rupee-denominated Masala bonds. This will
facilitate issue of ECB’s and Masala Bonds.
·
The Revised Estimate (RE) for Total receipts is Rs.19.33 trn, which was
0.92% lower than the Budgeted Estimate(BE) and it was higher than the previous
year by 8.96%. The projection for F 18 is Rs.21.21 trn, a rise of 9.72% over
the RE for F 17. The growth in revenues were lower than the Nominal growth in
GDP. The projection for Receipts is also lower than the projected growth in
Nominal GDP.
·
The RE for Gross tax revenue for F 17 was at Rs.17.03trn, higher than
the budget estimate by 4.41% and 17.04% higher than the previous year. This was
mainly on account of the VDS scheme and the additional receipts arising out of
Demonetisation impact. The projection for F 18 is Rs.19.11 trn, a growth rate
of 12.21% over RE of F17.
·
After the share with the states, the revised net tax revenues in F 17
was at Rs.10.88 trn , 3.22% higher than
the budget. It was higher than the previous year by 15.3%. The projection for F
18 is 12.27 trn, 12.27% higher .
·
Due to poor performance of corporates, the corporate taxes were
same as the budgeted level at Rs.4.94trn. The assumption is that , it will rise
by 8.83% YoY in F 17. Budget for F18 is at Rs.5.38 trn, a rise of about 9%.
Partly, the lower growth projected is due to reducing the tax rate for SME’s
from 30% to 25%.
·
Taxes on income was at Rs.3.53trn, same as the budgeted levels in F17.
They had assumed an increase over the previous year by 23% in F 17. This has
assumed a sharp rise of 25% in F18 at Rs.4.41 trn. They have factored in the
addition of new assesses in the light of demonetisation impact. Through data
mining and better administration, they are planning to increase the revenue
from this source by 25%.
·
There was a talk about brining back the wealth tax. Since this will not
be a large sum and collection cost of the taxes would be higher than receipts,
wealth tax was not brought back .
·
In Customs, the revenue was lower than the budget by 5.65% at Rs.2.17trn
and higher than the previous year 3.33%. This was mainly on account of lower trade growth in the world and the
softening of import prices and export prices. The growth projected for F 18 is
12.9%, at Rs.2.45 trn. Since trend witnessed today is one of protectionism by
many countries, there is a risk that , the growth projected of 12.9% may not
come true. The rise in oil prices, will contribute to higher customs duties.
·
On Excise, they were planning to collect Rs.3.87 trn. against the BE of
Rs.3.18 trn and 34.3% higher than the
previous year. The high rise in excise duty was mainly on account of increased
excise rates on petroleum products. When we had witnessed low prices in
imported Petroleum products, all the savings was not passed on to the
customers. The government retained part of the savings in the form of
additional excise duty. In F 18, they expect Rs.4.07 trn, a rise of 5.16% over
RE of F 17. Since , the oil prices started rising and likely to be firm in the coming
year, the scope for mobilising additional excise duty from Oil is limited. There is no proposal to effect many changes to excise duties
since GST will be implemented soon.
·
Service tax collection was higher than the budget by 6.9% at Rs.2.47trn.
It was higher than the previous year by 17%. The projection for F 18 is Rs.2.75
trn, 11% higher than the previous year.
·
Revised Interest receipts by the government was lower than the previous
year at Rs.28.5% at Rs.18149.03 cr in F 17 and it was 39% lower compared to the budget estimate of
F17.Projection for F18 is at Rs.19020.73 cr. The growth expected on this count
is only 4.7% over the previous year.
·
In F 17 , they had assumed receipt of dividend of Rs. 1.53trn and it was
higher by 23.4% over BE. This was higher
than the F 16 by 36.6%. Dividends have contributed a significant share to the
overall kitty. If the amount of old
currencies received by RBI were lower by Rs.2 trn as was expected, through
special dividend, this could have been much higher in F 17. In F 18 the
assumption is that Rs.1.42 trn, a fall of 7.19% over RE of F 17.
·
Other non tax revenues. This includes Sale of air waves and
disinvestments. The revised plan for F 17 was Rs.1.61trn, 3.5% lower than the
budget and 43.3% higher than the previous year. The budget for F 18 is
Rs.1.25trn, 22% lower than the previous year.
·
They had assumed revised ,miscellaneous capital receipts of Rs.45500 cr,
a shortfall of 19.4% over the F 17 budget and 8% higher than the previous year.
Estimate for F18 is at Rs.72500 cr.59% rise over the last year. This is a
significant increase.
·
Resources from Market loans In F 17, it was lower than BE
by 18.3% and 14.1% lower than the previous year at Rs. 3.47 trn. In F 18, it is
assumed to be same at Rs.3.48 trn.level. Revised Short term borrowings in F 17
was lower than F 16 by 63.2 % at Rs.18629 cr. It was higher than the budget by
11.89 %. The plan for F 18 is a reduction of 89.2% and the plan is to mobilise
Rs.2002cr.
·
The government internal debt at the end of F 17 is likely to be Rs.57.31
trn and it is expected to rise to Rs.61.80 trn. External debt will rise from
Rs.2.25 trn to Rs.2.40 trn.
·
Total liabilities of the government is expected to be Rs.74.40 trn at
the end of F 17 and likely to rise to Rs.79.63 trn.
·
The revised amount raised through securities against small savings in F 17 was higher than F
16 by 72.2% and budget by 309% at
Rs.90376 cr. There is a plan to increase this to Rs.100157 cr , 10.8% higher
than F 17. They have kept the borrowing to the lowest possible level and
emphasis on loans as a major source of funding is less.
·
Other Capital receipts in F 17 was revised at Rs.9948cr . In F 18 , it
is likely to be higher by 438% at Rs.53513 cr.
·
In the expense category, Central expenses were likely to rise to
Rs.16.16trn.from BE of Rs.16.01 trn., 11.5% rise over the last year. Budget for
F18 is at Rs.17.23 trn, a rise of 6.62%. The increase projected for expenses is
very low indicating that, the government will rely on working closely with
State Governments and private sector.
·
Expenses through transfer of funds in F 17 was revised to Rs.3.97 trn,
5% higher than the budget. It was higher than the last year by 16.4%. There is an assumption of increase and this
is expected to be at Rs.4.23trn in F 18. They do not expect a big benefit
from DBT and direct transfer scheme as the reduction is not substantial.
·
Total Expenditure for F17 is revised at Rs.24.21 trn, 1.89% higher than
the BE. It was higher than the previous year by 15.17%. Estimate for F18 is kept at Rs. 25.32 trn,
4.58% higher than RE. This indicates, there has to be an austerity drive as far
as expenses are concerned.
·
In terms of assets at the end of F 17, the value is likely to be
Rs.21.38 trn and it is likely to rise to Rs.23.39 trn. From the details given
for various categories, it appears that the value of assets of the government
of very much undervalued and they are at historical costs. If the strategy of
capitalising the assets and increasing the credit rating of the country, there
is a need to revalue the assets closer to the market rates.
