India Union Budget F 18

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.