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Old February 1st, 2018, 11:30 PM
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Breaking down the Budget 2018 in 20 questions

Breaking down the Budget 2018 in 20 questions



Union Budget 2018: The most anticipated event of the Indian financial calendar is over. What political and economic message has the Budget sent out?

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Finance Minister Arun Jaitley presented the Union Budget 2018 on Thursday in Parliament. The most anticipated event of the Indian financial calendar is over. What political and economic message has the Budget sent out? The Indian Express cuts through the fog.

1 — First of all, why do we need a Budget at all? Was there anything particularly special about this year’s Budget?

Like households, governments, too, need Budgets — to assess income or revenues and expenditure, and to see what can be spent on, say, health, education, infrastructure, defence, or maintaining law and order. A Budget helps to prioritise the spending; it sometimes also provides a roadmap for where the country’s economy is headed.

While Finance Ministers look at each of their Budgets as special, this year’s Budget was watched with extra keenness because it was the last full Budget of the Narendra Modi government. With several state elections this year, it was also expected that the government would try to woo specific political audiences. But it was also hoped that the government would remain fiscally prudent, i.e., it would not end up borrowing excessively.

2 — Last year, the Budget was advanced to the first day of February from the last day. What did we gain as a result?

The aim of advancing the Budget was to ensure that spending on schemes and projects kicked in early in the year, rather than being pushed to the middle of the year — typically after May, when the purse-strings would be eased after Parliament approved the Budget. Evidence so far suggests that spending now is indeed more “front-loaded”, and there is less of a scramble to spend funds towards the fag end of the fiscal year.


3 — What is the state of the economy today, compared to last year, and to 2014, when Modi government took over?


Ten years after the global financial crisis, the global economy seems to be in good shape. But the Indian economy will post a growth of only 6.5% in 2017-18 — the lowest growth rate since the government came to power in May 2014. The good news is that global institutions and agencies have projected India’s growth to be in the mid-7% range in 2018-19, with global growth, too, picking up. But there has been a slide — that too, when it had the advantage of low oil prices.


4 — What were the key expectations from this year’s Budget?


It was certainly hoped that the government would meet its target on fiscal deficit, which is the excess of revenue over expenditure. The budgeted fiscal deficit was 3.2% of GDP, and meeting it would have meant keeping interest rates in check, and a more positive sentiment. It was expected that the government would provide more money for the poor, and unveil schemes for farmers and for infrastructure. And, both the re-introduction of a tax on gains made by investors who had held stocks for over a year, and a cut in the tax rate of companies, were widely anticipated.


5 — To what extent have these expectations been met?

The Budget has proposed schemes for the rural sector, and for families living below the poverty line. But individual investors, especially recent entrants to the stock market who have been putting their money in mutual funds that invest in stocks, and companies that had hoped for a lower tax, have been disappointed. So too economists, and the markets, which frown at higher borrowings.


6 The government has failed to meet the fiscal deficit target for 2017-18, and has had to revise it upwards for 2018-19? Is that a problem?

It is. Higher borrowings translate into higher yields or rates, which investors who buy such bonds seek. That then reflects in higher interest rates all around — for companies, and for individuals. The other problem with deviating from targets is that it could pose a credibility risk. Investors may not be willing to take the government’s word, which can be costly from an investment point of view.

7 What has the Budget done to raise resources for the government?

The government has set a target to raise Rs 80,000 crore in 2018-19 through the sale of shares in companies that it owns, either partly or through a larger tranche. Its achievement on this front in the fiscal year ending March 2018 has been impressive — having mobilised a record Rs 1 lakh crore.

8 And what has it done to boost government spending?

Much of the spending will be on building infrastructure — mainly 9,000 km of national highways, and connecting interior and backward areas by rail, which has a projected capital expenditure plan spending of Rs 148,528 crore in 2018-19. There is also spending on urban infrastructure like smart cities, water supply, and expansion of airport capacities.

9 What steps has the Budget taken to create more jobs?

The government says that lowering the mandatory norm of provident fund contribution of 12% to 8% for the first three years of employment will incentivise employment of more women, as will the system of fixed-term employment in the apparel and footwear sector. The assumption also is that higher infrastructure spending could bring more jobs, with more entrepreneurs setting up shop.

10 How will the fixing of MSPs of crops to guarantee farmers a 50% profit over production costs help?

This was a formula originally recommended by the National Commission of Farmers headed by agriculture scientist M S Swaminathan, and which Modi promised to implement during the 2014 campaign. The Finance Minister’s speech has basically reiterated the promise, but without spelling out how it is going to be implemented.

11 And what provisions have been made for funding higher MSPs?

No money has been set aside to implement the promise, which will require the government to either physically procure the entire crop that farmers bring to the mandis and offer at the MSP or, alternatively, allow them to sell at going market rates and pay the difference. The Madhya Pradesh government has implemented such a scheme called Bhavantar Bhugtan Yojana, which pays farmers the difference between MSP and the average modal (most-traded) price in mandis. The scheme has faced flak because traders apparently used it to drive down market prices. Since it was operational during this kharif marketing season only during October-December, farmers sold most of their crop to avail of the price difference. The traders are alleged to have made a killing by buying up this entire crop and driving up prices when the scheme ended. Jaitley has said that the NITI Aayog, in consultation with the central and state governments, will put in place a “foolproof” mechanism to address all these issues.

12 What does the Budget have for the elderly and the retired?

For senior citizens, the income-tax limit for deduction on health insurance premiums has been enhanced from Rs 30,000 to Rs 50,000. The limit for deduction on medical expenditure for certain critical illnesses has been raised from Rs 60,000 to Rs 80,000 for senior citizens, and from Rs 80,000 to Rs 1 lakh for very senior citizens. Also, the government has raised the exemption on interest earned on deposits with banks and post offices from Rs 10,000 to Rs 50,000 for seniors. What’s better, there will not be any tax deducted at source on their fixed deposit and recurring deposits.

13 What’s in the Budget for the poor, both in urban and rural areas?

There are schemes to provide free power and build toilets for the poor, and provide free gas connections to 8 crore poor women. There is also housing for the poor in both rural and urban areas.

14 What is the proposal to create “the world’s largest health programme”? How will it provide health security to vulnerable sections of Indians?


For the poor there is the promise of a health or medical cover of up to Rs 5 lakh, which the government says will cover over 10 crore poor and vulnerable families. This translates into 50 crore beneficiaries for secondary and tertiary care hospitalisation.

15 What practical benefits are to be gained by merging the three big public sector general insurers, United India Insurance, Oriental Insurance, and National Insurance?

It can be argued that consolidating their operations would lead to benefits similar to that of a large company with a balance sheet that can take on the challenges of a growing market. It is also in alignment with the government’s plan to consolidate in sectors such as oil and gas, and banking.

16 What does the Budget have for the middle classes in the towns and cities?

Not much, apart from the re-introduction of the standard deduction of Rs 40,000 in place of the current exemption on transport allowance and reimbursement of miscellaneous medical expenses.

17 After nudging newer sections of people towards equity mutual funds, why has the government now chosen to disincentivise these market-linked investments by imposing a tax on them?

The government perhaps feels that the many investors who have booked gains in stock investments and mutual funds over the last couple of years, can afford to pay a 10% tax even if they have held it for over a year. The calculation could have been that this set of people, who are perceived to be better off than the rest, can help partly underwrite the funding of some social sector schemes. The government could be betting that any dampening of the market sentiment as a result of this tax may be only transient.

18 What structural implication does the proposal to make it mandatory for the corporate sector to raise at least a fourth of their funding needs through bonds, have?

This could mean a change in the way big companies raise their funds. They will now have to rely far less on banks than in the past. For banks, it could mean a healthier mix and balance sheet, and perhaps a greater say compared to the past when it comes to the big borrowers. And a better and improved corporate bond market.

19 Overall, how can the Budget be summed up? Has the Finance Minister been reformist, populist, or has he just played it safe?

Not reformist. Because of the schemes and programmes aimed at the poor and vulnerable sections, some would say he has been populist. Overall, it does seem that he was risk averse — maybe because of the overhang of the larger-than-anticipated deficit.

20 Finally, what is the big political message from the Budget?

Broadly, that targeting the poor, or those at the bottom of the pyramid, could help bring gains — both politically and maybe economically — once they are empowered.

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Last edited by echarcha; February 1st, 2018 at 11:33 PM.
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  #2  
Old February 2nd, 2018, 03:33 AM
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Re: Breaking down the Budget 2018 in 20 questions

Is budget presented and discussed (tamasha event providing a week’s content to media) like this in other countries too? I mean to the level of cigarettes are costlier from now on.

I akways felt like the micro details discussed are unnecessary.. like say parents discussing yearly home budget with toddlers.

Last edited by sarv_shaktimaan; February 2nd, 2018 at 03:35 AM.
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Old February 2nd, 2018, 04:59 AM
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Re: Breaking down the Budget 2018 in 20 questions

For the first time after demonetisation I am seeing a very negative reaction to the government in urban areas due to the anti middle class budget . Until now the Modi government was the darling of the middle class because of demonetisation.

Of course I don't know the reaction in rural areas for whom the budget was tailored.

Question is , will this unpopularity of the government due to budget be a temporary phenomenon or will it last ? Or will the rural areas counterbalance the urban middle class and the government may remain popular ?

What will the effect be on 2019 lok sabha elections?
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Last edited by ashdoc; February 2nd, 2018 at 05:01 AM.
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Old February 2nd, 2018, 05:24 AM
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Re: Breaking down the Budget 2018 in 20 questions

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Originally Posted by ashdoc View Post
For the first time after demonetisation I am seeing a very negative reaction to the government in urban areas due to the anti middle class budget . Until now the Modi government was the darling of the middle class because of demonetisation.

Of course I don't know the reaction in rural areas for whom the budget was tailored.

Question is , will this unpopularity of the government due to budget be a temporary phenomenon or will it last ? Or will the rural areas counterbalance the urban middle class and the government may remain popular ?

What will the effect be on 2019 lok sabha elections?
The 'orange passport holders' voted against ABV in 2004 when Middle class was going gaga over him. probably Modi is trying to avoid a repeat of this.
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Old February 2nd, 2018, 05:36 AM
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Re: Breaking down the Budget 2018 in 20 questions

Stock markets crash due to long-term capital gain tax in budget

https://m.timesofindia.com/business/...w/62758058.cms
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Old February 2nd, 2018, 07:10 AM
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Re: Breaking down the Budget 2018 in 20 questions

From whatsapp..

Garibo ko mili subsidy, ameeron ko mila rebate

Middle class tum tv dekho, tumko mila debate
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Old February 2nd, 2018, 11:30 AM
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Re: Breaking down the Budget 2018 in 20 questions

BJP came to power with the national coffers near empty. They have to do something to please as many classes as possible and still fill up coffers for nation building. So it will be difficult to satisfy everyone.

At the same time the middle class has to realize that Congress has screwed them a lot since 1947. So give Modi a chance to correct the wrongs.

Those who are expecting a magic wand kind of effect within 5 years are wrong. A lot of good is happening and the effects are being seen slowly but surely.
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Old February 2nd, 2018, 11:32 AM
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Re: Breaking down the Budget 2018 in 20 questions

If Modi can get a good majority in 2019, he should dare to go ahead and tax the rich farmers. He should define who is a poor farmer first. Maybe someone with 10 acres of land or less as poor and then tax the rich farmers. At the very least he needs to stop subsidies to the rich farmers.

It is unfair that farming income is not taxed and yet the farmers can spend their tax free income on goods and services by just paying tax on them. Whereas, the salaried class already pays tax on income and then has to pay tax on goods and services too!
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Old February 2nd, 2018, 01:24 PM
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Re: Breaking down the Budget 2018 in 20 questions

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Originally Posted by echarcha View Post

Those who are expecting a magic wand kind of effect within 5 years are wrong.
I was saying the same before 2014 to many FB posts* and some within EC who believed that Modi had a magic wand. I was arguing with Swami RIP on exchange rates for sometime.

* i joined whatsapp in 2015
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Old February 2nd, 2018, 01:28 PM
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Re: Breaking down the Budget 2018 in 20 questions

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Originally Posted by echarcha View Post
If Modi can get a good majority in 2019, he should dare to go ahead and tax the rich farmers. He should define who is a poor farmer first. Maybe someone with 10 acres of land or less as poor and then tax the rich farmers. At the very least he needs to stop subsidies to the rich farmers.

It is unfair that farming income is not taxed and yet the farmers can spend their tax free income on goods and services by just paying tax on them. Whereas, the salaried class already pays tax on income and then has to pay tax on goods and services too!
partly in line with what i suggested a while back

My suggestions would lead to budget surplus but all the Swadeshi, Mahila Sanghs, etc. will come on streets .
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Let me suggest some Dhoom Dhadam ka policies (Guaranteed to invite bandhs and lose elections)

1 Remove Fertilizer Subsidies
2 Remove all petroleum subidies and surcharges too. Slightly cheaper petrol but much costlier diesel, LPG and Kerosene.
3 End all the yojanas like NREGA, that thing of giving subsidies to Kashmiri Students, etc. (Haj subsidy comes down in the line)
4. Build ATMs that read fingerprints and disburse 50% of the amount saved in 1, 2 and 3 in cash. one can withdraw say, 1000Rs every month. The same fingerpriont cannot withdraw twice every month.
5. Reduce Income tax to 10% for the top slab. Then you will autonmatically see black money pouring back into the country.
6. Open govt matka dens and betting centres. Those who pay an income tax of over 1 lakh could be allowed there.
7. Pay the betting revenue accumulated to the sports teams if they win.
8. reduce the import duty on scotch, beer, etc. to 15%
9. Designate one island in Andaman and Nicbar as a special tourist zone. Ganja, Laundiayabazi, Laundebaazi, everything would be legal there.

Bas - Is that not enough.
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Old February 2nd, 2018, 06:48 PM
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Re: Breaking down the Budget 2018 in 20 questions

Almost every party that comes to power after a change claims that government coffers are empty. Difficult to trust the word of governments. Almost every government takes forward the programs started by the previous one.

Money, there has been enough in the system. Lots of taxes, FDIs, disinvestments etc.

What I am concerned about is how the beneficiaries of the government schemes are identified. 5 crore gas connections given free - great, but who are these recipients ? 3 crore Mudraa loans given at average Rs. 43000 per person. Great again, but who are these people and how are they contributing to the economy ? I have yet to meet a single person who got anything from these schemes, and I do travel a goodly bit and move among people from different sections of the society. Pradhan Mantri Awaas yojana, the one that proposes housing for all by 2022 and offers 4% interest subvention, is just taking shape and one needs to pay a bribe to get an assured allotment.

I think that all the beneficiaries of government schemes should be declared on a government website. More transparency is needed to ensure accountability. Nowadays this is possible with all the digitisation happening.

Edit :

BTW, that "standard deduction" of Rs. 40000, is misleading. Medical reimbursement and travel allowances have been removed from the deduction claims, thus effectively reducing the standard deduction to Rs. 5000. There have been a lot of tax hikes too, LTCG and import duties, and Health and Education Cess has been increased to 4% from 3% earlier.

Ok, so this budget focussed on populist schemes to cover more territory. Just make sure that benefits are received by the voter at the ground level and are verifiable.
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Last edited by raniraja; February 2nd, 2018 at 06:51 PM.
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