Avdh Ojha Classes
Short Notes IAS CS365
Copy Notes Products
Home » Fine Editorials » Budget 2018 strikes a reasonable balance

Budget 2018 strikes a reasonable balance

The focus of Union Budget 2018 was on the rural sector, but there was something for most stakeholders

It will be important that the government pulls other policy levers to push economic growth, which will also help keep its finances on track. Illustration: Jayachandran/Mint

It will be important that the government pulls other policy levers to push economic growth, which will also help keep its finances on track.

The prevailing economic and political situation had increased the difficulty of crafting an effective budget for Union finance minister Arun Jaitley. As the current government’s last full budget, it was always going to be a difficult balancing act between addressing rural distress, which is bound to have electoral consequences for a democratically-elected government, and maintaining the record on fiscal discipline. Any analysis of the budget should be done in this context.

As was widely expected, the focus of the budget was agriculture and the rural sector, though there was something or the other for most stakeholders in the economy. In order to address growing farm distress, the finance minister announced that minimum support prices (MSP) would be fixed at 1.5 times the production cost. It has also been decided that the NITI Aayog will work with the Central and state governments to put forward a mechanism to adequately compensate farmers in case the government is not able to buy their produce and the prices slip below the MSP. It is important that the mechanism is carefully designed to avoid exclusion and is not manipulated at the mandi level. Lessons from such initiatives implemented in a handful of states should be incorporated in designing such an instrument.

The government has also done well to focus on another mechanism—one for increasing the scope of futures and options—so that farmers have a better understanding of demand and prices in the post-harvest period. This will help farmers make more informed decisions and get better prices for their produce.

Increasing the scope and reach of the electronic national agriculture market (e-NAM) will also help the farm community. Given the disappointing performance of the e-NAM initiative so far, this is another area where delivering on the budgetary promise will require improving existing processes and frameworks.

Apart from supporting farm activity, the government will also spend on rural infrastructure, which is crucial for helping boost growth and supporting employment. The finance minister also announced an ambitious health protection scheme for 100 million poor households. However, it remains to be seen if it is actually able to insure the medical needs of the poor and vulnerable sections of society.

As noted earlier in this editorial, the budget has something for most stakeholders in the economy. For example, a standard deduction of Rs40,000 for salaried taxpayers and increase in exemption on interest income for senior citizens will help increase disposable income. Bringing more companies—the majority of them, in fact, covering micro, small and medium enterprises—into the ambit of the lower 25% corporate tax rate will help boost profitability and their ability to invest.

The reintroduction of the long-term capital gains tax (LTCG) on equity disappointed investors, which was reflected in a sharp correction in the benchmark indices after the announcement, but the markets recovered later in the day’s trade. As this newspaper argued recently, given the way LTCG is treated in most parts of the world, and the given income profile of people making those gains, a moderate tax is justified.

Overall, the increase in expenditure and reduction in taxes have meant that the fiscal consolidation will be slower than initial targets. The government has accepted the recommendations of the fiscal reform and budget management committee and the fiscal deficit is now projected to reach 3% of gross domestic product (GDP) in 2020-21. The government will now be targeting a fiscal deficit of 3.3% of GDP in the next fiscal, compared to the revised estimate of 3.5% in the current year. This is marginally higher than what most analysts were expecting. As a result, bond yields shot up during trading hours. However, under the given circumstances, the finance minister has done well to limit the fiscal slippage.

[quads id=1]

But it is important to note that there could be downside risks to fiscal targets, at least in the current year. Depending on how the mechanism to compensate farmers is designed, expenditure could go up significantly. Continued higher oil prices could also put pressure on the government to cut taxes on petroleum products, which could affect revenue. It will be important that all efforts are made to stabilize the goods and services tax system, which will augment revenue, to keep the fiscal deficit in check.

To be sure, it will be important that the government pulls other policy levers to push growth, which will also help keep its finances on track. For instance, it is critical that public-sector bank recapitalisation be accompanied by wider governance reforms, which will lead to better allocation of resources. Further, the government will need to build on gains in the area of ease of doing business in order to push investment and growth.


Source : Live Mint

Receive the latest articles in your inbox

UPSC Telegram Channel Links


freeupscmaterials.org does not own this Materials, Test Series or anything we share, neither created nor scanned. we just providing the links already available on Internet. and also we doesn't Own any trademarks or copyrights of any institute like Vision IAS, Vajiram and Ravi, Gs Score, Insight IAS, IAS Baba, Forum IAS, Shankar IAS and others which we share are purely for Education purpose only and all copyrights and Trademarks lies with the respective Institutes/Comapanies only. We don't intend to either harm or encash your hard work, if any way you feel that our content violates any Copyrights or any privacy laws or if you have any issue, please let us know at [email protected] and we will definitely try to provide possible solution for the same. Thank you.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.