The Union Budget for 2018-19 was presented amid concerns over a year of slower economic growth, fiscal stress and farm distress. It was comforting to hear from our Finance Minister that India’s $2.5 trillion economy is expected to bounce back and ultimately emerge as the fifth-largest. All this despite headwinds owing to rising oil prices, which increase probability of fiscal slippage, a larger current account deficit and higher prices; and the possibility of a correction to move to a less exuberant stock market impacting capital flows and investment.
I noted that the FM announced an India-focused budget, walking a tightrope in the backdrop of a pre-election year. The spotlight has moved from ease of doing business to ease of living for the common man. Several measures to boost infrastructure, agriculture, healthcare, education, jobs and small and medium enterprises (SMEs) were announced as expected. The announcements will boost sentiment, even if it would be some time before increases in agricultural and rural income truly bring relief for marginalised farmers. We can only hope that such measures will not escalate inflation. I was personally happy to see benefits specific to women at work. The unexpected focus on health care was additionally welcome. If implemented well, the health insurance net could prove to be one of the biggest reforms initiated by this government.
On the other hand, the capital markets would be disappointed with the 10% tax on capital gains. More importantly, the tax on mutual funds would also affect investments by small investors and dampen sentiment. The salaried middle-class had hoped for no change in personal income tax, but may now suffer higher capital gains tax on investments and cess on income tax.
A lower corporate tax rate of 25% has been extended to all companies with turnover of up to Rs 250 crore. To a certain extent, it can be expected to boost jobs and investment and overall sentiment in the MSME sector. This also gives a boost to the Make in India initiative.
An overall decrease in corporate tax rate would have been welcome, given that globally, the trend for India’s trade partners has been to decrease headline tax rates. However, that remains a prospect for the future. Importantly, businesses would have welcomed assurance on the issue of unnecessary tax litigation as highlighted in the Economic Survey and measures for reduction.
Indian exports have not been able to take full advantage of global growth and it was expected that the Budget would encourage overseas companies to include India in their global manufacturing supply chain. This needs to be an important focus area to put the country in the global manufacturing footprint.
India enjoys a high skill base apart from cost advantages. Some announcements in this area would have been welcome. While I do expect substantive announcements in this area in the future, the FM’s underlining of the Digital India theme is welcome. A substantial allocation under telecom infrastructure, continued efforts to connecting 1.5 lakh more villages under BharatNet initiative, setting up hotspots and accelerating the pace of 5G adoption, and promoting research in the field of artificial intelligence are essential for the country that aims to go digital.
Overall, it can be said that in the final full budget of the present government, the FM has balanced populist demand, inclusive growth, and focus on fiscal consolidation.
However, the feel good factor is dependent on how the implementation pans out. Putting that extra rupee in the hands of the common man can help the economy only if it is done timeously and efficaciously.
The author is the CEO of Deloitte India.