Opinion on Union Budget 2018

Over the past few years, the government had undertaken a series of transformational reforms
that not only impacted the economy but also had a lasting impression on the mindset of people.
Some of the structural reforms include introduction of GST, the bankruptcy code, and
demonetisation.
Some other reforms such as Niti Aayog Digital India and Jan Dhan Yojna, MUDRA yojna, Make in
India, PM Jeevan Beema Yojna, Suraksha Beema Yojna, Fasal Bima Yojna, Atal Pension Yojna,
Garib kalyan yojna, Udaan Scheme and Swachh Bharat Abhiyaan, Skill India, Beti Bachao Beti
Padhao, Smart city mission, National Sports Talent Search Scheme are expected to show positive
meaningful impact in the medium to long term.
These transformational reforms contributed to India sustaining an average growth rate of 7.3%
over the past four years.
However, some of these transformational and structural reforms such as demonetisation and
GST also led to short-term pain in the rural and MSME sector and a consequent slowdown in the
pace of growth of our economy. Income levels dropped in the rural economy, and consumption
was affected.
It was thus important in this budget for the government to boost the rural / Agri economy and
ensure that the country was on track to achieve an 8% growth on a sustainable basis.
Towards this, we saw the government targeting the four engines of economy for pump priming
in this Budget. The first pillar was to boost consumption. The Budget gave a fillip to the MSME
sector by announcing several important measures such as credit support, capital and interest
subsidy. The proposal of the government is to bring together the PSBs and Corporate on the
Trade Electronic Discounting System (TReDS) that will provide easier access to credit to the
MSME. The Gramin Agricultrual Market (GrAMs) shall be linked to the electronic National
Agricultural Market (e-NAM) for enabling direct sale by the farmers, ensuring better realization
for their produce. The revision to refinancing norms under the MUDRA Yojna to the NBFCs, that
are the big lenders to the MSMES, shall further improve availability of credit to the MSMEs. All
of these measures will lead to a big boost to farm income, thereby increasing rural consumption.
Further, improving road connectivity will ensure faster and more efficient delivery of farm
produce. By setting up 42 mega food parks and commercially viable farm producer companies
with tax incentives, promoting cluster organic farming, horticulture, animal husbandry, fisheries,
all MSME and rural sectors are getting a targeted push, which will eventually lead to revival of
the rural jobs and employment in MSMEs. Also, fixing the MSP of crops at 1.5x cost of produce is
also in line with the vision of our Prime Minister Shri Narendra Modi to double the farm income
by 2022.
The second targeted area was to boost investments. With the introduction of the Insolvency and
Bankruptcy Code, more than 500 companies have already been admitted by National Company
Law Tribunal and are in various stages of resolution. In addition, the recapitalization of public
sector banks with Rs 2.11 lac crore package will address the systemic issue of the twin balance
sheet problem. The last Economic Survey had raised the issue of deteriorating corporate balance
sheets leading to higher NPAs in banks. With the cleaning up of the corporate balance sheet as
well as lending new life to the PSU Banks, the banks will now be ready to support the new growth
initiatives while being more prudent in lending. To facilitate resolution, important amendments
under the Income Tax Act have been announced especially regarding the Minimum Alternate Tax
(MAT). It is now a matter of time before private investment cycle kicks in. The Make in India
initiatives is already promoting investments in various sectors.
Exports represented the third focus area for the government. For a sustained 8%-plus GDP
growth, exports have to contribute as India is still not a consumption-driven economy. Currently
at $30 bn, the government estimates the agri exports potential of over $100 bn and has created
a road map through liberalization of the agri exports. Implementation of the Sagarmala project
will also efficient movement of goods to ports for exports. Higher allocation of funds to the
animal husbandry, fisheries department, extension of Kisan Credit Card scheme to these units,
increasing institutional credit to the agri sector, favorable tax treatment to Farm Producer
Organizations will all ensure realization of the $100 bn agri export potential. Many MSMEs, which
are legally below the threshold of GST, are voluntarily registering under the GST to take
advantage of input tax credits to lower their costs and become cost competitive. which is
expected to grow at over 15% in 2017-18.
We are already seeing the fourth and the last pillar was targeting employment creation.
Relaxation of the 240-day norm to 150 days for 1.3x deduction of wages paid for new employees
in the leather and footwear industries, 3-year Provident Fund contribution by the government
for new employees in select MSME industries shall certainly boost employment. Similarly, the
creation of iconic tourist destinations, and introduction of fixed term employment among other
schemes shall boost overall employment. The intention of the government to hike customs duty
for certain goods that can be produced completely in India is to ensure that the same is produced
within the country. This, again, will generate employment, given the expected long-term demand
for the same. The measures to reduce the corporate tax rate to 25% for the MSME sector will
boost their investible surplus. All of these endeavors are laudable.
The decision to raise tax exemption limit on interest income and increased deduction for
healthcare insurance premium for senior citizens will support a dignified life in old age. Further,
the massive healthcare protection plan for 10 crore poor and vulnerable families is a great step
towards providing healthcare facilities to the marginal section of the society.
While all of these measures are commendable, the government should also consider fulfilling its
promise of reducing corporate income tax rate from 30% to 25% that it had made to Corporate
India. After all, large corporates in India still pay one of the highest tax rates globally, making
them less competitive. The government should also re-look at the introduction of Long Term
Capital Gains Tax, which is done without removing the Securities Transaction Tax and without
the cost indexation benefit. This will reduce the attractiveness of the Indian equities market for
long-term investors.
A Rs 1.38 lakh crore allocation (13% higher vs 2017-18) to health, education and social security,
Rs 5.97 lakh crore outlay (20% higher vs 2017-18) on infrastructure development are pointers to
a growth that is supported with an intention to improve the living conditions of the citizens of
India.
Overall, Budget 2018 has delivered a massive 14.34 lakh crore push on rural development to
reduce the gap between rural Bharat and urban India. This, in my view, will propel India towards
realizing its 8%-plus GDP growth rate dream. Amen.

-Sajjan Jindal