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Indian Budget 2018
February 10, 2018, 3:40 pm

In presenting his last full budget to the current Parliament on 1 February, Indian Finance Minister Arun Jaitley clearly focused on rejuvenating the rural economy and reining-in the fiscal deficit.


Generous allowances to farmers and the agricultural sector, several social schemes targeting poor and vulnerable households across rural India, and concessions to senior citizens, were some of Budget 2018 highlights.

The budget’s provision to provide a guaranteed Minimum Selling Price (MSP) for crops, fixed at 1.5 times production cost, is expected to lift the agriculture sector by helping farmers produce more at lower cost while earning them higher incomes. Over Rs100 billion has also been set aside for fisheries and aquaculture, and animal husbandry funds, while a separate fund of Rs20 billion has been created to develop or upgrade rural agricultural markets that will allow farmers to sell to consumers in bulk, cutting out the middle-men.


Among the initiatives in the budget to boost rural infrastructure are 1.7 million km of new rural roads, 5 million houses for the rural poor, over 80 million poor women are to get free LPG cylinders and 40 million households are to be provided with power. The budget also envisions increasing loans to women Self-Help Groups to Rs750 billion.

Senior citizens have also received a bounty from the finance minister in the form of an increase in exemption of interest income on deposits with banks and post offices to Rs50,000 from the previous ceiling of Rs10,000. Senior citizens also received a deduction limit for health insurance premium and medical expenditure from Rs30,000 to Rs50,000 in view of soaring medical expenses. 

The finance minister has also given priority to healthcare and education, the two sectors that India needs to focus on going into the future. An increase in cess from 3 percent to 4 percent is expected to net an addition Rs110 billion to fund the new health and education initiatives.

The National Health Protection Scheme offers annual coverage of Rs500,000 per family for secondary and tertiary medical treatment. The scheme, billed as the world’s largest government-funded health insurance initiative, is expected to cover over 100 million poor and vulnerable families, or around 500 million beneficiaries. When properly scaled up in the coming years it could provide the sought-after universal health coverage for the country’s population.

On the education front, the budget apportions Rs1 trillion to revitalize and upgrade the sector, while the allocation for the Digital India scheme has been doubled to over Rs30 billion. Government also announced the setting up of one medical college for every three parliamentary constituencies, with 24 new government medical colleges also being envisioned. Government will also work on upgrading existing large hospitals to medical colleges.

The budget envisions revenue of Rs18.2 trillion and expenditure of Rs24.4 trillion for a fiscal deficit of Rs6.24 trillion. It is worth noting that the government’s budget largesse was made with a wary eye on the fiscal deficit. While acknowledging that the fiscal deficit in the current fiscal at Rs5.95 trillion will overshoot to 3.5 percent from the earlier estimate of 3.2 percent, the finance minister expressed resolve that he would hold it down to 3.3 percent in 2018-19. The new target is still above the seemingly elusive Fiscal Responsibility and Budget Management goal of 3 percent fiscal deficit, which was set by the current government.

Promises to tamp down on fiscal deficit in the budget will be helped by recent disinvestments. Government grossed over Rs900 billion through disinvestments in the current financial year, way above its disinvestment target of Rs725 billion for the full year. The authorities are now setting a more ambitious target, likely around Rs1 trillion through disinvestments in the 2018-19 budget, including through the privatization of national white elephant Air India.

With prevailing macroeconomic uncertainties, several key upcoming state elections and a General Election to be held before May 2019, rumor was rife that the finance minister would come up with a pampering populist budget. Well, except for farmers and senior citizens, not many seem pleased at the pragmatic budget that Minister Jaitley pulled out of his briefcase on Thursday, 1 February.

Businesses with annual turnover exceeding Rs2.5 billion were understandably unhappy that the finance minister did not include them in the 5 percent corporate tax break given to the remaining 99 percent of companies filing tax returns. Salaried taxpayers complained that what the minister had given with one hand he had taken away with the other, in reference to the introduction of a Rs40,000 standard deduction and the doing away of exemptions for medical and transport reimbursements. Equity investors, who until the day before the budget were cheering the dizzying rise of the market, swooned on hearing about the re-introduction of Long-Term Capital Gains Tax.

In contrast to the wild revelries across the country’s rural landscape, it was a grumpy urban India that went to bed on Budget day. But then there is always the day after.


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