A delicate balance between populism and pragmatism marked the NDA government’s last full-fledged budget before the nation goes to polls early next year. With a sharp focus on agriculture and allied sectors, rural infrastructure, healthcare for the poor and employment generation, the Union Budget 2018 appears to be guided by electoral compulsions and the need to address the twin issues of rural distress and job creation over which the government has been facing opposition flak. The need to win the ongoing battle of perception was the overwhelming criterion as Finance Minister Arun Jaitley loosened the purse strings to make big allocations to the rural sector and thereby seek to placate the angry rural voters. Instead of a “please all” approach of unveiling goodies to every section of society, what Jaitley attempted in the Union Budget 2018 was a clever jugglery to steer the country in the post-GST era and make good use of the limited resources available to the government to strengthen the rural economy. In the process, he has disappointed the salaried class by leaving the personal income tax structure untouched, dashing the hopes of millions of employees waiting for a bonanza in the form of increased tax exemption limit and a rate cut ahead of the election year. The introduction of Long Term Capital Gain Tax on investments in equity markets has also come as a dampener for the upwardly mobile citizens who see it as a regressive step. However, in the classic “Bharath versus India” narrative, Jaitley appears to have framed his priorities with an eye on the general elections as his budget tried to address the problems of the rural crisis and proposed a massive jump in minimum support price for farmers. Distressed farmers, agriculture and irrigation focused companies, healthcare, transport and infrastructure sectors have emerged as the big winners in the budget, while the bond investors, mobile phone companies, financial services companies are the losers.
With an eye on the approaching Assembly elections in eight States this year and the general elections next year, the government announced a slew of farm-focused announcements, including hiking the minimum support price to 1.5 times the production cost for kharif crops, a key demand of distressed farmers. The biggest takeaway of this budget, however, is the announcement of the healthcare scheme to cover 500 million people across the country. This will be the world’s largest government-funded healthcare programme, a commendable initiative given how the growing cost of medical care cripples millions of poor families in India. The pre-budget Economic Survey had pointed out that people had to spend an average Rs. 26,000 for treatment per hospitalised case in private facilities. The successive governments had failed to address this problem in a holistic manner. Though critics may argue that the scheme will ultimately benefit the private insurance companies and hospitals, it should be seen as a bold step in the right direction to bring the poor under insurance cover. Under the new National Health Protection Scheme, each family would be entitled to get medical reimbursement for treatment at hospitals up to a maximum of Rs. 5 lakh every year. This means that nearly 40 per cent of the country’s population would benefit from this scheme.
Though the Finance Minister, who termed the budget as an exercise of blending fiscal prudence with the needs of people, exuded confidence that the Indian economy was firmly on the path to achieve a growth rate of over 8% to become the fifth largest in the world soon, the stress caused by the recent downturn was visible in the budget. The government has missed the fiscal deficit target. It will be 3.5% of the GDP in the year ending March 31, as against the earlier target of 3.2%. Though there is no change in personal income tax slabs for individuals this year but all the salaried people will get a standard deduction of Rs. 40,000 on their income in lieu of medical and transport reimbursements. A new 10% long-term capital gains tax on gains exceeding Rs. 1 lakh on income from investment in equities and equity mutual funds has been levied. The Micro, Small and Medium Enterprises (MSMEs) have something to cheer as the corporate tax rate for companies up to Rs. 250 crore turnover has been reduced to 25% from 30%, meeting a long-felt demand. Two back-to-back disruptive measures—Demonetisation and Goods and Services Tax—have dragged the economic growth and impacted several sectors. However, it is heartening that the tax base has widened with more tax payers coming into the net following these moves. The budget reflected triumph of populism over tough reforms as there was no roadmap of structural reforms to put India on the next orbit of growth. Instead, it provided for massive spending to boost rural sector to counter criticism that the government was not doing enough to address farm distress and rural unemployment. A massive Rs 5.97 lakh crore has been allocated for infrastructure spending. The distinct rural focus of the budget is quite similar to the policy direction being followed by Telangana, the country’s newest State.