Budget 2018: The final chapter of Modinomics

February 1, 2018, 9:32 pm
A Special Report by the students of IIM ,Shillong
 
 
The Indian budgets is truly a spectacle as the nation watches with collective anxiety how their lives will change for the foreseeable future. From CEOs looking out for policy changes, to farmers wanting to know if there is some form of relief from their crushing loans, to the government employed father of 3 seeing if it is finally the right time to upgrade from the rickety old scooter to a swank new car to even the college goer wanting to know if the cigarette that he finds solace in has gotten that bit costlier. This year’s budget too had its twists and turns, its surprises and disappointments, it's good and bad. We try toread between the lines and see where the budget affects you.
 
Farmers – The big winners :
 
In an attempt to woo rural voters ahead of the 2019 general election, the government has introduced a series of reforms targeted at the rural population. The most important of such promises is to hike the MSP to 1.5 times the cost of production. While this step may help the government score politically, this can be a double-edged sword as it is bound to throw food inflation for a toss and might end up doing more harm than good in the long run. There is also a significant increase in the rural budgetary allocation, institutional credit for agricultural sector now stands at a staggering 11 lakh crores which is 10% more than last year. The government has also earmarked a sum of Rs 2000 crores for upgradation of 22,000 rural hats which will provide a ready market for farmers to sell their produce. 
To supplement farmers' income, Modi government has also promised to set up two schemes—the Fisheries and Aquaculture Development Fund and Animal Husbandry Financing Fund—worth a total of Rs 10,000 crore. All these steps align well with the government's vision of doubling farmers' income by the year 2022. 
 
The finance minister, on paper, has been successful in devising a much-needed booster shot for the rural economy just in time before the general elections next year. The budget scores high on symbolism and promises but the real test of the government lies in the implementation of the said schemes which will ultimately decide whether the current NDA government retains power in 2019.
 
 
HEALTHCARE:
 
What was undoubtedly the surprise of the 2018 budget was the healthcare health care plan, or “Modicare” as it is increasingly being called. The finance minister put forth the plan to have the “world’s largest healthcare programme.” In a country where only 18% of urban and 12% rural Indians have any form of health insurance, this is potentially huge. Together with the fairly successfulPradhan Mantri Jeevan Jyoti Bima Yojana, and the Pradhan Mantri Suraksha Bima Yojana, it seems a lot of thought is going into providing affordable healthcare for the rural sector. The second announcement under the Ayushman Bharat Program is the planned 1.5 lakhhealth wellness centers at an estimated cost of Rs. 1200 crores, in an effort to“bring healthcare closer to home.”
 
While this seems good, there are several key questions that remain unanswered. The Indianhealth care remains criminally understaffed, with ashortage of beds and drugs. The National Medical Commission Billis criticized for lacking bite and having no real power. The bill seems to have the right intent but lacks the skill and finesse to handle an issue this large. Without these finer implementation details sorted out, such ambitious plans put forth by the FM are sure to fail to achieve the enormous potential they have to change and uplift Indian lives.
 
The Middle-Class Angle:
 
Though the finance minister did not give a huge tax saving gift to the middle class, there was a lot for the middle class to cheer about. The Affordable Housing Fund(AHF) will be funded from the priority sector lending shortfall & fully serviced bonds authorized by the govt. of India. The government announced acontribution of 12% to EPF for new employees for three years in labor-intensive sectors. For women, the government increased paid maternity leave duration from 12 to 26 weeks. A standard deduction of 40,000/- instead of the present exemption in respect of transport allowance and reimbursement of miscellaneous medical expenses. Customs duty has been increased on imported mobiles which will increase the cost of imported mobiles & TV sets. Excise duty on branded & unbranded petrol & diesel has been reduced significantly. This will affect Rs 2-3 decrease in prices of petrol & diesel. Refractory items excise duty has been increased, this will cause an increase in prices of basic construction items like bricks & ceramics. The only good news is all these increases are in customs duty & hence they will boost the consumption of domestic products which is a major push towards make in India for FMCG sector.
 
Taxation: 
 
A lot was left desired on the direct taxation front. The minister did not come up with any drastic changes in the direct taxation code but instead announced a 10% tax on long-term capital gains over Rs 1,00,000. The disappointment in voice was evident as markets ended in red on the day of the budget. The move also provides anincentive to trade in the short term as the tax differential now stands at mere 5% from 15% earlier. This is not something which is welcome in a market which is already soaring due to liquidity and record inflows. Debt markets are also expected to be affected adversely due to the move as bond yields would now move even higher. 
 
Infrastructure:
 
Effective implementation of PRAGATI for fast-tracking projects worth 9.46 lakh crore. The allocation under AMRUT & Heritage City development schemes has been increased, smart cities infrastructure development will be fast-tracked. NHAI will consider organizing its road assets into Special Purpose Vehicles and use innovative monetizing structures like Toll, Operate and Transfer (TOT) and Infrastructure Investment Funds (InvITs).  BharatmalaPariyojna will see the light of day. Eastern & western freight corridor development is in full swing. 16000 crore will be spent under Pradhan Mantri SubhagyaYojna for rural electrification
  
The budget was inconspicuously quiet about the defense sector budget, with the finance minister promising “an industry-friendly policy to promote defense production,” but going by the recent trends, I will not have my hopes high.
 
Another facet that the budget ignored was the Modi Government’s flagship “Make in India” program. With no mention of it, question arises, if the government is changing its approach and trying to push employment via the service sector rather than the manufacturing sector. Jumping to this conclusion may be jumping the gun,but it is an interesting possibility.
 
The slippage in thefiscal target is unavoidable with the prevailing economic scenario. Now the total national debt stands at 70.46 trillion without interest obligations standing at 4.5 trillion a year. The sovereign credit rating upgrade by Moody’s should help with this. 
 
4 years into the NDA’s historic mandate, it is still unclear if the “Acche Din” have arrived. The final full budget by finance minister Arun Jaitley has election written all over it. The government has tried to reach out to the masses and get more votes. Having taken various reformist measures throughout its tenure, the voters will not grudge the government taking populist measures to win the election 2019, especially after the last round of state elections being too close for comfort. 
 
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