The Union Budget has strived to maintain the momentum and continuity from last year, with the focus on agriculture, social sectors and MSME. The reforms related to agriculture in terms of bolstering farm income are praiseworthy, and we believe a quick rollout of the scheme along the lines of what is prevalent in states like Madhya Pradesh will save substantial cost. Around 70 per cent of farm land is being cultivated by tenant farmers who have no access to bank loans. So the move to grant them access to bank credit will significantly reduce rural debt. The idea of ‘Operation Green’ is also a welcome step.
The Minimum Support Price (MSP), which provides support to farmers to manage the risk of any sharp fall in farm prices, is limited to a few crops. Currently, there is MSP for 25 crops, but official procurement at MSP is effectively limited to a few crops, namely rice and wheat, and concentrated in a few states. To address this issue, the government has announced that MSP will be fixed for all Rabi and Kharif crops — at least 1.5 times of the cost of production. At present, the Commission for Agricultural Costs and Prices (CACP) gives three definitions of production costs: A2, A2+FL and C2. C2 costs are more comprehensive, accounting for the rentals and interest on owned land and fixed capital assets respectively, on top of A2+FL. If the MSP is fixed at 1.5 times over and above C2 costs, it will be beneficial to farmers. If it is on A2 or A2+FL, the incremental price on MSP will be minimal.
The step to involve meritorious students in teaching is a welcome move. The idea of providing healthcare to the poor and concessions for senior citizens is also praiseworthy. There have also been several measures to facilitate the MSME sector, apart from bolstering employment in the formal sector.
The Budget targets 11.5 per cent nominal GDP growth rate. Assuming a conservative 7 per cent GDP growth rate, this translates into an inflation of around 4.5 per cent. If growth comes on the back of synchronised global growth and lower stress in farm sector, the nominal GDP projection may be an underestimate. Interestingly, the budgeted net market borrowings are lower at Rs 3.90 lakh crore (FY18: Rs 4.02 lakh crore), and will send a clear message to the debt market. The spike in yields in not in sync with market fundamentals.
Gross tax revenue is expected to grow by 16.7 per cent in FY19 to Rs 19.1 lakh crore. This revenue target from taxation is supported by 10.2 per cent growth in corporation tax and 20.4 per cent rise in income tax. The estimated tax buoyancy at 1.4 (basis gross tax revenue) is slightly more than the 1.3 of FY18.
A reduced rate of 25 per cent to companies that have reported turnover up to Rs 250 crore in financial year FY17 has been proposed. This will benefit the entire class of Micro, Small and Medium Enterprises which account for almost 99 per cent of companies filing their tax returns. In order to provide further push to employment generation, the government has taken various initiatives. This includes incentivising employment of more women in the formal sector and enabling higher take-home wages.
The government has also enhanced allocation for the infrastructure sector, recognising its role as the growth driver of the economy. The budgetary and extra budgetary expenditure for the sector has been increased from Rs 4.94 lakh crore in 2017-18 to Rs 5.97 lakh crore in 2018-19.