Finance Minister Arun Jaitley’s last full budget had the imprint of being a rural sector budget, targeted at dissipating the mounting pressure on the Narendra Modi government to address the discontent over falling farm incomes. The sops in the budget, coming ahead of the eight states polls this year and another four in the first half of 2019, alongside the general elections, came at the cost of a breach in the fiscal deficit target for 2017-18, with budget estimate of 3.2 per cent of GDP now being revised estimate 3.5 per cent of GDP.
A big dampener for the stock market was a reintroduction of the Long Term Capital Gains tax on gains of more than Rs 1 lakh in the equity market at a rate of 10 per cent. All gains up to today, however, will be grandfathered. The budget also extended the cut in the corporate tax rate introduced last year from 30 per cent to 25 per cent to companies clocking a turnover of up to 250 crores from Rs 50 crore. A comprehensive package was also offered to the MSME sector, which bore the brunt of demonetisation and hurried implementation of the goods and services sector (GST).
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For the salaried taxpayers, however, there were no changes to IT structure for individuals, except a provision to allow standard deduction of Rs 40,000 for salaried taxpayers in lieu of existing medical and transport bills. The stock markets, which had risen during the initial farm announcements, ended nearly 464 points down at the time that budget speech, delivered partly in Hindi, was wrapped up, before making a sharp recovery of sorts in the following hour.
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As part of the rural package, Jaitley announced a one-and-a-half times minimum support price of the cost of production for kharif crop for the farm sector, increased allocations to building rural infrastructure, health insurance for the poor that would potentially cover 500 million people, alongside schemes and allocations to kickstart jobs, more loans under MUDRA Yojana and the MSME sector package. The “farm livelihood” package had a cumulative allocation of Rs 14.34 lakh crore.
Even as he chose to slip on this year’s fiscal deficit target, Jaitley said the Government has revised its fiscal consolidation glide path and that the fiscal deficit target for 2018-19 was now pegged at 3.3 per cent of GDP against an earlier target of 3 per cent of GDP. The slippage in this year’s fiscal deficit target was despite the government having exceeded the disinvestment target for the current fiscal, with receipts of around Rs 1,00,000 crore against the targeted Rs 72,000 crore. A target of Rs 80,000 crore has been set for FY19.
Stating that MSMEs are a major engine of growth and employment, the FM has said he will soon announce measures for tacking bad loans in the SME sector. This comes amid concerns that the initial set of cases taken up under the insolvency and bankruptcy code are focused on the big corporates. Market regulator Sebi has been asked to prod larger companies to raise one-fourth of their debt requirement from the corporate bond market, a move that should help widen the Indian bond market.
The Finance Minister announced the expansion of airports capacity by five times to 1 billion trips per year. In November, Minister of State for Civil Aviation Jayant Sinha had spoken of the government’s plans to expand air connectivity by establishing around 100 airports in the country, doubling the current number, in 15 years at an estimated investment of ?4 lakh crore. 70 of these proposed 100 airports were said to be in places where no air connectivity is there so far, while the remaining will be an expansion of existing facilities. Jaitley, in his Budget speech, also said that the Centre’s flagship regional connectivity scheme proposes to provide air connectivity 56 unserved airports and 37 unserved helipads going ahead.