With an eye on the next Lok Sabha elections, Finance Minister Arun Jaitley in his 2018-19 budget on Thursday proposed a major health insurance scheme for the poor, a higher minimum support price and a step up of Rs 1 lakh crore as institutional credit for farmers along with a spend of nearly Rs 6 lakh crore on infrastructure development. To pay for this seeming bout of generosity, albeit with vote banks in mind, the finance minister has mopped up huge sums through three or four simple steps, mostly aimed at the middle class. While providing some sops to salaried individuals and pensioners, it has aimed to raise Rs 11,000 crore by increasing cess on the income of individuals, from 3 to 4 %.
Additionally, it has aimed to raise money by imposing a 10 % Social Welfare Surcharge on all imported goods. At the same time, the finance minister has eyed the share-owning and investing class by removing an exemption on long-term capital gains to possibly raise over Rs 36,000 crore in a full year — by taxing at 10 % shares held for more than a year, exempting only profit of up to Rs 1 lakh. The stock markets reacted sharply initially to the move, later recovering.
The 4 % health and education cess replaces the 2 % cess for primary education and 1 % cess for secondary and higher education on individuals and corporates to take care of the needs of education and health of BPL and rural families. Similarly, the Social Welfare Surcharge of 10 % on all customs duties replaces the education cess on imported goods. He also raised the customs duty on mobile phones by 5 % to 20 %. He also levied a 15 % duty on some of the parts and accessories of mobile phones and TV sets to promote the creation of more jobs under the “Make in India” programme.
In line with the BJP’s poll promise before coming to power in 2014, the Finance Minister announced that the Minimum Support Price (MSP) for unannounced Kharif crops will be 1.5 times the input cost and stepped up the institutional credit for the sector to Rs 11 lakh crore — 1 lakh crore more than last year.
“Now, we have decided to implement this resolution as a principle for the rest of crops. I am pleased to announce that as per pre-determined principle, the government has decided to keep MSP for the all unannounced crops of Kharif at least at one and half times of their production cost. I am confident that this historic decision will prove an important step towards doubling the income of our farmers,” Jaitley said.
The opposition reacted sharply to the government’s proposed budget with Congress leader P. Chidambaram saying Jaitley had failed the fiscal consolidation test that will have “serious consequences” on the economic growth rate. CPI-M leader Sitaram Yechury said the budget was “unconnected to ground realities” and “is a textbook exercise in post-truth”. However, the India Inc largely welcomed Jaitley’s budget.
Leaving the individual taxation slabs and rates untouched, Jaitley in his last full budget before the 2019 elections proposed to reintroduce a standard deduction of Rs 40,000 for salaried taxpayers in lieu of present exemption of transport allowance and reimbursement of miscellaneous medical expenses that will involve a revenue sacrifice of Rs 8,000 crore to benefit 2.5 crore people.
In a bid to help senior citizens, the budget proposes to increase the exemption of interest income on deposits with banks and post offices from Rs 10,000 to 50,000 and there will be no TDS deducted on them. The limit for health insurance premium and medical expenditure will go up to Rs 50,000 from Rs 30,000. For certain illnesses, in case of senior citizens and very senior citizens, the limit will go up to Rs 60,000 and Rs 80,000 respectively, The concessions will cost the government Rs 4,000 crore.
In keeping with his earlier announcement of reducing corporate taxation rate, the Finance Minister reduced the rate for all companies with the turnover of up to Rs 250 crore, up from Rs 50 crore. He said this would take care of almost 99 % of the companies and would have a negative impact of Rs 7,000 crore on government finances. Only about 250 companies would have a turnover above the cut-off level and would continue to pay 30 % tax. An ID on lines of Aadhaar would also be set up for companies, Jaitley said.
For the Railways, whose budget was merged with the general budget since last year, the capital expenditure has been fixed at Rs 1,48,528 crore for 2018-19 with a large part devoted to capacity creation. Some 18,000 km of doubling, third and fourth line works and 5,000 km of gauge conversion will be taken up to transform almost the entire network into broad gauge. Prime Minister Narendra Modi hailed the Finance Minister for presenting an all-friendly budget 2018-19 with the focus on agriculture, health and small businesses. “This budget is farmer-friendly, common citizen-friendly, business environment-friendly and development-friendly.”
Announcing the flagship National Health Protection Scheme, which he billed as the world’s largest government-funded healthcare programme, Jaitley said the government proposed to cover over 10 crore poor and vulnerable families (approximately 50 crore beneficiaries) providing coverage up to Rs 5 lakh per family per year for secondary and tertiary care hospitalisation.
In another populist measure, the Finance Minister announced that as part of Prime Minister’s Ujjwala Scheme the government proposed to increase the target of providing free LPG connections to eight crore poor women, three crores up from the original target. He said the focus of the government in the next fiscal will be on providing maximum livelihood opportunities in the rural areas by spending more on livelihood, agriculture and allied activities and construction of rural infrastructure.
“In the year 2018-19, for the creation of livelihood and infrastructure in rural areas, the total amount to be spent by the ministries will be Rs 14.34 lakh crore, including extra-budgetary and non-budgetary resources of Rs 11.98 lakh crore. Apart from employment due to farming activities and self-employment, this expenditure will create employment of 321 crore person days, 3.17 lakh km of rural roads, 51 lakh new rural houses, 1.88 crore toilets, and provide 1.75 crore new household electric connections besides boosting agricultural growth.”
In a labour welfare measure, the minister announced the extension of the contribution of 8.33 % of employee provident fund for new employees by the government for three years to all the sectors and raised it to 12 %. In order to create employment and aid growth, the Finance Minister said, the government’s estimated budgetary and extra-budgetary expenditure on infrastructure for 2018-19 was being increased to Rs 5.97 lakh crore against estimated expenditure of Rs 4.94 lakh crore last year.
The Finance Minister indicated a slippage in fiscal deficit for the current year revising it from 3.2 % to 3.5 % and from 3 % to 3.3 % (Rs 5.95 lakh crore) of the GDP next year, implying that the government will be borrowing more to balance its books.
The government has set a target of Rs 80,000 crore divestment target for 2018-19, the finance minister said adding that target for 2018-19 had exceed the target of Rs 72,500 crore and would touch Rs 1 lakh crore. Despite that, he did keep his aim low for the next year. He announced that the three public sector insurance companies would be merged. The merged entity is expected to be listed at some stage.