In Budget 2018, the top priority for Prime Minister Narendra Modi’s government will be to address farmers’ issue ahead of the key state and national elections in 2019
NEW DELHI: Finance Minister Arun Jaitley will present the Union Budget 2018 at 11 am today, the last full-year Budget before the 2019 general elections. Before that elections are due in eight states this year and the budget is expected to focus on farmers, the rural poor and small businesses. To keep investors’ confidence, Prime Minister Narendra Modi’s government will need to be seen containing the fiscal deficit, while also increasing spending in key areas of a slowing economy.
- The government may tweak income tax slabs and rates in today’s budget to bring down burden on individuals, according to a survey by tax and advisory firm Ernst & Young.
- Arun Jaitley has already made it clear that the agriculture sector will be the top priority for the government in this year’s budget as the government attempts to address farmer distress ahead of the key state and national elections.
- The budget will be watched closely for the fiscal deficit target for the next year. The Economic Survey, which was tabled on Monday, called for a pause in fiscal consolidation, leading to concerns that the government could widen its fiscal deficit targets for 2018-19.
- Markets will be focused on how much the government widens its fiscal deficit beyond the 3 per cent of gross domestic product (GDP) projected for 2018-19. A Reuters poll showed most economists expect a 3.2 per cent deficit as the government looks to increase investments in areas like agriculture.
- A modest widening of that nature would calm investors worried that the government may slip away from its judicious spending. But a deficit above 3.2 per cent could hit shares and send bond yields up by 20-25 basis points, depending on the size of the blowout, on fears of populist policy ahead of next year’s elections.
- A prudent budget could also soothe the Reserve Bank of India, which holds a policy review on February 6 and 7 amid worries it could raise rates in coming months after inflation hit a 17-month high in December, well above its 4 per cent target.
- While investors expect some spending to support an economy that’s expected to post its weakest growth in four years, they will want to see such stimulus is well-financed. Growth was impacted by the launch of the goods and service tax last year and a shock move to ban high value currency notes in late 2016, which hit tax revenues and increased the chances of a fiscal deficit shortfall.
- An expected pickup in growth next fiscal year and state asset sales estimated to raise 1 trillion rupees ($15.74 billion) should boost tax revenues.
- The government is also expected to stay on course with its focus on building highways and modernising the railways. Mr Jaitley had allocated a record Rs. 3.96 lakh crore to infrastructure sector in last year’s Budget.
- Experts don’t see the possibility of a big cut in corporate tax rate for India Inc given the fiscal constraints. In his Budget speech of 2015-16, Mr Jaitley had said proposed reduction of the rate of corporate tax from 30 per cent to 25 per cent over the next four years.