Finance minister Arun Jaitley has presented an election budget. The government has used the exercise to get ready for the Assembly elections scheduled this year and the General Elections next year. Looking at the massive accent on the rural populace, chances are that the Lok Sabha elections might also be brought forward towards the end of this year. A tell-tale sign of that was visible from the President’s speech at the joint session of the Budget session earlier this week.
There are massive slippages on the fiscal deficit front. The government couldn’t keep the fiscal deficit target of 3.2 per cent this fiscal year while the projected fiscal deficit for the next fiscal has gone up to 3.3 per cent instead of 3 per cent. Considering the very poor credibility of the government, it seems it won’t be able to achieve the 3.3 per cent target for FY19. It had bargained for 3.2 per cent fiscal deficit for FY18 which slipped to 3.5 per cent. The excuse given was that there was delayed spectrum auction and lower tax collections. But going by the same logic, what is the guarantee that it would be able to meet the Rs80,000 crore disinvestment target given that there is no big-ticket disinvestment this year other than Air India. Also, there are still a lot of uncertainties on the GST collections front.
Markets didn’t take the fiscal slippage kindly even though it recovered from the day’s lows. Investors have turned jittery on government finances. The fiscal slippage will not go down with investors and could prompt monetary policy authorities to hold back rate cut plans. What will also make investors unhappy is the introduction of long-term capital gain tax of 10 per cent for investments over Rs1 lakh. Besides, Jaitley also proposed to introduce 10 per cent tax on distributed income by equity-mutual funds. These would mean the budget is a turnoff for investors, at least partially. The salaried class is bound to feel let down as the finance minister refused to tinker with the slabs in personal income tax. The concession (as was strongly expected) in form of a standard deduction of Rs40,000 is mere eyewash as the FM has done away with the transport and medical reimbursements for salaried employees.
Moreover, Jaitley further increased education cess by 1 per cent. The middle class will be hit hard. Security trading tax (STT) had been introduced in lieu of long-term capital gain tax (LTCG). It is a pity that STT will continue, while long term capital gain tax is back. Fresh investors in equities will have to pay 10 per cent tax on their gain over Rs1 lakh. It is okay to tax LTCG, but STT should have been removed. It has become a double whammy for the equity investors. There was little relief for big corporate houses while the threshold for exemption for lower corporate tax has been pushed up to Rs250 cr0re. Though the claim being made that it will benefit over 90 per cent corporates, their collective worth won’t exceed single digit mark.
The announcement to increase the minimum support price of farm produce by one-and-a-half times of the cost of production is nothing new. This was a long-held demand of the BJD. This has been originally recommended by the Swaminathan committee. The BJD government had sent several representations to the Centre to raise paddy MSP. There were several farmers’ agitations on this issue also. The Centre had steadfastly refused to raise the paddy MSP lest the BJD should get the political benefits of this move. Now it is clear that the NDA government did not raise the paddy MSP then as it wanted to take the full political credit for this. In that this year’s budget was an election budget.
