Union Budget 2018 - Govt. dares to dream
Background
The Union Budget 2018 was a very special and one of its kind budget since (i) It was the budget post implementation of GST; (ii) It was budget after major recapitalisation package was announced to strengthen the public sector banks; and (iii) This was the last full budget of this government. Even before the budget was delivered on 01 Feb 2018, people perception in general was that the budget would appease all and thereby lose the fiscal discipline. However, the Hon. Finance Minister (FM) has not fallen for the temptation and has ensured that the Union Budget take steps towards building a new India which we all aspire for.
Economic Performance
While we analyse the year gone by from economic perspective, at this juncture, it would be pertinent broadly to analyse the global economy as well.
Global Economic performance
The Global economic activity is estimated to have grown by 3.7% in 2017 (which is 0.5% higher than 2016). The pickup in growth has been broad based, with notable upside surprises in Europe and Asia. Global growth forecasts for 2018 and 2019 have been revised upward by 0.2 % to 3.9 %. The revision reflects increased global growth momentum and the expected impact of the recently approved U.S. tax policy changes. However, risks to global growth forecast is financial market correction, increase in advanced economy core inflation and interest rates. Further, Inward-looking policies, geopolitical tensions, and political uncertainty in some countries also pose downside risks. The IMF estimates the world output to grow by 3.9% in 2019-2020.
Indian Economic Performance
As mentioned above, the FY 2017-18 witnessed some major structural reforms viz. GST implementation, introduction of Bankruptcy code, Recapitalisation of Banks (1.2% of GDP) etc. Due to such magnitude of reforms the economy was bound to be slow. However, GDP growth rate of 6.7% in FY 2017-18 (as estimated by IMF and World Bank) is a commendable number if one compares the same with the world's growth rate. Outlook of the Indian economy is bright. The growth is expected to increase in next fiscal year at a rate between 7% to 7.5% (as per the economic survey of India). Better outlook for the world will help Indian exports as well. This means India will overtake China as major fastest growing economy in the World. However, the imminent risk is the increase in the Oil prices in next Fiscal Year. (which is expected to rise by 12% (apprx.) by IMF)
Key Tax / Policy decisions in the Budget
Major policy and tax related amendments are listed below.
Policy
1. Govt. to develop and upgrade existing 22,000 rural haats into Gramin Agricultural Markets (GrAMs). These GrAMs will provide farmers facility to make direct sale to consumers and bulk purchasers since these are electronically linked to e-NAM (electronic National Agriculture Market) and will be exempted from regulations of APMCs.
2. Govt. to increase investments in research and related infrastructure by launching ‘‘Revitalising Infrastructure and Systems in Education (RISE)" by 2022.
3. National health protection scheme to be launched which will cover upto Rs. 500,000 per family per year. This scheme is expected to cover 1/3rd of the Indian population.
Tax
1. Education cess and Secondary and Higher Education Cess (combined 3%) is replaced by Health and Education cess @ 4%. Result 1% higher tax outgo. No other change in tax rates for personal income-tax. Companies with turnover < or equal to 250 Cr. in FY 2016-17, base tax rate will be 25%.
2. Standard deduction of Rs. 40,000 introduced. However, medical deduction of Rs. 15,000 and Transport allowance of Rs. 19,200 (totalling to Rs. 34,200) has been removed. Net impact of higher deduction by Rs. 5,800.
3. Long Term Capital Gains (LTCG) exemption on sale of shares withdrawn. Now, LTCG of more than Rs. 1,00,00 on shares would be taxable @ 10%.
4. Scope of Business connection widened to include (i) person playing imp. Role in conclusion of contract would be covered by Dependent Agency PE; and (ii) Businesses having significant economic presence in India.
5. Plan to roll out e-assessment.
To sum up, the govt. has continued it zeal to develop and transform India into truly a digital country. The Budget has emphasised to use the technology in sectors like education [refer FM's speech to covert the black board into the digital board] and blockchain technology. The action speaks louder than words. The message from the govt. is crystal clear that the development agenda is at the forefront of their decisions.
