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Budget 2018: Arun Jaitley matches populism with fiscal discipline

Union Finance Minister Arun Jaitley used his last full-year Union Budget (of the current term) to shower benefits on the poor and rural India – which, for the ruling party is 'Bharat,' where two-third of the country's 1.3 billion population lives.

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What was being touted to be a pure-play election Budget has turned out to be much more than that. With a far-sight that went well beyond elections, the Narendra Modi government on Thursday actually presented a roadmap for the next 5-10 years, keeping the focus firmly on rural India - much to the consternation of the urban middle class which got no personal income tax relief. Union Finance Minister Arun Jaitley used his last full-year Union Budget (of the current term) to shower benefits on the poor and rural India – which, for the ruling party is 'Bharat,' where two-third of the country's 1.3 billion population lives.

In view of the upcoming Assembly polls in eight states - including three major states ruled by the BJP - and general elections next year, the Budget has swayed between populism and fiscal discipline. While Ayushman Bharat for 10 crore families will be the biggest-ever government-sponsored health care programme in the world, the business classes got a booster shot with the reduction of corporate tax for companies that have a turnover of up to 250 crore. In his nearly 110-minute Budget speech in Lok Sabha, Jaitley stressed on "ease of living" for the common man, even more so for the have-nots.

A source in the administration said, "This is a budget which not helps us in our day to day lives, but also builds the foundation of a better future. The BJP Government has ensured that the entry level income tax is one of the lowest in the world. A person earning around Rs 42,000 a month pays 5% income tax. After today's exemptions, incomes upto Rs 2.9 lakh attract no tax."

As FM read the Budget speech on Thursday, the stock market benchmark indices went on a roller-coaster ride. Both Sensex and Nifty plunged soon after the government announced long-term capital gains (LTCG) tax of 10% on stock market gains. The 30-share Sensex slipped as low as 35,502.18 during intra-day trade while Nifty went down to 10,879.35, just to make a strong comeback in next one hour. Sensex finally ended 58.36 points or 0.16% lower at 35,906.66 while Nifty slipped 10.80 points or 0.10% to 11,016.90.

Clearly, Jaitley's focus has been on the farmer and the rural poor. The salaried class, which contributes substantially to the tax kitty, was a bit dejected as the standard deduction of Rs 40,000 per annum from the taxable income announced in the Budget included the current tax-free limits as well.

The government has hiked the education cess by 1% to 4%. While it abolished the additional duty of excise (road cess) on motor spirit by Rs 6 per litre and reduced basic excise duty by Rs 2 per litre, it has introduced a Rs 8 per litre levy of Road and Infrastructure Cess on petrol and diesel, making the net impact zero.

Similarly, though the government abolished the education cess and secondary and higher education cess on imported goods of 3%, it has introduced a 10% Social Welfare Surcharge on the aggregate customs duties on all imported goods.

The biggest beneficiary in this year's Budget are the micro, small and medium enterprises (MSME). The corporate tax has been reduced to 25% from 30% for companies having turnover up to Rs 250 crore with an eye on generating employment.

Agriculture has been another focus area. With a focus on the elections, the government has announced that minimum support price (MSP) of all kharif crops will be increased to at least 1.5 times that of the production cost. The farmer produce organisations will have a separate tax structure.

The government has introduced a long-term capital gains (LTCG) tax of 10% on annual gains of over Rs 1 lakh from equities. Short-term capital gains (STCG) tax remains unchanged at 15%. The LTCG tax on equity gains will impact equity markets. "This change is, in effect, is a retrospective amendment since only capital gains made till January 31, 2018, will not attract this new tax. This is against the stated policy decision of NDA government not to make retrospective amendment in tax laws," said Sanjay Sanghvi, partner at Khaitan & Co.

On the railways front, the capital expenditure has been set at Rs 1.48 lakh crore. With safety in mind, track renewal of over 3,600 km to be targeted in 2018-19. The plan has also been announced to have WiFi and CCTV cameras at all stations and on board trains. Mumbai suburban rail network will get Rs 11,000 crore to double rail tracks and have certain elevated corridors. Bengaluru has received Rs 17,000 crore for metro rail network.

Highlights

 

  • Tax exemption on interest income limit raised from `10,000 to `50,000 for senior citizens 
  • One government medical college to be ensured for every 3 parliamentary constituencies by upgrading 24 district-level colleges
  • Loans to self-help groups of women increased to about `42,000 crore in 2016-17,  and will be raised to `75,000 crore by March 2019
  • Provision of `14.34 lakh cr for creating livelihood & infra in rural sector
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