Budget 2018: Sowing better future

Shedding the slowdown impact of GST and demonetization, the Economic Survey 2017-18 predicted a pick up in the economy, estimating growth rate to be in the range 7-7.5 per cent for next year. However, with worrisome indications of macro headwinds of increasing oil prices, global protectionist measures, rupee depreciation, stagnant agriculture, volatility in commodity prices, rising inflation and not so favourable job market scenario, the survey pitted for measures in Budget 2018-19 that would help us regain our growth momentum and address key issues.

This budget is also special as the last full budget of the current Government before the 2019 elections. Inspired by Prime Minister’s call for a New India, Finance Minister Arun Jaitley has taken the right approach to target issues of rural distress, job creation and the revival of private investment. The importance of primary sector cannot be ignored in order to achieve the targeted growth rate of 8 per cent. 

As noted in FM’s speech, the government reaffirmed its objective of doubling the farm income by 2022. Focusing on the Minimum Support Price, this budget aims at delivering at least 1.5 times return to the farmers against the total input costs incurred. To address farm distress, the government has committed itself to exploring new institutional mechanisms to develop appropriate policies for prices, demand forecast, use of future/options market, expansion of warehouse system and specific measures for enhancing agricultural exports. 

An additional fund of Rs 2,000 crores has been announced for developing rural agriculture markets and expanding the coverage of MSP across all crops. A cluster-based approach to farming has also been proposed. A specific focus has been put on onion and potato crops as these are politically sensitive and their prices cause a lot of news. 

Operation Green has thus been aimed at boosting productivity, promoting processing facilities and professional management for such crops. Targeting holistic and overall development of agriculture, the budget has rightfully looked at not only the crop sector but also focused on fishery and aquaculture infrastructure development and animal husbandry infrastructure with a dedicated fund of Rs 10,000 crore. For the first time in history, the Budget has made an announcement on making tenant farming bankable. It brings the lessee farmers at par with other farmers giving them access to benefits of subsidised inputs and low cost credit. This move is expected to provide a big relief to nearly 60 per cent of the farming population comprising of lessee farmers.

Amidst the pressure for creation of jobs to reap the dividends of the demography, Budget 2018 carries forward the announcements made in FY17. The government has announced a contribution of 12 per cent of wages of new employees in EPF for all the sectors in next three years. 

To incentivise hiring of more women in the formal sector, this budget also proposes to reduce women’s contribution from basic salary towards EPF from the existing 12 per cent to 8 per cent. Keeping in mind the rural economy, a sum total of Rs. 14.3 lakh crores from extra-budgetary sources have also been announced for providing maximum livelihood opportunities in the rural areas. 

This is expected to create employment of 321 crore person days. It is also proposed to significantly enhance the outlays to the textile and apparel segments as compared to the last fiscal to scale up the results. 

Strengthening the existing schemes, the government has systematically increased the allotments to infrastructure and financial development schemes, like allocation of Rs 3 lakh crore to facilitate lending under MUDRA scheme, among others aimed at creating new employment opportunities. The government is determined to step up investments in research and related infrastructure in premier educational institutions, including health institutions to improve the quality of education and create job-ready professionals. A new initiative under the name Revitalizing Infrastructure and Systems in Education (RISE) by 2022 has also been proposed with a total investment of Rs 1 lakh crore over the next four years.

Overall, the intentions look good but the announcements would need time and focused implementation efforts to see the light of the day. Amidst market speculations, this budget looks more responsive than reactionary. The government’s commitment to the primary sector development looks justified with the additional allocations and funds directed to it. The continued focus on infrastructure, ease of doing business, digitisation, transparency in governance and politics would lead to job creation. 

The allocations to infrastructure sector have also been enhanced by about 1 lakh crore. Infra spend is generally job intensive and it is expected to add to jobs. A good thing about the announcements are not new schemes but implementation of ongoing projects. Completion of infra projects is also expected to add to further economic growth and add to demand and consequent virtuous cycle of growth and employment. 

It will also add to the tax revenues of the government that will allow it to stick to the expenditure allocations and not try and slow investments towards managing the deficit. 

The government estimates that all these measures could generate close to 70 lakh new formal sector jobs by the end of this year. The government has done well to not try and spread its resources wide and has primarily focused on the farm sector, which comprises a greater vote base in a pre-election year and justifiably so given the distress in the sector. This has possibly allowed it to contain the fiscal deficit at a comfortable level of 3.3 per cent though slightly higher than previous year’s target of 3.2 that has been breached.  

The author is Partner & Leader – Public Finance & Economics, PwC India