The Union Budget 2018-19 presented by Finance Minister Arun Jaitley on 1 February shows financial accounts of the previous year (2016-17), budget and revised estimates of the current year (2017-18) and budget estimates for the forthcoming year (2018-19). Obviously, the Budget could be the instrument to propel the economy into an era of stellar growth as it is treated as an integral part of the fiscal policy. The Budget is also an opportunity for the government to announce important policies. In this sense, the Budget becomes both a description of the fiscal policies of the government and the financial plans corresponding to them.

The Budget imparts the anticipated income and expenditure of the coming year and tells the magnitude of revenue deficit, fiscal deficit and primary deficit. It reveals a clear picture of from where the money comes and where it goes. Article 112 of the Constitution deals with the Budget. In India, the Budget is prepared every year by the Budget Division of the Finance Ministry’s Department of Economic Affairs.

Budget 2018-19 has put the focus on strengthening the agriculture, rural development, health, education, employment, MSME and infrastructure sectors. According to Prime Minister Narendra Modi, Budget 2018-19 is farmer-friendly, common citizen-friendly and development-friendly. It focuses on the needs of rural areas and pays attention to all sectors, from agriculture to infrastructure. The government is focused not just on ‘ease of doing business’ but also on ‘ease of living’.

The Budget has admitted the fact that faultless and effective programmes are essential to direct the benefits of structural changes and good growth to reach farmers, poor and other vulnerable sections of our society and uplift underdeveloped regions. Budget 2018-19 focuses on strengthening agriculture and rural economy, provision of good healthcare to economically less privileged, taking care of senior citizens, infrastructure creation and working with states to provide more resources for improving the quality of education. All these structural reforms in the medium and long run will help the economy achieve stronger growth for a long time. In its latest update, the IMF has forecast that India will grow at 7.4 per cent in FY 2018-19.

Agriculture and rural economy

Budget 2018-19 takes strategic steps to double farmers’ income by 2022 when India celebrates its 75th year of independence, one of the promises made by Modi. Here, the primary emphasis is on generating higher income for farmers, help farmers produce more from the same land parcel at lesser cost, realise higher prices for their produce and generate productive and gainful on-farm and non-farm employment for farmers and landless families.

The Budget announced minimum support price (MSP) for all unannounced crops of kharif at least at one-and-a-half times of their production cost. This historic decision will prove an important step towards doubling farmers’ income. This will enable farmers to realise at least 50 per cent more than the cost of their produce or one-and-a-half times of the cost of their production.

The naked truth is that more than 86 per cent of our farmers are small and marginal. They are not always in a position to directly transact at Agriculture Produce Market Committees (APMCs) and other wholesale markets. Budget 2018-19 proposes to develop and upgrade the existing 22,000 rural haats into Grameen Agricultural Markets (GrAMs). An Agri-Market Infrastructure Fund with a corpus of Rs 2,000 crore will be set up for developing and upgrading agricultural marketing infrastructure in 22,000 GrAMs and 585 APMCs.

This year’s Budget promises to promote organic cultivation. Organic farming by Farmer Producer Organisations (FPOs) and Village Producer Organisations (VPOs) in large clusters, preferably of 1,000 hectares each, will be encouraged. Women self-help groups (SHGs) will also be encouraged to take up organic agriculture in clusters under the National Rural Livelihood Programme. The government will support organised cultivation and associated industries.

The Budget says the food processing sector is growing at an average rate of 8 per cent per annum. The Pradhan Mantri Krishi Sampada Yojana is the government’s flagship programme for boosting investment in food processing. Allocation to the Ministry of Food Processing is being doubled from Rs 715 crore in RE 2017-18 to Rs 1,400 crore in BE 2018-19. The government will promote the establishment of specialised agro-processing financial institutions in this sector.

Operation Greens

Budget 2018-19 proposes to launch Operation Greens on the lines of Operation Flood. Operation Greens will address price fluctuations in perishable commodities such as potato, tomato and onion for the benefit of farmers and consumers. This programme will promote FPOs, agri logistics, processing facilities and professional management. The Budget has allocated Rs 500 crore for this purpose.

Agricultural credit

Agricultural credit plays an important role in improving agricultural production and productivity and mitigating farmers’ distress. Availability of ample credit, affordability and accessibility of institutional credit are strategic factors for determining the level of farming output and productivity. The Budget has taken several measures for improving agricultural credit flow and bringing down the rate of interest on farm loans. The Budget proposes to extend the facility of Kisan Credit Cards to fisheries and animal husbandry farmers to help them meet their working capital needs. Of course, small and marginal farmers will get more benefits.

Apart from Kisan Credit Cards (introduced in 1998), the government has launched various farm credit programmes over the years such as the Agricultural Debt Waiver and Debt Relief Scheme in 2008, the Interest Subvention Scheme in 2010-11, the Pradhan Mantri Jan-Dhan Yojana in 2014 and so on. It is encouraging to see a robust increase in institutional credit allocation in the Budgets from Rs 744 crore in 1970-71 to Rs 9,830 crore in 1990-91, Rs 62,045 crore in 2000-01 and further to Rs 10 lakh crore in 2017-18. Interestingly, the actual credit flow has considerably exceeded the target. The target for agricultural credit in 2018-19 has been fixed at a record level of Rs 11 lakh crore. The result is that the share of institutional credit to agricultural gross domestic product has increased from 10 per cent in 1999-2000 to 38 per cent in 2008-09 and further to nearly 41 per cent in 2016-17.

Boost for bamboo sector

The Budget declared bamboo as ‘green gold’ and removed bamboo grown outside forest areas from the definition of trees. It also proposed to launch a revamped National Bamboo Mission with an outlay of Rs 1,290 crore to promote the bamboo sector in a holistic manner.

Two new funds

Budget 2017-18 had announced the setting up of a Micro Irrigation Fund for facilitating the expansion of coverage under micro irrigation, and a Dairy Processing Infrastructure Development Fund to help finance investment in dairy infrastructure. Budget 2018-19 takes initiatives to expand such focused investment funds. It announced the launch of a Fisheries and Aquaculture Infrastructure Development Fund for the fisheries sector and an Animal Husbandry Infrastructure Development Fund for financing the sector’s infrastructure requirements. The Budget has set aside Rs 10,000 crore for these two new funds.

Pradhan Mantri Ujjwala Scheme

The government launched the Pradhan Mantri Ujjwala Scheme on 1 May 2016 to stop poor women suffering from exposure to wood smoke. Initially the target was to provide free LPG connections to 5 crore poor women. Budget 2018-19 proposes to increase the target to 8 crore poor women. The government plans to achieve the revised target by 2020.

Pradhan Mantri Saubhagya Yojana

The government launched the Pradhan Mantri Saubhagya Yojana in September 2017 for providing electricity to all households. Under this scheme, 4 crore poor households are being provided with free electricity connections. The Budget document shows that the government will spend Rs 16,000 crore under this scheme.

Swachh Bharat Mission

The Swachh Bharat Mission was launched on 2 October 2014 with a target to make the country clean by 2 October 2019, the 150th birth anniversary of Mahatma Gandhi. All 4,041 statutory towns as per Census 2011 are covered under the mission. The programme includes the elimination of open defecation, conversion of unsanitary toilets to pour flush toilets, eradication of manual scavenging, municipal solid waste management and bringing about a behavioural change in people regarding healthy sanitation practices. Under this mission, the government has already constructed more than 6 crore toilets. The Budget states that the government is planning to construct around 2 crore toilets.

Pradhan Mantri Awas Yojana

The Pradhan Mantri Awas Yojana was introduced on 1 June 2015. The scheme aims at providing affordable housing to the rural and urban poor. The target is to provide housing for all by 2022. Under this scheme, 51 lakh houses in 2017-18 and 51 lakh houses in 2018-19 - which is more than 1 crore houses - will be constructed in rural areas. In urban areas, financial assistance has been sanctioned to construct 37 lakh houses.

National Rural Livelihood Mission

NRLM is a poverty alleviation project implemented by the Ministry of Rural Development. This scheme is focused on promoting self-employment and organisation of the rural poor. The basic idea is to organise the poor into SHGs and make them capable for self-employment. The Budget has proposed to increase the allocation for NRLM to Rs 5,750 crore in 2018-19. Moreover, the government is confident that loans to SHGs will increase to Rs 75,000 crore by March 2019.

Health, education and social protection

Budget 2018-19 argues that the focus of the government next year will be on providing maximum livelihood opportunities in rural areas by spending more on livelihood, agriculture and allied activities and construction of rural infrastructure. For this, various ministries will spend Rs 14.34 lakh crore, including extra-budgetary and non-budgetary resources of Rs 11.98 lakh crore, in 2018-19.

The government is implementing a comprehensive social security and protection programme to reach every household of old, widows, orphaned children, divyaang and deprived as per the Socio-Economic Caste Census. Allocation on National Social Assistance Programme this year has been kept at Rs 9,975 crore.

The quality of education is still a cause of serious concern in India. Technology will be the biggest driver in improving the quality of education. The Budget has proposed to increase the digital intensity in education and move gradually from blackboard to digital board. Technology will also be used to upgrade the skills of teachers through the recently launched digital portal DIKSHA.

Ekalavya Model Residential School

The government is committed to provide quality education to tribal children in their own environment. To realise this mission, it has been decided that by 2022, every block with more than 50 per cent Scheduled Tribe population and at least 20,000 tribal persons will have an Ekalavya Model Residential School. These schools will be on par with Navodaya Vidyalayas and have special facilities for preserving local art and culture besides providing training in sports and skill development.

Revitalising education infra and systems

To step up investments in research and related infrastructure in premier educational institutions, the Budget proposed to launch a major initiative called RISE by 2022 with a total investment of Rs 1 lakh crore over the next four years. The Higher Education Financing Agency will be suitably structured for funding this initiative.

Prime Minister’s Research Fellows

The Budget declared that the government will launch the PMRF scheme this year. Under this, the authority will identify 1,000 best BTech students each year from premier institutions and provide them facilities to do PhD in IITs and IISc with a handsome fellowship. It is expected that these bright young fellows would voluntarily commit a few hours every week for teaching in higher educational institutions.

Key proposals for health sector

The Budget admitted that only a Swasth Bharat can be a Samriddha Bharat. India cannot realise its demographic dividend without its citizens being healthy. The Budget announced two major initiatives as part of the Ayushman Bharat programme aimed at making path-breaking interventions to address health holistically, in primary, secondary and tertiary care system covering both prevention and health promotion.

The National Health Policy (NHP) 2017 has envisioned health and wellness centres as the foundation of India’s health system. These 1.5 lakh centres will bring the health care system closer to the people. They will provide comprehensive health care, including for non-communicable diseases and maternal and child health services. These centres will also provide free essential drugs and diagnostic services. The Budget has allocated Rs 1,200 crore for this programme. The NHP aims to double government spending from the existing 1.15 per cent of GDP to 2.5 per cent by 2025. The budgetary allocation of Rs 52,800 crore for health in 2018-19 was merely 5 per cent higher than the revised estimate of Rs 50,079.6 crore in 2017-18.

National Health Protection Scheme

The government has decided to launch a flagship National Health Protection Scheme to cover more than 10 crore poor and vulnerable families (approximately 50 crore beneficiaries) by providing coverage up to Rs 5 lakh per family per year for secondary and tertiary care hospitalisation. This will be the world’s largest government-funded health care programme. Adequate funds will be provided for smooth implementation of this programme. Undoubtedly, these two initiatives under Ayushman Bharat will build a New India 2022 and ensure enhanced productivity, well-being and avert wage loss and impoverishment. These schemes will also generate lakhs of jobs, particularly for women. The government is steadily but surely progressing towards the goal of universal health coverage.

GOBAR-DHAN

The government’s resolve of making villages open defecation free is aimed at improving the life of our villagers. The Budget envisaged that the government will launch a scheme called Galvanising Organic Bio-Agro Resources Dhan (GOBAR-DHAN) for the management and conversion of cattle dung and solid waste in farms to compost, fertiliser, bio-gas and bio-CNG.

Allocation for SCs and STs

Economic and social advancement of hard-working people of Scheduled Castes (SCs) and Scheduled Tribes (STs) has received core attention of government. The government increased the total earmarked allocation for SCs in 279 programmes from Rs 34,334 crore in 2016-17 to Rs 52,719 crore in RE 2017-18.  Likewise, for STs, the earmarked allocation was increased from Rs 21,811 crore in 2016-17 to Rs 32,508 crore in RE 2017-18 in 305 programmes. This year’s Budget proposed an earmarked allocation of Rs 56,619 crore for SCs and Rs 39,135 crore for STs in BE 2018-19.

In a nutshell, the government’s estimated schematic budgetary expenditure on health, education and social protection for 2018-19 is Rs 1.38 lakh crore against the estimated expenditure of Rs 1.22 lakh crore in BE 2017-18. This expenditure is likely to go up by at least Rs 15,000 crore in 2018-19 on account of additional allocation during the year and extra budgetary expenditure, including through Higher Education Financing Agency.

Micro, small and medium enterprises

The share of the MSME sector in the country’s gross value added (GVA) is approximately 32 per cent. MSMEs play a crucial role in providing large-scale employment opportunities at comparatively lower capital cost than large industries and also in industrialisation of rural and backward areas. Clearly, MSMEs are a major engine of growth and employment. Budget 2018-19 provides Rs 3,794 crore to the MSME sector for giving credit support, capital and interest subsidy and innovations. Massive formalisation of the businesses of MSMEs is taking place after demonetisation and the introduction of GST.

MUDRA Yojana

Launched in April 2015, the Micro Units Development and Refinance Agency (MUDRA) Yojana has led to the sanction of Rs 4.6 lakh crore in credit via 10.38 crore MUDRA loans. Interestingly, 76 per cent of the loan accounts belong to women and more than 50 per cent belong to SCs, STs and OBCs. It is proposed in this Budget to set a target of Rs 3 lakh crore for lending under MUDRA for 2018-19.

Infra and financial sector development

Infrastructure is the growth driver of the economy. India needs massive investments estimated to be in excess of Rs 50 lakh crore in infrastructure to increase GDP growth, connect and integrate the nation with a network of roads, airports, railways, ports and inland waterways and provide good quality services to our people. In order to create employment and aid growth, the government’s estimated budgetary and extra budgetary expenditure on infrastructure for 2018-19 is being increased to Rs 5.97 lakh crore against the estimated expenditure of Rs 4.94 lakh crore in 2017-18.

Defence sector

The allocation for defence has gone up modestly to Rs 2.95 lakh crore, excluding pensions, which crossed the Rs 1 lakh crore mark for the first time and even surpassed the quantum of capital allocation. Compared to 2017-18, this year’s allocation represents a 7.81 per cent increase over the budget estimates of Rs 2.74 lakh crore and 5.91 per cent increase over the revised estimates of Rs 2.79 lakh crore. This year’s allocation accounts for 12.1 per cent of the total Union government expenditure.

Indian Railways

Strengthening the rail network and enhancing the Railways’ carrying capacity has been a major focus of the government. The Railways’ capex (capital expenditure) for 2018-19 has been pegged at Rs 1,48,528 crore. A large part of the capex is devoted to capacity creation. 18,000 km of doubling, third and fourth line works and 5,000 km of gauge conversion will eliminate capacity constraints and transform almost the entire network into broad gauge.

Digital India programme

The Budget doubled the allocation for the Digital India programme to Rs 3,073 crore in 2018-19. The Budget provided Rs 10,000 crore in 2018-19 for the creation and augmentation of telecom infrastructure. It also makes clear that the government does not consider cryptocurrencies legal tender and will take all measures to eliminate the use of these crypto assets in financing illegitimate activities or as part of the payment system.

Disinvestment target

Budget 2017-18 estimates for disinvestment were pegged at the highest ever level of Rs 72,500 crore. The government has already exceeded the budget estimates and expecting the receipts of Rs 1 lakh crore in 2017-18. Budget 2018-19 has set the disinvestment target at Rs 80,000 crore.

Major proposals for fiscal management

The total revised estimates for expenditure in 2017-18 are Rs 21.57 lakh crore (net of GST compensation transfers to the states) as against the budget estimates of Rs 21.47 lakh crore. Revised fiscal deficit estimates for 2017-18 are Rs 5.95 lakh crore at 3.5 per cent of the GDP. Current budget projecting a fiscal deficit of 3.3 per cent of the GDP for 2018-19.

Budget 2018-19 accepted key recommendations of the Fiscal Reform and Budget Management Committee relating to adoption of the debt rule and to bring down the Union government’s debt-to-GDP ratio to 40 per cent. The government has also accepted the recommendation to use the fiscal deficit target as the key operational parameter.

The government had made many positive changes in the personal income tax rate applicable to individuals in the past three years. Budget 2018-19 proposed to allow a standard deduction of Rs 40,000 in lieu of the present exemption in respect of transport allowance and reimbursement of miscellaneous medical expenses. The revenue cost of this decision is approximately Rs 8,000 crore. The total number of salaried employees and pensioners who will benefit from this decision is around 2.5 crore.

Major changes in indirect taxes

The Budget proposed to increase Customs duty on mobile phones from 15 per cent to 20 per cent on some of their parts and accessories to 15 per cent and on certain parts of TVs to 15 per cent. To help the cashew processing industry, the Budget proposed to reduce Customs duty on raw cashew from 5 per cent to 2.5 per cent. With the roll-out of GST, the Budget proposed to change the name of Central Board of Excise and Customs to Central Board of Indirect Taxes and Customs.

Health and education cess

At present, there is a 3 per cent cess on personal income tax and corporation tax consisting of 2 per cent cess for primary education and 1 per cent cess for secondary and higher education. In order to take care of the needs of education and health of BPL and rural families, the Budget proposed to increase the cess by 1 per cent. The existing 3 per cent education cess will be replaced by a 4 per cent health and education cess to be levied on the tax payable. This will enable the government to collect an estimated additional amount of Rs 11,000 crore.

Social welfare surcharge

The Budget proposed to abolish the Education Cess and Secondary and Higher Education Cess on imported goods, and in its place impose a Social Welfare Surcharge, at the rate of 10 per cent of the aggregate duties of Customs, on imported goods, to provide for social welfare schemes of the government.

Tax-to-GDP ratio

This ratio is the total government tax collections divided by the country’s GDP. Some countries, like Sweden, have a high tax-to-GDP ratio (as high as 54 per cent). India has a low tax-to-GDP ratio (in 2011-12, the ratio was 5.5 per cent for direct taxes and 4.4 per cent for indirect taxes and the aggregate ratio was 9.9 per cent. In 2007-08, the ratio touched a peak of 11.9 per cent). More clearly, India’s ratio of gross tax revenue to GDP is stagnating at around 10 per cent since 2008. This ratio rose to 11.6 per cent in 2017-18. It is projected to rise further to 12.1 per cent in 2018-19, 12.4 per cent in 2019-20 and 12.7 per cent in 2020-21. When tax revenues grow at a slower rate than the GDP of a country, the tax-to-GDP ratio drops.

The Budget figure for 2018-19 is about 10 per cent higher than 2017-18, with most sectors witnessing an increase in terms of absolute numbers.

Concluding remarks

India has considerably improved its policies, practices and economic profile. These are reflected in the World Bank’s Doing Business Report, UNCTAD’s World Investment Report and the World Economic Forum’s Global Competitiveness Report. India has become the sixth largest manufacturing country in the world and acts as an engine of global growth. The country needs more economic reforms with a human face, take steps to promote higher investments, boost infrastructure, accelerate growth, alleviate poverty and maintain the best standards of fiscal prudence.

Noushad Chengodan is Assistant Professor of Economics at PSMO College, Tirurangadi. The views expressed here are personal.