Budget 2018: Not Populist But Prudent

Budget 2018: Somebody Had To Focus On

Basics, And Modi Does Just That

Snapshot

 The direction of the budget seems to be correct, and mostly consistent with what the
government had claimed since the day it assumed office.
 The government appears to be targeting the bottom of the pyramid sections
consistently.
 The budget is about jobs, formalisation of jobs and higher farm incomes over the
medium term.

Finance Minister Arun Jaitley presented his fifth and final full budget on 1 February before
the country goes into general elections in 2019. And this last Union budget is clearly
Narendra Modi's final message to the voter before the 2019 general elections.

The three challenges facing the government are jobs, jobs and jobs. Even the farm distress is
really about jobs, for the fundamental issue with agriculture is that it has three times more
people living off it than its contribution to national income. Thus A sub-theme of the jobs
focus in this budget was higher wages and incomes, with the emphasis being on the
formalisation of existing jobs, extending the social security net for more people with informal
jobs, and incentivisation of employers to take on new employees to expand the payroll.

Thus, there will be direct contributions by government for enabling formal job creation from
this year, with three major initiatives being announced: one, the government will contribute
12 per cent of wages for all new employees enrolled into the Employees' Provident Fund
Organisation (EPFO) for the next three years; two, women employees' contribution to EPFO
will be lower at 8 per cent against 12 per cent now, thus increasing their take home pay; and,
three, the system of fixed term employment, currently available to apparel and footwear
industries, is being extended to all industries.

These incentives could be huge spurs to job creation and formalisation – and a direct
response to the widespread criticism that jobs are not growing under the Modi government

Even the corporate tax rationalisation was indirectly about jobs. After promising to cut
corporate tax rates to 25 per cent in four years, Jaitley has clearly decided that the big boys
can do without the tax cuts. Instead, the corporate tax rate cut this time is focused on
companies with turnover in the range of Rs 50-250 crore, which encompasses the small to
medium sector that creates most of the jobs – and which was badly disrupted by
demonetisation and the goods and services tax (GST).
The government, meanwhile, has finally opened its coffers and rolled out some of the
strongest provisions for the health and agriculture sector. While a lot has been done to
address this, the Gujarat elections may have reflected the enormity of the problem that
needed to be urgently tackled.

For farmers, the only short-term way out of this farm distress was to take the pricing route
and increase the minimum support price (MSP). The government in a massive relief to the
farmers has increased the MSP of all notified Kharif crops to 1.5 times of the cost of
production. The departure from a production-centric focus to a marketing and supply chain
augmentation process continues through this budget with an emphasis on improving agri-
marketing.

A corpus for improvement of agri-market infrastructure, promotion of 22,000 rural haats, the
establishment of Grameen Agricultural Market (GRAM) through which the sellers and
buyers can directly interact and Operation Green focusing on agri-logistics are measures
aimed at ensuring better returns for the farmers through an improved supply chain.

There is an increased focus on the development of agri-allied industries including animal

husbandry and fisheries along with easier access to credit. If these pronouncements are
implemented effectively, it could signal a huge improvement in the value chain of agri-
commodities.

The second major aspect of this budget is the focus on the social sector with an emphasis on
health. One of the major criticisms that the government had been facing was the sub-optimal
allocation of funds to the social sector.

It is for the first time in the economic history of independent India that health has emerged as
the biggest headline of the budget announcement. For, I do not remember when was the last
time that finance gurus on the day of the budget announcement were talking about a subject
so seemingly “left”

A new ambitious program aims at opening 1.5 lakh health and wellness centres across India
for providing primary health care and generic medicines. But, the big ticket program in the
health sector is the Ayushman Bharat - National Health Protection Scheme which could be
seen as a pilot test for universal health access.

This scheme will provide health coverage of Rs 5 lakh per year for 10 crore families and
nearly 50 crore individual beneficiaries. This is a major departure from the Rashtra Swasthya
Bima Yojana, and though the fine print of execution needs to be spelt out, it is a move in the
right direction.

In the education sector, the government has announced that Ekalavya model residential
schools are to be set up in all tribal districts by 2022. In a move that seems drawn from the
Singapore nation building case study, 1000 exceptional BTech students will be funded for
completing their PhD under the Prime Minister Research Fellowship. Hopefully, these
trained resources will be absorbed into the government at some point and the country will
stand to gain in terms of research and development.

The budget of course has been silent on the salaried middle class which could be seen as not
being populist enough in an election year. The middle-class salaried employees got nothing –
just standard deduction of Rs 40,000, which is outweighed by a 1 per cent increase in the
education cess from 3 to 4 per cent. Modi is clearly assuming that his most vocal support base
will not desert him despite his tightfistedness.

But, the major agricultural and social sector spending is the necessary shot in the arm which
was required to enhance human capital.

Spending on agriculture, education and health was vital not just because of it being election
season but because there is a felt need to invest in these sectors.

The long-term capital gains tax on equity is now back at 10 per cent for shares bought after
31 January, which again undercuts the privileged tax treatment of capital compared to wage
income.

Most schemes have been bolstered under the new budget, but some have been cut. While
expansion of highways and liquefied petroleum gas (LPG) connections, along with skill
development and promotion of digital payments, are among the schemes that have received a
major push, budget allocation for others key schemes like Swachh Bharat, metro projects and
rural electrification have come down.

A clearer understanding of the budget and its ramifications would definitely lie in its fine-
print of implementation; on how the ambitious health insurance affects consumers, on how
the pricing is determined for MSPs or to what extent MUDRA could sustain job creation.
But, the direction of the budget seems to be correct, and mostly consistent with what the
government had claimed since the day it assumed office

Here’s a look at which schemes were bolstered, and which weren’t.

Up

National highways and road safety works

- Up by 16 per cent

- From Rs 60,671 in 2017-18 to Rs 70,544 in 2018-19

LPG connection to poor households, to provide LPG at subsidised rates

- Up by 42 per cent

- From Rs 2,252 crore to Rs 3,200 crore

Jobs and skill development, which aims to train 40 crore Indians in different skills by 2022

- Up by a steep 74 per cent

- From Rs 2,905 crore to Rs 5,071 crore

Urban Rejuvenation Mission (AMRUT) and Smart Cities Mission, which aim at providing
basic services like water supply, urban transport, sewerage to households, to improve quality
of life

- Up by 35 per cent

- From Rs 8,999 crore to Rs 12,169 crore

Rashtriya Swasthya Bima Yojna, which aims at correcting regional imbalances in the
availability of affordable tertiary healthcare services

- Steep jump of 324 per cent

- From Rs 471 crore to Rs 2,000 crore

Promotion of digital payment

- Increased by 23 times

- From Rs 25 crore to Rs 596 crore

Sagarmala scheme for port development

- Up by 25 per cent

- From Rs 480 crore to Rs 600 crore

Programmes for development of Scheduled Tribes and minorities

- Up by 8 per cent and 12 per cent respectively

Mission for Protection and Empowerment for Women, which aims at schemes related to
ensuring equal rights and opportunities for women

- Up by 38 per cent

- From Rs 988 crore to Rs 1366 crore

White revolution scheme, aimed at increasing milk and dairy production

- Up by 36 per cent

- From Rs 1,633 crore to Rs 2,220 crore

Pradhan Mantri Gram Sadak Yojna, a livelihood improvement scheme that aims at providing
all-weather road connectivity in rural areas

- Up by 12.4 per cent

- From Rs 16,900 to Rs 19,000 crore; it had been decreased last year

Prime Minister Employment Generation Programme (PMEGP), which aims at generating
employment opportunities through establishment of micro enterprises in rural and urban areas

- Up by 50 per cent

- From Rs 1,195 crore to Rs 1,801 crore

Down

Swachh Bharat Mission

- Down by 7 per cent

- From Rs 19,248 crore to Rs 17,843 crore

Metro projects and MRTS, a scheme that provides assistance to various metro projects across
India

- Down by 16 per cent

- From Rs 18,000 crore to Rs 15,000 crore

Pradhan Mantri Awas Yojana, a programme to ensure ‘housing for all by 2022’

- Marginally dropped by 5 per cent

- From Rs 29,043 crore to Rs 27,505 crore

Border Area Development Programme, which aims to meet special developmental needs of
people living in border areas

- Down by 30 per cent

- From Rs 1,100 crore to Rs 771 crore

Deen Dayal Upadhyaya Gram Jyoti Yojna, for increasing rural electrification

- Down by 30 per cent

- From Rs 5,400 crore to Rs 3,800 crore

Unchanged

MNREGA or the rural employment guarantee programme, a scheme that guarantees 100 days
of wage employment in a year to unemployed rural Indians

- Unchanged at Rs 55,000 crore

Mid Day Meal in schools, a programme that provides free lunches to primary and upper
primary students at government schools
- Almost unchanged with marginal increase of 5 per cent

- From Rs 10,000 crore to Rs 10,500 crore