Finance Minister Mr. Arun Jaitley delivered Modi government’s 5th and last full budget amid subdued economic growth, challenging fiscal situation and farmer distress. Union Budget 2018-19 is the first post-Goods and Services Tax (GST) era budget of India. It is also the last full budget before the general elections in 2019. Finance minister has rolled out a budget designed to help distressed farmers and rural areas while boosting growth, jobs and private investment.

Here are the key highlights of budget 2018 and its after effect

It been a week, since union budget 2018 speech by Finance Minister. A lot of analysis has been done on all areas, which the budget covered and many experts have share their views on budget 2018. Let’s look into what happened till now and what experts view on Union Budget 2018.

Fiscal Situation 

Key highlights of Budget 2018:
  • The government has also accepted key recommendations of the N.K. Singh Committee on fiscal discipline to reduce debt to GDP ratio to 40% from 49.4% at present.
  • For FY 2017-18, Fiscal deficit is 3.5% of GDP at ₹ 5.95 lakh crore. Projected fiscal deficit to be 3.3% of GDP in FY 2018-2019.
  • GST revenue will be received only for 11 months of FY 2017-18, that will have an effect on balance sheets.
  • Through new tax regime, GST, ₹ 21.57 lakh crores transferred to states as against projection of ₹ 21.47 lakh crores.
  • The government hopes to breach the disinvestment target in 2017-18 by collecting ₹ 1 trillion against the budget estimate of ₹ 72,500 crore.
  • For 2018-19, the government has set a disinvestment target of ₹ 80,000 crore, including gains from privatization of Air India Ltd.
After effects and expert’s view:
  • The Union Budget 2018 is pragmatic and pro-growth. Government chose to spur the economy while pursuing modest fiscal consolidation. The tilt is towards rural development and social infrastructure. While the total expenditure growth budget is moderate at 10%, the government has chosen Extra Budgetary Resource (EBR) route for capital expenditure. EBR is expected to grow at 20% in FY 2018-19. Overall revenue assumptions are quite conservative. Divestment target for FY 2018-19 at ₹ 80000 crore should be achievable. However, revenue assumptions are slightly aggressive on indirect taxes.
  • The International Monetary Fund (IMF) today welcomed the fiscal targets set by Finance Minister Arun Jaitley in Union Budget 2018 and noted that the economic survey released this week strikes a good balance with realistic forecast.
  • Furthermore, the medium-term target to reduce the central government debt to GDP ratio to 40 per cent is supportive of the sovereign credit profile.

Tax  Regime

Key highlights of Budget 2018:
  • Tax base has widened and 85.51 lakhs new tax payers filed income tax returns in FY 2017.
  • No change proposed in budget on personal income tax slabs and exemption amount.
  • Growth in direct taxes (till Jan 15) in India is 18.7 %
  • 100% tax deduction is allowed to co-operative societies
  • Exemptions for Senior citizens in income of ₹ 10,000 from Banks FD and post offices
  • Senior citizens to get ₹ 50,000 per annum exemption for medical insurance under Sec 80D
  • Standard deduction of ₹ 40,000 allowed for transport, medical reimbursement for salaried tax payers
  • Long term capital gains on stocks and equity mutual fund exceeding ₹ 1 lakh will be taxed at 10% without indexing
  • Short term capital tax remains at 15%
  • A tax on distributed income at 10%
  • 3% Education Cess to be replaced with Health and Education Cess at 4% for all taxpayers
After effects and expert’s view:
  • Senior citizens are very excited with budget as their tax will come down by almost ₹ 15,450 due to the tax exemption for up to ₹ 50,000 interest earned from bank deposits and Post Office schemes.
  • Most other taxpayers, especially high income earners and investors in stocks and mutual funds, have been sorely disappointed by the tax proposals in the Budget. The Budget has hiked the cess on tax from 3% to 4% for all taxpayers, a measure that will push up the overall tax of high-income taxpayers.
  • Experts says that the standard deduction of ₹ 40,000 for salaried individuals is a nominal benefit because medical reimbursements and transport allowance were anyway leading to ₹ 34,200 as tax-free salary. However, tax professionals point to other non-monetary benefits.
  1. Many taxpayers have to fudge medical bills to claim the tax-free allowance. This practice will now stop.
  2. The compliance and paperwork for employers will also come down
  • On the other hand, the Budget has unleashed havoc in the stock markets by reintroducing the tax on long-term capital gains (LTCG) from stock and equity funds. The Sensex tanked by nearly 840 points on Friday, a day after budget 2018 speech, due to widespread selling pressure. Analysts say this will continue as investors try to book profits before the LTCG tax comes into effect in the new financial year starting 1 April 2018.
  • The good news in LTCG tax is that the tax has a very liberal threshold and will apply to long-term gain beyond ₹ 1 lakh. Small investors with a portfolio of 10-15 lakh will not have to worry. Even big investors can avoid the tax by keeping an eye on the calendar.
  • Fund managers says that investors will be lured by distributors of other products such as Ulips and traditional insurance policies. Being insurance products, the income from these plans are not taxable under Section 10(10d). Ulips have changed for the better after the insurance regulator capped charges in 2010, but traditional insurance plans continue to have very high charges. Their returns are barely 4-5%, but if stock markets are down and LTCG are taxed, insurance agents will be able to palm off these plans to investors. It will be an open season for insurance agents.
  • Experts believe that the decision to levy LTCG on equity at the rate of 10% is not surprising and is unlikely to have any significant adverse impact on the markets. This still keeps equities as the most attractive asset class from a taxation perspective since the holding period to be eligible for LTCG on most other asset classes is three years. The fact that gains made up to 31st January 2018 will be grandfathered indicates that the government has thought through the proposal quite clearly.

Imports and Exports 

Key highlights of Budget 2018:
  • Customs Duty on certain products, such as mobile phones and televisions has been increased, to provide a fillip to ‘Make in India’
  • Social welfare surcharge of 10% on imported goods.
  • Exports are expected to grow at about 15% in FY 2017-18
After effects and expert’s view:
  • Volume wise balance between imports and exports are equally important which faces challenges like Rupee appreciation, liquidity crunch and increasing protectionism.
  • Experts stress that ever since the Modi government came to power it has focused on promoting companies that manufacture in the country. If the government goes ahead with increasing the custom duty, the prices of electronic items are bound to increase as companies would transfer the increased burden on to consumers.
  • Imported trucks and buses along with cars and motorcycles assembled in India with components fully shipped from overseas will become costlier with the government on Thursday hiking the custom duty.
  • The move to increase duty on components would impact the entire automobile industry. Since every company has to import some kind of components, the increase is going to impact everyone. Companies with greater exposure to imported articles would be impacted more.

Agriculture

Key highlights of Budget 2018:
  • Jaitley stressed on the fact that India’s agricultural production is at a record high level today. 275 million tonne food grains and 300 million tonne fruits and vegetable have been produced in the country.
  • The FM said the government wants farmers to earn 1.5 times the production cost, and the Minimum Selling Price (MSP) for the Kharif Crops has been set at 1.5 times the produce price. Jaitley said the Centre will work with states to ensure that all farmer get a fair price.
  • Agricultural market and infra fund of ₹ 2000 crore fund will be set up to strengthen the market connectivity.
  • A sum of ₹ 500 crore will be allocated for Operation Green to be launched. It will promote agricultural products.
  • Extend the facility of Kisan credit card to fisheries and for animal husbandry.
  • ₹ 10,000 crores set aside for Fisheries and Aquaculture Development Fund
  • ₹ 10,000 crores set aside for animal husbandry infra fund
  • Propose to launch a restructured bamboo mission with a fund of ₹ 1200 crore . “Bamboo is green gold,” Jaitley said.
  • Agricultural credit target increased from ₹ 8.5 lakh crore to ₹ 11 lakh core.
  • Special scheme to manage crop reduce in Haryana, Punjab and Delhi to reduce pollution.
After effects and expert’s view:
  • The government’s emphasis will be on generating higher incomes for farmers, by helping them produce more with lesser cost, and in turn, earn higher income for their produce.
  • The 2018 Budget seeks to boost farm income, and shore up profitability of small enterprises. However, increase in minimum support price (MSP) could have inflationary impact.
  • The moody’s agency reports the government’s decision to increase MSP may cause further slippage in fiscal target.
  • There is some ambiguity, on what government will take as costs in increasing MSPs – A2 + FL (the costs of inputs paid plus the imputed cost of family labour) or C2 (inputs plus family labour plus working capital plus imputed rent of land).
  • Experts says that on agriculture it’s a lot of talk, backed up by very little money from the Budget, possibly more from institutions like NABARD. But much of it, even if the money comes from elsewhere, is prospective, like the MSP thing. It’s not very clear that it’s been thought out, because the implications of MSP at 50% above C2 cost would be huge. But government might turn around and say it’s some other cost. So, what they’re promising, they haven’t really spelt it out. Because Mr. Arun Jaitley can actually say he meant A2 cost, not C2 cost.
  • Many experts are united on welcoming the moves, which is the fund created for fisheries and animal husbandry – ₹ 10,000 crore. But are curious to know that this is for how many years? As, still we don’t know if it’s for a single year, for five years, for two years. It’s not clear from budget 2018 speech.
  • Also, they feel that ₹ 2,000 crore for agricultural marketing infrastructure and ₹ 500 crore for Operation Green are very small and there’s nothing there that can double farmers’ incomes either in Union Budget 2018.

Rural Economy  

Key highlights of Budget 2018:
  • 8 crore poor women will get new LPG connections.
  • PM Saubhagya Yojana: 4 crore poor people will get power connection.The government will spend ₹ 16,000 crore on this scheme.
  • Govt plans to construct 2 crore toilets in next fiscal year under Swach Bharat Mission
  • Government target house for all by 2022. 51 lakh houses have been constructed affordable houses in rural and further 50 lakh houses in urban areas.
  • 1 crore houses to be built under Pradhan Mantri Awas Yojana in rural areas
  • National livelihood scheme gets ₹ 5,750 crore .
  • In FY 2018-19, ministries will be able to spend ₹ 14.34 lakh crores for creation of livelihood in rural areas.
  • Govt gives ₹ 9,975 crore for social security schemes for the next fiscal year.
After effects and expert’s view:
  • Most experts believe that Budget 2018 has delivered a massive 14.34 lakh crore push on rural development to reduce the gap between rural Bharat and urban India. This, in their view, will propel India towards realizing its 8%-plus GDP growth rate dream.
  • Some of the transformational and structural reforms by current government such as demonetisation and GST led to short-term pain in the rural and MSME sector and a consequent slowdown in the pace of growth of our economy. Income levels dropped in the rural economy, and consumption was affected. So, it was very important in this budget for the government to boost the rural economy and ensure that the country was on track to achieve an 8% growth on a sustainable basis.
  • Overall, the Union Budget 2017-18 is focused on improving the quality of life in rural India and measures that have outlined in speech, coupled with the mega health insurance programme for the poor and massive spending on rural infrastructure, will go a long way in strengthening the rural economy and boosting consumerism in the hinterland.

Education 

Key highlights of Budget 2018:
  • Govt to increase digital intensity in education. Technology to be the biggest driver in improving quality of education
  • ₹ 1 lakh crore allocated to revitalisation and upgradation of education sector. Promoting learning based outcomes and research.
  • By 2022, every block with more than 50 per cent ST population will have Ekalvya schools at par with Navodaya Vidyalayas
  • Aims to move from black board to digital board schools by 2022.
  • PM research fellows: Govt will identify 1000 Btech students each years and provide them to do PHDs in IIT and IISc, while also teaching undergraduate students once a week at that time.
After effects and expert’s view:
  • The government has presented a well-balanced budget with a focus on addressing the fundamental needs of education in India. The budget rightly focuses on movement from traditional blackboards to digital boards which offer enhanced learning experience to students. Experts in this field are confident that the promotion of digital platforms and use of technology will increase reach and ensure superior outcomes.
  • The government understands the need for quality of education and setting up of higher education finance agency, integrated B.Ed programme and revitalizing infrastructure and systems’ in Education by 2022 steps in right direction. Furthermore, significant budgetary allocation towards improving education infrastructure in the country augurs well for learners.

Health

Key highlights of Budget 2018:
  • Aayushman Bharat programme: 1.5 lakh centres will be set up to provide health facilities closer to home. ₹ 1,200 crores to be allocated for this programme.
  • Flagship National Healthcare protection scheme, with approximately 50 crore beneficiaries. Up to ₹ 5 lakh per family per year for secondary and tertiary care hospitalisation. This is world’s largest government-funded healthcare programme.
  • Universal health coverage will be expanded after seeing the performance of the scheme.
  • ₹ 600 crore allocated for tuberculosis patients, at the rate ₹ 500 per month during the course of their treatment.
  • Jaitley announces setting up of one medical college for every three parliamentary constituencies, with 24 New government medical colleges also being envisioned. Government also will work on upgrading hospitals to medical colleges.
After effects and expert’s view:
  • Experts believe that ₹ 5 Lakh is a great Mediclaim amount and 50 Cr individuals is a great target. This will create tremendous awareness for medical insurance in the same way as Jan Dhan which ensured every Indian to have a bank account. This will push for every Indian to have medical insurance.
  • The moves in healthcare sector are welcome move not just to maintain a healthy India but will also create several lakhs new jobs in the country as new healthcare facilities will come up in smaller districts and villages. This move will go a long way in empowering India’s poor and underprivileged.
  • Healthcare stocks on budget day rose by as much as 5% following government’s initiatives such as ₹ 1,200-crore allocation for Ayushman Bharat programme and providing ₹ 5 lakh annual cover to 10 crore families for secondary and tertiary care hospitalization. Shares of Apollo Hospitals Enterprise went up by 4.66%, HealthCare Global Enterprises 4.44%, Narayana Hrudayalaya 2.95%, Thyrocare Technologies 1.25% and Shalby Ltd 0.06% on BSE.
  • The insurance market will benefit from the launch of a national health scheme and the merger, as well as listing, of three state-owned insurers. The insurance, and in particular non-life market, is set to benefit from the growth prospects provided by the widening of universal health insurance cover, says the credit rating agency, Moody’s.

Micro, Small & Medium Enterprises (MSME)

Key highlights of Budget 2018:
  • ₹ 3,794 crore allocated to the MSME sector in the form of capital support and interest subsidy By 2022, every block with more than 50 per cent ST population will have Ekalvya schools at par with Navodaya Vidyalayas
  • Lowered the corporate tax for small, micro and medium enterprises with turnover of up to ₹ 250 crore to 25 % from current 30 %.
  • ₹ 3 lakh crore target has been set for the Mudra Yojana.
  • ₹ 4.6 lakh crore sanctioned under MUDRA Scheme.
After effects and expert’s view:
  • Deloitte Automotive sector leader Rajeev Singh said that increasing the turnover range of MSME companies from 50 crore to 250 crore to pay a standard corporate tax rate of 25% will benefit nearly 8,000 auto component players as nearly 90% of these fall under MSME category.
  • MSMEs have faced a number of challenges in the recent past. First, industrial growth has been quite slow, which has hit small entrepreneurs hardest. Second, the GST implementation had a few hiccups, which could have cost them some business. Third, costs are rising from an increase in WPI inflation overtime. Therefore, it is essential that MSMEs, who form the backbone of the economy, be encouraged. Since India has a large population concentrated in the working age group, it is essential that enough job creation take place and MSMEs are well poised to do that.
  • Experts united on view that the budget should provide strong incentives for MSMEs to hire more, which will encourage both their growth and create employment.

Infrastructure  

Key highlights of Budget 2018:
  • India needs investment of ₹ 50 lakh crore in the infrastructure sector
  • Construction of new tunnel in Sera Pass to promote tourism
  • Out of 100 smart cities 99 cities have been selected, with an outlay of ₹ 2.04 lakh crore
  • 10 prominent tourist sites will be made iconic tourist destinations, with an amalgamation of private funding, marketing and branding
  • Bharatmala project: To develop 35,000 KM under phase 1 with an outlay of ₹ 5.35 lakh crore
  • Govt to introduce pay-as-you-use system for toll payments
After effects and expert’s view:
  • According to credit rating agency moody’s, the infrastructure sector will benefit from a boost in spending and the government’s continued focus on public investment will also help galvanise India’s upturn in capital spending
  • India seems to be at the cusp of an infrastructure revolution, and the budgetary support of ₹ 5.97 lakh crore for FY 2018-19 will be a big positive for the infrastructure sector and supplementary industries such as cement.
  • It will definitely expedite infrastructure development in the country, which in turn will aid many industries i.e. metals, cement, building materials, etc.

Railways  

Key highlights of Budget 2018: 
  • Railway capex has been pegged at ₹ 1.48 lakh crore , up from ₹ 1.31 lakh crore last year
  • Eliminate unmanned railway crossing
  • All stations with footfall of greater than 25,000 will have escalators.
  • More stations and trains will progressively be built with Wi-Fi and CCTV camera.
  • Govt to eliminate 4267 unmanned rail crossing in broad gauge in 2 years.
  • Allocates ₹ 11,000 crore Mumbai rail network and ₹ 17,000 crore for the Bengaluru metro
  • 150 km of additional suburban railway networks to be set up in Bengaluru at the cost of ₹ 17,000 cr.
After effects and expert’s view:
  • Budget allocation will help in digitalisation of Indian railways along with improvement on safety. Delays and accidents, the two main problem faced by India’s national railway system, is expected to be solved with current budget allocation.
  • This brings in good news for companies like KEC international and Skipper India. That apart, work for Eastern and Western Freight Corridor is going on full swing with the government estimating a purchase of rolling stock of 1,20,000 wagons, 5,160 coaches, and about 700 locomotives during FY 2018-19.

Aviation

Key highlights of Budget 2018:  
  • Airport Authority of India (AAI) has 124 airports. Propose to increase the number by at least 5 times 1 billion trips a year, ₹ 60 crore has been allocated to kickstart the initiative
  • UDAN Scheme to connect 64 unconnected airports across the country
After effects and expert’s view:
  • Airports is a big area, particularly with the present government able to identify infrastructure bottlenecks. The budget document mentions that passenger traffic grew at 18 % over the past 3 years and airlines have placed orders for about 900 aircraft.
  • The amount allocated this year is almost five times the total allocation done in FY 2017-18. This will make the domestic air passenger traffic grow more and airline companies who have placed orders for more than 900 aircraft will able to get good return on investment.
  • It will also boost the regional connectivity scheme of UDAN (Ude Desh ka Aam Nagrik) initiated by the government last year shall connect 56 unserved airports and 31 unserved helipads across the country.

Technology  

Key highlights of Budget 2018:  
  • Allocation to Digital India scheme doubled to ₹ 3073 crores
  • 5 lakh WiFi HotSpots to provide Broadband access to 5 crore rural citizens, at the cost of ₹ 10,000 crore
  • Government will take measures to stop cryptocurrency circulation, as it is not considered legal tender
  • Government will explore the usage of Blockchain technology.
After effects and expert’s view:
  • Experts feels that the initiatives around these advanced technologies are highly desirable and essential to prepare India for the future.
  • the thrust towards use of technology in areas like agriculture, education and healthcare will provide more opportunities for the Indian IT players and will the boost service sector.
  • The steps taken to strengthen the presence of fin-tech in the micro, small and medium enterprises (MSME) space, smart cities and other initiatives underline that India is on its way to achieving its goal of being a trillion dollar digital economy by 2025.
  • Policy’s drive on the in order to usher in a digital economy definitely opens up great prospects across the sector as well as those allied such as education

Markets  

Key highlights of Budget 2018:  
  • Govt to take additional measures to strengthen environment for venture capitalists and angel investors.
  • SEBI to consider mandating large corporations to meet 1/4th of their debt needs
  • SEBI to mull asking large cos to meet 25% debt from bond market
  • RBI norms to nudge companies to access bond market for funds
After effects and expert’s view:
  • Benchmark indices witnessed the steepest single-day fall in more than a year on 2nd feb as stricter tax rules for stock investments and the easing of fiscal deficit targets unnerved investors in budget 2018. Friday’s crash wiped off ₹ 4.6 lakh crore from the market value of listed Indian stocks.
  • Expert believes that a combination of global market volatility, imposition of long term capital gains (LTCG) tax and dividend tax on mutual fund schemes coupled with nervousness caused by sharp rise in bond yields weighted on the market.

Banking  

  • Recapitalisation will pave the way for public banks to lend an additional ₹ 5 lakh crores

Industries  

  • ₹ 7,148 crores allocated for textile sector

Social Security  

  • PM Jivan Bhma Yojana has benefited 5.22 crore families
  • Govt will expand PM Jan Dhan Yojana: All 16 crore accounts will be included under micro insurance and pension schemes
  • 1.26 crores accounts opened under Sukanya Samriddhi Scheme
  • Social inclusion schemes for Scheduled Castes – ₹ 52,719 crores
  • Social inclusion schemes for Scheduled Tribes ₹ 39,139 crores

Miscellaneous  

  • Emoluments for President set at ₹ 5 lakh, ₹ 4 lakh for Vice President, ₹ 3.5 lakh for governors
  • Emoluments for Parliamentarians: Law for increase in pay based on index to inflation
  • Govt earmarks ₹ 150 crore to commemorate 150 years of birth of Mahatma Gandhi
  • PAN to be used as Unique Entity Number for non- individuals from April 1, 2018.
  • Govt makes PAN mandatory for any entity entering into a financial transaction of ₹ 2.5 lakhs or more
  • National Insurance Co, Oriental Insurance Co and United Assurance Co to be merged into one entity and subsequently listed

So, the budget 2018 is largely focused on uplift of agriculture sector, along with major push to healthcare and education sectors in the country. The most recent updates are posted first.

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