Budget 2018: In many ways this Budget 2018 was a surprise. There was a general speculation on the usual issues like tax limit for salaried employees and tinkering with commodity tax rates. The FM has bypassed such issues. While a standard deduction of Rs 40,000 addresses the first issue, a post-GST Budget implied that tinkering with the indirect tax was ruled out. As expected, this has been a typical election year Budget 2018 with top concerns like farmer distress and unemployment. The first seems adequately dealt with as almost all the proposals relate to the agricultural and rural areas from housing for the poor, healthcare provisions, education and so on. However, in this article, I will try and focus on what could be the employment-related measures in the Budget 2018.
As is now well known, only about 10% of employment is in the organised sector covered under usual laws. The Budget tries to indirectly promote employment in the rest of the economy with a series of measures. For one, fixed-term employment has been extended from the apparel sector to all sectors, implying that all industries can hire contractual workers and bypass contractors. This is a good feature as the latter are known to short change workers in both wages and benefits. In addition, particularly for smaller companies, the cost to companies is partially taken up by the government which has agreed to contribute 12% (employer’s contribution) of wages for all employees as part of the EPF. This is important as the EPF represent both savings and future pension of workers. ‘
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However, while thus indirectly incentivising employment in the private sector, the Budget also provides employment possibilities by reducing the corporate tax on MSMEs to 25% for all establishments with a turnover less than Rs 250 crore, thus extending the tax benefits available so far only to micro industries with a turnover of less than Rs 50 crore. These measures are likely to cost the government about Rs 7,000 crore. For MSMEs (the largest employer in the non-agricultural sector), the Budget also attempts at promoting employment in the rural sector. It is well known that on an average about 40% of farmers are there due to lack of alternative income options. It is not then surprising that the average income of farmers has been declining over time. It was imperative to provide non-farm employment if “urban slums” are not to become a feature of our metros.
The Budget does this by promoting non-agri employment in new areas like animal husbandr and agri exports. In the case of the latter, it is expected that liberalised agri exports could touch $100 billion from the current around Rs 30 billion. Finally, especially in the rural areas, employment incentives are combined with measures of health insurance, housing and education to at least reduce the rush to urban slums. There is no doubt that the Budget does address the employment issue, both directly and indirectly. This is a crucial election year imperative. However, the fine print and the coming months will determine the implementation issues which have bedeviled all such efforts in the past. Particularly in the case of the agricultural sector, it is now over to the states.
-Manoj Pant (Professor of economics and dean, SIS/JNU)