Budget 2018: Just six days are left. On February 1, Finance Minister Arun Jaitley will present the last full Budget of the present government. As much as it crucial because there are eight state elections in 2018 and the General Election in 2019, it is also the first post-GST Budget. Here are the challenges before Arun Jaitley.
Budget 2018: Just six days are left. On February 1, Finance Minister Arun Jaitley will present the last full Budget of the present government. As much as it crucial because there are eight state elections in 2018 and the General Election in 2019, it is also the first post-GST Budget — with its own increased challenges and decreased kick of “what got cheaper; what got dearer”. On the Union Budget, India is divided — some say it would be populist, some reformist, some other say it would be balanced, while some simply want previous promises to be fulfilled.
According to the DBS Group, ahead of a busy state election calendar and general elections in the mid-2019, Arun Jaitley faces a daunting task of lifting growth after structural reforms, yet, pursue fiscal consolidation. The DBS Group also said that a fiscal slippage in the financial year will likely result in the government opting to go for a wider gap for 2018-19 in the upcoming budget.
“In the run-up to the 2019 Lok Sabha elections, states including Rajasthan, Madhya Pradesh, Chhattisgarh and Karnataka are due for polls in 2018. Inevitably, it would be the popular voters’ sentiment that would be factored by the Centre and the state governments in their policies,” Assocham said.
The Budget 2018 comes against the backdrop of the fear of minor fiscal slippage from the 3.2% target of the Budgetary allocation, along with rallying crude oil prices on the global front. Here are the challenges before Arun Jaitley.
DeMo, GST and the GDP growth: Ahead of the Budget 2018, government’s advance GDP data showed India’s economic growth at 6.5%, the lowest growth rate during the Modi government. Despite, global slowdown, FICCI says, that India managed to exhibited resilience. However, even as the structural reforms — the GST and demonetisation — are going to ease out over the next few quarters, Arun Jaitley should work to improve purchasing power and create additional demand. FICCI suggests this can be done by easing the 30% Income Tax Rate.
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Private Investment: The private domestic investment cycle that continues to remain weak. Corporate investment has slowed down from a peak of 15% of GDP in 2007-08 to around 11% of GDP since then. The slowdown in private investments is corroborated by the slowing credit growth to the private sector. The change in real credit to the private sector which earlier was over 10% of GDP has slowed down to under 5% of GDP. The twin balance sheet problem – overleveraged corporate balance sheets and bad loans on bank balance sheets – has been deterring investment revival.
Additional Cost: The Union Budget 2018 comes at an additional cost of the fiscal stimulus plan for road infrastructure and bank recapitalisation announced recently. The Budget 2018 needs to absorb this additional cost. There are at least eight major reforms implemented by the government in 2017-2018, which are going to dictate government’s revenue and expenditure in the FY19. These reforms are Goods and Services Tax, Real Estate Regulation Act, PSU disinvestment, Banking Regulation, Bank consolidation, Bharatmala Prariyojna, Bank recapitalisation, Saubhagaya Yojna.