Budget 2018: After Finance Minister Arun Jaitley presented Union Budget 2018 on February 1, Motilal Oswal says that the government has blended pragmatic economics and electoral populism and delivered a budget that places Rural and Agricultural India at the center. In its budget note, the firm said, “The FY19 Union Budget was presented in the backdrop of elevated expectations of populism and handouts, given that this is the last full-year budget before the General Elections in 2019. With GST still settling down, the market was also anxious about the path of Fiscal Consolidation in an election year. Against this backdrop, the Finance Minister has blended pragmatic economics and electoral populism and delivered a budget that places Rural and Agricultural India at the center, without being profligate and without deviating much from the path of fiscal consolidation.”
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After providing a big boost to agriculture and rural infrastructure push by hiking of agricultural credit target for the next fiscal by Rs 1 lakh crore to Rs 11 lakh crore while aiming to increase farmers income by 1.5 times in Union Budget 2018, Finance Minister Arun Jaitley said that the government wanted to provide thrust to areas that need its support. Elaborating the infrastructure push, Arun Jaitley said that a lot of sectors do well even without any government thrust, and hence it was important to focus on priority areas. “The services sector is doing reasonably well, the manufacturing sector has seen increasing demand in the last few quarters. We need to focus on rural India, the rural construction has seen increased traction,” Arun Jaitley said.
Taking stock of the specific focus areas of the budget, Motilal Oswal said that while the MGNREGA allocations are stable, Healthcare has got special focus with the National Health Protection Scheme (but details are awaited). The firm also noted the introduction of LTCG tax on equities. The much-speculated Long Term Capital Gains Tax has been re-introduced but with grandfathering provisions till 31st January 2018, providing a relief to equity investors, it observed.
“Overall, while we are enthused with the focus towards rural incomes and in-turn consumption, emphasis on Education & Health, we believe the quality of fiscal spending could have been better (capital spending estimated to fall to 1.6% of GDP),” Motilal Oswal said in a note. Further, the firm said that the progression of monthly GST collections would have a significant bearing on budget mathematics given the assumed 19% growth in indirect tax collections.