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  1. Budget 2018: Four key macroeconomic expectations from FM Arun Jaitley

Budget 2018: Four key macroeconomic expectations from FM Arun Jaitley

Budget 2018: As India eagerly awaits Union Budget 2018, Finance Minister Arun Jaitley has the daunting task of managing the country’s fiscal prudence, and at the same time provide relief to the sectors which have been impacted by structural reforms.

By: | Published: January 27, 2018 7:00 AM
Budget 2018: Finance Minister Arun Jaitley may look to tap fiscal policy, ie. use taxation and policies relating to public expenditure to spur GDP as against monetary policy tools such as using interest rates. (Image: Reuters)

Budget 2018: As India eagerly awaits Union Budget 2018, Finance Minister Arun Jaitley has the daunting task of managing the country’s fiscal prudence, and at the same time provide relief to the sectors which have been impacted by structural reforms. In the upcoming Union Budget 2018, the first after the implementation of GST, while Finance Minister Arun Jaitley may not tinker around much with the different indirect tax heads, as any decision on indirect tax on goods and services is now taken by the GST Council, the budget may still address key issues relating to GST. The government could rely on non-budgetary sources of funding to fund the government’s ambitious programs in railways, roadways and waterways. We take a look at key macroeconomic expectations from upcoming Union Budget 2018.

Shift from monetary to fiscal policy

In the upcoming Union Budget 2018, Finance Minister Arun Jaitley may look to tap fiscal policy, ie. use taxation and policies relating to public expenditure to spur GDP as against monetary policy tools such as using interest rates. “This budget could mark a decisive shift from monetary policy to fiscal policy as a means of spurring GDP growth. With global central banks likely to hike rates, there may be little scope for the RBI to cut rates. Hence this budget could focus in a big way on reducing the tax burden for the middle classes and also to use government expenditure in infrastructure and farm incomes as a means of giving a big push to growth,” Angel Broking said in a recent note.

Watch Video: FM Jaitley can reduce corporate tax to 25%

Small savings rates

The government has reduced the interest rates on PPF as also on RBI bonds. Finance Minister Arun Jaitley will look to ensure that the vast middle class and the senior citizens at least end up being purchasing-power neutral, say analysts. “We could also see the special tax status to a lot of these instruments withdrawn to prevent distortion of the yield curve. So, a lot of conservative middle-class investors could end up losing out on returns. The government will be conscious of this fact as it goes into the Union Budget. Expect special sops for senior citizens and a bigger tax exemption for NPS. Also limits under Section 80C and Section 24 could be enhanced; as also the limits on Section 80D,” Angel Broking said.

Focus on rural expenditure

Finance Minister Arun Jaitley will look for ways and means to augment employment generation in rural areas, say top market voices.”Agricultural growth continued to drag the GDP estimates and the government appears to be way off its goal of doubling farm incomes by 2022. Expect a variety of reforms in the budget. Expect a big push to rural employment generation programs and a big thrust to rural infrastructure. Expect more decisive policy action on agriculture pricing, agri imports and agri exports. There could be positive announcements for support services to prop up farm incomes like fertilizers, agrochemicals, hybrid seeds, drip irrigation systems etc,” Angel Broking noted.

Also read: Budget 2018: Will agriculture income be brought under tax net? Here’s what top fund managers say

Infrastructure spends

It is expected that the government will continue to provide the much needed infrastructure boost, to put the country on the path of growth. Finance Minister Arun Jaitley had earlier pointed out that the government has increased its allocation to infrastructure. “In recent time, the government has increased infrastructure spending”, he said, adding the Budget 2017-18 made allocation of Rs 3.96 lakh crore for infrastructure sector. India needs to spend at least Rs 50 lakh crore in next five years through the year 2022 to develop infrastructure, the country will see close to Rs 3,000 crore investment per day, according to a recent CRISIL report.

 

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