Key Themes Underlying Budget 2018

  •  3m
  • 0
  • 11 Apr 2023

Normally Union Budgets tend to be bracketed into typical classifications like reformist, populist, neutral etc. The Union Budget 2018 is significant in the sense that it will be the last full budget for the current government. But Union Budget 2018 will also be significant in that it will see some clear and actionable themes underlying it. Here are 5 big themes that we believe could underline the Union Budget…

Also read: Union Budget

1. Consolidate On The Reforms Process:

It would be too ambitious to expect big bang reforms in the forthcoming budget. The government has been aggressive in pushing through far-reaching reforms in the last 3 years. This is, perhaps, the time to consolidate on these efforts and ensure that each of these reforms gets a boost at implementation. For example, the GST is a great reform but it requires further tweaking of rates and simplification of process if it has to enhance productivity. The government has made a great start with demonetization but the next step is to boost digitization and curtail creation of black money. The Insolvency Code has forced bankers and borrowers to sit across the negotiating table but the focus this year has to be on recovering money and putting the banking sector back in shape. FDI has been substantially simplified but the next step is to focus on the quantity and quality of FDI. Union Budget 2018 is going to be all about consolidation of the reforms process.

2. Balance Growth And Fiscal Deficit:

This could be the big challenge but this is going to be one of the major themes of the budget. Fiscal deficit has already touched 112% of the full year target by end of November itself. That means the actual fiscal deficit for the current year could end up at around 3.7% instead of the budgeted 3.2%. While 50 basis points is the leeway the government enjoys, it should have a solid reason for exceeding the FRBM targets. The forthcoming budget has to justify that the additional fiscal deficit is actual going into purchasing higher growth. This counter-cyclical policy is acceptable and that could one of the focus areas of this budget.

Also read: Highlights of Union Budget 2019

3. More Money In The Hands Of The Middle Class; But No Inflation Please:

Retail inflation has moved up to 5.21% in December, nearly 121 basis points above the 4% targeted by the RBI. Higher inflation, combined with higher oil prices, has eroded purchasing power to a large extent. In addition, the government has cut the interest rates payable on small savings. To compensate for all these, the government could focus on sops for the middle class. This budget could focus on more exemptions and rebates leading to lower taxes and higher disposable income. Of course, all this will have to be done without stoking inflation. That means offering more productive avenues to deploy funds like expanding list of Section 80C products, increasing the limit of ELSS etc.

4. A Big Push For Rural Growth

The advance estimates for GDP have pointed to agriculture as the major problem area. If the government has to achieve the target of doubling farm incomes by 2022, then a big rural focus is a must. This budget could focus on rural infrastructure, rural roads, rural connectivity as well as a push for rural employment programs like the MNREGA. One can also expect major incentives for agri-support industries like agro-chemicals, fertilizers, hybrid seeds, drip irrigation systems, post-harvest infrastructure etc. The focus will be largely to improve rural income levels, reduce farm distress and ensure attractive MSPs for farmers.

5. Shifting The Focus From Monetary Policy To Fiscal Policy:

This could be a very subtle but highly significant theme for this budget. Since January 2015, the RBI has cut repo rates by 200 basis points. If you take the spread compression, the total reduction in bank rates is to the tune of 275 bps. With inflation at 5.21%, the scope for further rate cuts is limited. Also, the Fed is likely to hike rates 4 times in 2018 and the RBI would be loath to cutting rates in this scenario. That means the government will now have to rely on fiscal measures to spur growth. This budget could focus on fiscal measures like taxation, subsidies and public expenditure in a big way as a strategy to spur GDP growth. More importantly, this could also set the trend for future budgets.

Union Budget 2018 is likely to be based on some interesting themes. We could be in for some interesting fiscal times!

Also read: Union Budget 2019 vs. 2018

Read Full Article >
Enjoy Zero brokerage on ALL Intraday Trades
+91 -