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4 ways Budget 2018-19 affects economy according to RBI
The Union Budget for 2018-19 was presented by the Finance Minister Arun Jaitley on 1 February 2018. A month later, it was passed in the Parliament. With only a year before the general elections in the country, there were great expectations on the budget to be friendly to the people. The Reserve Bank of India (RBI) did an analysis of the budget in a new article published in the April 2018 monthly bulletin and here are the key highlights.
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Slippage in fiscal deficit:
The fiscal deficit estimate for 2017-18 was revised from 3.2% of the GDP to the current value of 3.5% of the GDP. Similarly, the Gross Fiscal Deficit (GFD) for 2018-19 is expected to decline by 0.2% to 3.3% of the GDP. This means that the proposed target of 3% of GDP has been deferred to 2020-21.
Fiscal deficit is the difference between the total revenue and expenditure of the government. It indicates how much the government needs to borrow to meet its requirements. Fiscal deficit is an important factor to consider. This is because India is viewed as a high debt and high deficit economy by rating agencies across the world. The high deficit means that there needs that the Indian central and state governments should coordinate to bring create deep fiscal readjustment in the future.
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Growth estimated in tax revenue:
Coming to capital receipts, the budget estimates an increase in gross tax revenue by 16.7% to 12.1% of the GDP. Factors such as the formalisation of the Goods and Services Tax (GST) and the widening of the tax base in the country mean that this is the highest budgeted tax-to-GDP ratio so far.
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Disinvestment:
Disinvestment is the process of selling or liquidating an asset or subsidiary. In this case, it refers to the sale of a government owned enterprise in order to reduce the financial burden of the government.
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Focus on agriculture and rural economy:
The budget laid heavy emphasis on the rural economy and agriculture. The Finance Minister emphasised the government’s commitment to double the income of farmers by 2022. For this to become a reality, the budget proposed new schemes and extension of already existing schemes such as:
- Minimum Support Price (MSP) for Rabi crops
- Affordable Housing Fund (AHF) to enable housing for all
- National Health Protection Scheme (NHPS)
In addition, the budget also focused on development of the social sector and the livelihood of senior citizens. Education programme called RISE (Revitalising Infrastructure and Systems in Education) was proposed to improve education infrastructure all over the country. The government pegged a total investment of Rs.1 lakh crore for the next 4 years towards this initiative.
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Rs 7.4 lakh crore
This is the amount of money that the government expects to collect during 2018-19 through GST. This is a 67.3% increase in GST collections compared to last year. The rise in GST collections would help to boost indirect tax collections to increase by 19.1% during the year according to government estimates.
