An Analysis of the Union Budget presented by the Hon'ble Finance Minister of India

1. India - Union Budget F18
The economic survey and Union budget proposals have brought a feel good factor to
the economy after the deep impact of the demoentisation on the Economic performance
of India. There was an effort to address most affected segments of the society including
Farmers, SME’s and various measures were announced to ensure the development of
various sectors of the society.
The budget proposal has 10 distinct themes: Farmers; rural population; energizing
youth; poor and underprivileged; infrastructure; financial sector; digital economy; public
service; prudent fiscal management; and tax administration. Under each of this, detailed
action plans have to be drawn up and implemented faster with close monitoring of
implementation of these schemes.
A Consolidated outcome budget for all ministries has been created. Fiscal deficit for F18
is projected to be at 3.2% of GDP and Revenue deficit for F18 is projected at 1.9%. The
targets set are indicating the tight fiscal management.
There is a need to get back to 8% GDP growth and regain the growth momentum.
Despite, the projection for GDP in the budget is lower, there is always a scope to look at
measures which can take our economic growth back to higher levels.
One of the strategies stated in the budget is to use the data collected from
Demonetisation process to bring more assesses into tax net and increase the tax
collected from the existing assesses. Apart from using measures like VDS other
schemes and penalties, even by brining to the notice of assesses that from the data
government has the knowledge of the income, communicating the same to assesses
that they have to pay higher, the compliance of tax payment could be increased by
several notches.

2. The demonetization itself has brought the effects, which would have been realized if the
GST was implemented. Again, introducing GST in the proposed form, is likely to create
uncertainty in the environment and making the formulation of plans by Corporates.
The time frame for implementation of GST is very short and there is a need to build
capacity not only with corporates and even with suppliers to the large corporates. This is
a mammoth task and the government has to increase its reliance on professional
agencies for capacity building.
There is a Surplus liquidity in banking system now after demonetization and the Public
sector banks require further huge capital. The allocation of Rs.10,000 for
recapitalization is very less and the government has to consider allocation of at least
Rs.25,000 cr, which would help to raise additional Rs.2,25,000 cr through other sources
of funding.
There is a proposal in the budget to spend more in rural areas, especially for improving
the productivity of the farms and creating employment opportunities in other areas. This
is the need of the hour and under every crop, we should set an objective to reach the
best productivity of the crop in the world. This would help to increase the growth in
agriculture to at least 6% p.a. Farmer credit fixed at record level of Rs10 trillion, will
ensure adequate credit flow to underserved areas in India.
The Mission Antyodaya to bring 1 crore households of poverty is a good move and it will
increase the consumption levels in the Rural economy.
It is heartening to note that , the allocation to the MGNREGA is at the record level of
Rs48,000 crore and the participation of women now at 55% compared to less than 50%
in the previous year. This will also keep many families out of poverty line.
In India, education is one of the sectors which had contributed to the development of IT
and high tech sectors in India. There is an emphasis on Education and plan to
introduce System of measuring annual learning outcomes, emphasis on science

3. augurs well for skill development. Innovation fund for secondary education is again a
good concept.
Realty. The decision to give infrastructure status for Affordable housing and redefining
the scope to take carpet area of 30 Sq.m in four metros and 60 sq.m in other towns is a
good proposal , which will give a fillip to housing development.
Infrastructure. Now the government has decided to look at Transport sector in an
integrated manner and brought a concept of Railway tying up all other modes of
transport would bring down the logistics costs. Total allocation to transport sector at Rs2
trillion.
Total capex and development expenditure of railways is planned at Rs1.31 trillion and
lot of emphasis on Passenger safety. The government will set up a Safety fund corpus .
Railway lines of 3,500km will be commissioned compared to just 800 Km in the previous
year. There is also a plan to list the Railway related PSU’s , which will provide additional
funds from issue of shares to the public.
Roads . There is an Allocation for national highways of Rs64,000 crore and the road
development will increase the connectivity . There is also a plan to improve the rural
connectivity in a big way.
Civil Aviation. Airports Authority of India Act to be amended to enable monetization of
land resources.
Foreign Investment Promotion Board (FIPB) to be abolished. This is a good move and it
confirms the government’s intent to open more sectors for FDI. This will attract more
investors from abroad.
PSU’s. There is a plan to List PSUs which are not listed today and to create integrated
public sector oil major. PSUs have lot of assets and market value will be running into
many trillion of Rupees. Capitalisation of land available with PSUs have to be taken up
on priority basis.

4. SME’s. Under Pradhan Mantri Mudra Yojana: Lending target at Rs2.44 trillion. Already ,
lot of funds were disbursed under this scheme. Increasing the target, would help to
support the growth of SMEs.
Digital Economy. The intent of the government is very good. But trends across the world
indicate that even developed economies have high reliance on cash transactions to
support the economic growth. In India , the major entrepreneurial class is from the
Trading sector and their dependence of cash as a working capital is very high.
Restricting the cash payment to Rs.3 lakhs will constrain the trading activities in Tier II,
III, IV cities and rural areas. Further , we are still not fully ready with Cyber security
infrastructure to execute transactions on a country wide basis. In the light of the above,
in addition to promoting digital , even the cash economy requires support to keep our
economic growth at high levels.
Political funding. Maximum amount of cash donation that can be received is Rs2,000,
political parties can receive donations by cheques or digitally; amendment proposed to
RBI Act to issue electoral bonds, every party has to file returns within specified time.
This is a radical reform as far as electoral reforms and political reforms are concerned.
Personal income tax: Rate reduced to 5% for income bracket of Rs2.5-5 lakh, All other
categories to get uniform benefit of Rs12,500 per person and there is a proposal to levy
surcharge on income bracket Rs50 lakh-Rs1 crore.
FPI category 1 and 2 investors exempted from indirect transfer provisions is a good
proposal to keep the interest of foreign investors intact. As expected , the capital gain
treatment changes which would have affected the confidence of foreign investors was
avoided.
Concessional withholding rate will be extended to 30 June 2020 for ECB’s and rupee-
denominated Masala bonds. This will facilitate issue of ECB’s and Masala Bonds.
BUDGET F18:

5.  The Revised Estimate (RE) for Total receipts is Rs.19.33 trn, which was 0.92% lower than
the Budgeted Estimate(BE) and it was higher than the previous year by 8.96%. The
projection for F 18 is Rs.21.21 trn, a rise of 9.72% over the RE for F 17. The growth in
revenues were lower than the Nominal growth in GDP. The projection for Receipts is
also lower than the projected growth in Nominal GDP.
 The RE for Gross tax revenue for F 17 was at Rs.17.03trn, higher than the budget
estimate by 4.41% and 17.04% higher than the previous year. This was mainly on
account of the VDS scheme and the additional receipts arising out of Demonetisation
impact. The projection for F 18 is Rs.19.11 trn, a growth rate of 12.21% over RE of F17.
 After the share with the states, the revised net tax revenues in F 17 was at Rs.10.88 trn ,
3.22% higher than the budget. It was higher than the previous year by 15.3%. The
projection for F 18 is 12.27 trn, 12.27% higher . In F 17, the tax shared with the States
rose by 49.9% and it is likely to rise by 12.67% at Rs.5.57 trn.
 Due to poor performance of corporates, the corporate taxes were same as the
budgeted level at Rs.4.94trn. The assumption is that , it will rise by 8.83% YoY in F 17.
Budget for F18 is at Rs.5.38 trn, a rise of about 9%. Partly, the lower growth projected is
due to reducing the tax rate for SME’s from 30% to 25%.
 Taxes on income was at Rs.3.53trn, same as the budgeted levels in F17. They had
assumed an increase over the previous year by 23% in F 17. This has assumed a sharp
rise of 25% in F18 at Rs.4.41 trn. They have factored in the addition on new assesses in
the light of demonetisation impact. Through data mining and better administration,
they are planning to increase the revenue from this source by 25%.
 There was a talk about brining back the wealth tax. Since this will not be a large sum and
collection cost of the taxes would be higher than receipts, wealth tax was not brought
back .

6.  In Customs, the revenue was lower than the budget by 5.65% at Rs.2.17trn and higher
than the previous year 3.33%. This was mainly on account of lower trade growth in the
world and the softening of import prices and export prices. The growth projected for F
18 is 12.9%, at Rs.2.45 trn. Since trend witnessed today is one of protectionism by many
countries, there is a risk that , the growth projected of 12.9% may not come true. The
rise in oil prices, will contribute to higher customs duties.
 On Excise, they were planning to collect Rs.3.87 trn. against the BE of Rs.3.18 trn and
34.3% higher than the previous year. The high rise in excise duty was mainly on account
of increased excise rates on petroleum products. When we had witnessed low prices in
imported Petroleum products, all the savings was not passed on to the customers. The
government retained part of the savings in the form of additional excise duty. In F 18,
they expect Rs.4.07 trn, a rise of 5.16% over RE of F 17. Since , the oil prices started
rising and likely to be firm in the coming year, the scope for mobilising additional excise
duty from Oil is limited.
 Service tax collection was higher than the budget by 6.9% at Rs.2.47trn. It was higher
than the previous year by 17%. The projection for F 18 is Rs.2.75 trn, 11% higher than
the previous year.
 Revised Interest receipts by the government was lower than the previous year at
Rs.28.5% at Rs.18149.03 cr in F 17 and it was 39% lower compared to the budget
estimate of F17.Projection for F18 is at Rs.19020.73 cr. The growth expected on this
count is only 4.7% over the previous year.
 In F 17 , they had assumed receipt of dividend of Rs. 1.53trn and it was higher by 23.4%
over BE. This was higher than the F 16 by 36.6%. Dividends have contributed a
significant share to the overall kitty. If the amount of old currencies received by RBI
were lower by Rs.2 trn as was expected, through special dividend, this could have been
much higher in F 17. In F 18 the assumption is that Rs.1.42 trn, a rise of 7.19% over RE of
F 17.

7.  Other non tax revenues. This includes Sale of air waves and disinvestments. The revised
plan for F 17 was Rs.1.61trn, 3.5% lower than the budget and 43.3% higher than the
previous year. The budget for F 18 is Rs.1.25trn, 22% lower than the previous year.
 They had assumed revised ,miscellaneous capital receipts of Rs.45500 cr, a drop of
19.4% over the F 17 budget and 8% higher than the previous year. Estimate for F18 is at
Rs.72500 cr.59% rise over the last year. This is a significant increase.
 Resources from Market loans In F 17, it was lower than BE by 18.3% and 14.1% lower
than the previous year at Rs. 3.47 trn. In F 18, it is assumed to be same at Rs.3.48
trn.level. Revised Short term borrowings in F 17 was lower than F 16 by 63.2 % at
Rs.18629 cr. It was higher than the budget by 11.89 %. The plan for F 18 is a reduction of
89.2% and the plan is to mobilise Rs.2002cr.
 The government internal debt at the end of F 17 is likely to be Rs.57.31 trn and it is
expected to rise to Rs.61.80 trn. External debt will rise from Rs.2.25 trn to Rs.2.40 trn.
 Total liabilities of the government is expected to be Rs.74.40 trn at the end of F 17 and
likely to rise to Rs.79.63 cr.
 The revised amount raised through securities against small savings in F 17 was higher
than F 16 by 72.2% and budget by 309% at Rs.90376 cr. There is a plan to increase this
to Rs.100157 cr , 10.8% higher than F 17. They have kept the borrowing to the lowest
possible level and emphasis on loans as a major source of funding is less.
 Other Capital receipts in F 17 was revised at Rs.9948cr . In F 18 , it is likely to be higher
by 438% at Rs.53513 cr.
 In the expense category, Central expenses were likely to rise to Rs.16.16trn.from BE of
Rs.16.01 trn., 11.5% rise over the last year. Budget for F18 is at Rs.17.23 trn, a rise of
6.62%. The increase projected for expenses is very low indicating that, the government
will rely on working closely with State Governments and private sector.

8.  Expenses through transfer of funds in F 17 was revised to Rs.3.97 trn, 5% higher than
the budget. It was higher than the last year by 16.4%. There is an assumption of
increase and this is expected to be at Rs.4.23trn in F 18. They do not expect a big
benefit from DBT and direct transfer scheme as the reduction is not substantial.
 Total Expenditure for F17 is revised at Rs.24.21 trn, 1.89% higher than the BE. It was
higher than the previous year by 15.17%. Estimate for F18 is kept at Rs. 25.32 trn,
4.58% higher than RE. This indicates, there has to be an austerity drive as far as
expenses are concerned.
 In terms of assets at the end of F 17, the value is likely to be Rs.21.38 trn and it is likely
to rise to Rs.23.39 trn. From the details given for various categories, it appears that the
value of assets of the government of very much undervalued and they are at historical
costs. If the strategy of capitalising the assets and increasing the credit rating of the
country, there is a need to revalue the assets closer to the market rates.