Budget 2018: More Politics & Less Economics

Budget 2018: More Politics & Less Economics

Basic Considerations Kept in Mind for Analysis

The Budget 2018 should be analyzed keeping the following important aspects in mind:

  • This is Modi’s government and not of NDA or BJP, implying that we must attribute all good and bad to autocratic Modi only.
  • False propaganda, making big promises, creating innumerable acronyms and speaking blatant lies are major Modi traits.
  • Modi became PM based on a false image created about some great ‘Gujarat Development Model’. Modi has no reason to change his philosophy which has given him immense success and power till date.
  • Modi is nervous about coming state and general elections.
  • Modi knows that he has failed on the following promises:
    • Farmers’ state.
    • Job creation.

Statements: More Propaganda, Less Substance

Rs 5 lakh Medical Insurance Cover per Year for 10 Crore Families

If Modi can implement just this one scheme I would vote for him again in 2019. Seeing the past ‘jumlas’ of Modi I don’t believe that he has either the intent or the capability to deliver on this promise. It is a smart political move because it will be too great an exercise to obtain evidence about its failure! It will be a great topic for Modi’s “Mann ki Baat”!

Raising MSP to 1.5 Times of Production Cost

FM proposed to raise the MSP of all crops to at least 1.5 times that of the production cost, and announced the launch ‘Operation Greens’ on the lines of ‘Operation Flood’ to deal with price crashes in tomatoes, onions and potatoes. You will find a lot of literature on how it is not possible. Please don’t bother to analyze it in detail because Modi also knows that it is not possible. It is a simple big lie!

8 Crore Poor Women to Get Free LPG Connections

Modi will talk about it in “Mann ki Baat”. He does not care as to how well it is implemented. It makes political sense: ‘poor’ and ‘women’ both mean votes!

Eklavya Schools

By 2022 FM proposed that every block with more than 50% Scheduled Tribe population and at least 20,000 tribal people will have an Eklavya Model Residential School. Please don’t bother to know the details about the funds available or the implementation. It makes political sense. Modi needs ST votes.

MSME

Modi ruined the MSME sector with ‘demonetization’ and ill-executed GST. He is trying to atone for his sins by allotting Rs 3,794 crore to this sector in the form of capital support and subsidy. To answer questions like “if” and “how” of MSME revival will bring us to 2019 elections!

Restructured Bamboo Mission with a Fund of Rs 1200 Crore

The details of the “Mission” are unknown as yet. With an eye on elections in the North-East it makes political sense.

 

Modi Tries to Create Anti-Rich Image

Long term capital Gains above Rs 1 lakh to be Taxed at 10%

The markets have reacted negatively to this act as an immediate response. Overall it is a minor issue for the gainers. It does not affect the masses. It will have no major impact on the stock market as well. It gives Modi political benefit of appearing to be anti-rich.

Increase in Customs Duty

It is a protectionist policy, totally against what Modi said in Davos about India promoting free markets. Politically it appears to be an anti-rich policy and hence may give political benefits. Overall it is a regressive step.

Good Parts

Fiscal Deficit Target Breached

The fiscal deficit target of 3.2 % of GDP was breached and it was pegged at 3.5%. There is considerable criticism of this aspect from the opposition. I support this decision because I am convinced that government’s CAPEX has to be kept high to create jobs and improve infrastructure.

Corporate Tax of 25% Extended to Companies Having Turnover up to Rs 250 Crore

This is a good step to improve India’s rating as manufacturing hub. Modi kept the cap at Rs 250 crore because he is very scared of the ‘Suit-boot ki Sarkar’ tag.

Railways get Rs1.48 Lakh Crore

The railway budget is for capacity creation, including track doubling, gauge conversion and third and fourth line works and redevelopment of 600 railway stations. This is good and more would have been better.

Infrastructure Development

India will invest as much as Rs5.97 lakh crore in creating and upgrading infrastructure in the next financial year.

Infrastructure development has been one of the focus areas of the  Modi government. Starting with an allocation of around Rs1.81 lakh crore in 2014-15, expenditure towards infrastructure reached Rs4.94 lakh crore in 2017-18.

To raise resources, state-owned firms will access the equity and bond markets. The budget also levied a Rs 8 per litre road and infrastructure cess on imported petrol and diesel.

The government and market regulators have taken necessary measures for development of monetizing vehicles like Infrastructure Investment Trust (InvIT) and Real Estate Investment Trust (ReITs). The government would initiate monetizing select CPSE (central public sector enterprises) assets using InvITs from next year.

Disinvestment

The Centre has exceeded the disinvestment target of 2017-2018 and is expected to receive about Rs 1 lakh crore. The target for the next year is Rs 80,000 crore. This is a good performance.

Bad Part: Defence Budget

Defence Budget for 2018-19 is just Rs 2.95 lakh crore, a mere 7.81% hike over last year’s allocation of Rs 2.74 lakh crore. This is inadequate to support the required modernization and equipping requirements including border roads considering the twin China-Pakistan threat.

 

Conclusion

The focus on improvement of railways and infrastructure along with reduction in corporate tax are good steps.  Defence needs have been apparently neglected. There is not much substance in other aspects.

 

 

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