As is tradition, the Union Budget of India for the fiscal year of 2018-19 was presented on the 1st of February and wow, what a vitriolic reaction from the public. If one were to only consider social media posts and memes, this budget is a sadistic joke at the expense of middle class tax payers, but as is the case with most viral social media posts, they only paint one side of the story.

The budget should not be judged on just one particular point, of course not every policy would satisfy each and every citizen. That being said, let us look at some key takeaways from this year’s budget and try to understand what they mean in context of the economy.

  • A reduces tax rate to 25% for companies who have a reported turnover of up to Rs 250 crore. This will benefit the entire MSME (Micro, Small and Medium Enterprises) sector, which accounts for 99% of the companies filing their tax returns.
  • Long-term capital gains on listed equity shares exceeding Rs one lakh to be taxed at 10%; gains grandfathered till 31 January 2018.
  • 100% tax deduction for farmer produce societies for five years; will also encourage Operation Green. A good move to promote farming and improve the overall atmosphere especially since so many farmer suicides have been reported in recent years. Huge relief for them.
  •  Income from capital gains in real estate: no adjustment when circle rate does not exceed 5% of considerations.
  • MSMEs: Benefit of reduced 25% corporate tax rate extended to firms with turnover of Rs 1.25 crore.
  • Customs duty to be increased to 20% for mobile phones.
  • To abolish education cess on imported goods and instead place social welfare surcharge of 10%.
  • Tax sops for senior citizens: interest on fixed deposits above up to Rs 50,000 exempted. A good move to take care of the elderly.
  • Higher medical reimbursement and travel allowance limit at Rs 40,000 for salaried taxpayers. Definitely a bad move.
  • Three public sector insurance companies—The Oriental Insurance Company Ltd, National Insurance Company Ltd, United India Insurance Company Ltd— will be merged into a single insurance company and listed.
  • Emoluments for Members of Parliament. Allowances would be revised from 1 April 2018; automatic revision every 5 years indexed to inflation.
  • Emoluments of President, VP to be revised to Rs 5 lakh and Rs 4 lakh per month respectively; Rs 3.5 lakh for governors.
  • Regulated gold exchanges; gold monetization scheme to be revamped.
  • Introduction of e-governance initiatives in central ministries.
  • To allow strong Regional Rural Banks to raise capital from market.
  • Railways Capital Expenditure pegged at Rs.1,48,528 crore.
  • 4000 kilometers of electrified railway network slated for commissioning.
  • Work on Eastern and Western, dedicated freight corridors.
  • Over 3600 km of track renewal targeted in current fiscal.
  • Redevelopment of 600 major railway stations.
  • Mumbai’s local train network to have 90 kilometers of double line tracks at Rs.11,000 crore cost.
  • 150 km of additional suburban network planned for Mumbai.
  • Suburban network of 160 km at for Bengaluru metropolis.
  • Major thrust for Medium, Small and Micro Enterprises (MSMEs) – allocation at Rs. 3794 crore.
  • Target of Rs.3 lakh crore for lending under MUDRA Yojana.
  • 70 lakh formal jobs to be created this year.
  • Govt to make 12% contribution of new employees in the EPF for all the sectors for 3 years.
  • Outlay of Rs.7148 crore for the textile sector.
  • Increase budgetary allocation on infrastructure for at Rs.5.97 lakh crore.
  • To develop 10 prominent tourist sites into Iconic Tourism destinations.
  • 35000 kms road construction in Phase-I at an estimated cost of Rs.5,35,000 crore.
  • To expand airport capacity more than five times to handle a billion trips a year.
  • Regional connectivity – 56 unserved airports and 31 unserved helipads to be connected.
  • To establish unified authority for regulating all financial services.
  • NITI Aayog to initiate a national program to direct efforts in artificial intelligence.
  • Department of Science & Technology to launch Mission on Cyber-Physical Systems.
  • Allocation doubled on Digital India programme to Rs 3073 crore.
  • To set up 5 lakh wifi hotspots to provide net-connectivity to five crore rural citizens.
  • Rs. 10000 crore for creation and augmentation of telecom infrastructure.
  • Development of two defence industrial production corridors.
  • Minimum Support Price for Kharif crops fixed at 150%.
  • Estimated budgetary expenditure on health, education and social protection at Rs.1.38 lakh crore.
  • Ekalavya Model Residential School to be set up for tribal children.
  • Investments for research & infra in premier educational institutions at Rs.1 lakh crore in next 4 years. Allocation on National Social Assistance Programme at Rs. 9975 crore.
  • World’s largest government-funded health care programme titled National Health Protection Scheme announced.
  • NHPS to cover over 10 crore poor and vulnerable families (approximately 50 crore beneficiaries).
  • NHPS to provide coverage up to 5 lakh rupees per family per year for hospitalisation.
  • Rs 1200 crore for the National Health Policy, 2017 – additional Rs.600 crore for TB patients.
  • 24 new Government Medical Colleges and Hospitals.
  • Clean Ganga: Of 187 projects have been sanctioned, 47 complete.
  • Banks of Ganga declared open defecation free.

COMMENTS

An okay budget, with the cap on higher medical reimbursements and travel allowances sticking out as a sore thumb. Such things should not be capped at such a low value. Most people don’t even use it, but when the situation arises, Rs 40,000 isn’t gonna cut the cake. Healthcare is a big priority for the people these days, and the government would probably not get away with it. The proposal to revise the salaries of public servants is also not helping their case.

A lot of pro poor and pro farmer policies. A lot of rebates for farmers. This comes as a bit of a surprise since BJP has always been known as the urban pro business political party which supposedly couldn’t connect with the plights of the poor rural man. Not sure if this is going to help them with the 2019 elections, but if these policies actually do go on to improve the situation of farmers, then I’ll be a happy man.

Long term capital gains will now be taxed at 10%. So if you are sitting on a pile of great capital gains, now is the time to sell. Needless to say this announcement threw the stock market into a frenzy with the SENSEX plummeting 300 points just as the announcement was made. A good move to increase tax returns. A bad move if you want to promote stock market participation in the country.

A lot of things planned for the social welfare and education sector. Again, schemes very beneficial for the poor, but not so much for the higher classes. Aimed at bringing down the class divide, but only a smooth implementation and timely founding of the proposed institutions would set things in motion.

As far as railways is concerned, a lot of the budget is allocated to repair work. Local train networks in Mumbai and Bangalore to be improved with the addition of new tracks added into the network. Aimed at improving the traffic situation in these cities. A good move indeed.

Ever since demonetization, a lot of focus has been put on going cashless. This is reflected in this year’s budget too with the plan to improve the AI network, which could work wonders for large systems such as banks and the IRS. Also, a sizable funding towards building better internet connections in rural areas is also a welcome move.

I am pretty sure I have missed some things about the budget. Please remind me in the comments section. I’d love it if this post could be as complete as possible. Want to discuss a particular policy? Do tell about it too!

Much love,

–SG