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Arun Jaitley's final budget: What's in store for you?

Neeraj Thakur | Updated on: 31 January 2018, 17:55 IST
(Arya Sharma / Catch News)

In less than 24 hours from now, Union Finance Minister Arun Jaitley would present his final budget for the five-year term that Narendra Modi's government got the mandate for. Last budgets are known for populism, especially in the kind of situation that Jaitley faces today.

He is supposed to deal with rural distress, attract investors to India, give relief to small and medium enterprises (SME) and create more jobs. Unfortunately, the fiscal position of Jaitley has worsened in five years, mainly because of uncertainity around collections from Goods and Services Tax (GST), rising inflation and crude oil prices in international markets. Moreover, he also faces the challenge to deal with the narrative of pro-rich government.

Here we list out the varous choices before Jaitley and their repurcussions on the Indian economy:

1) Farmers and their income: Despite several policy measures announced by the finance minister for the farm sector in his previous budgets, the condition of farmers in India has deteriorated. The Modi government is accused of suppressing farm prices to keep the middle class happy. While it has a target to double farm incomes between 2017 and 2022, a less than 2% growth in the sector in the first four years of the National Democratic Alliance (NDA) government raises doubts over Jaitley's ability to achieve this ambitious target.

Jaitley may resort to increasing farm sector allocations to an all-time high, with special focus on government procurement to ensure stable rise in the price of farm products. However, this policy has its own challenges as minimum support price and procurement goes to favour the farmers of only the North Indian region. He will have to come up with something new – if he really wants to address the concerns of this sector.

2) Taxing the rich: There are two ways to tax the rich. Introduce long-terms capital gains on stock market returns and tell the sons and daughters of the rich elites to pay tax on their inheritance. Both ideas, are abhorred by stock markets as these are the people who fuel invest account for the bulk deals in the assets traded on their platform.

Moreover, the only thing good about the NDA government in the realm of economy is the ongoing bull run in the stock markets. In case Jaitley shows the heart to tax the rich, stock markets may crash instantly taking away the only cushion his government enjoys in the face of rising criticism of a jobless growth.

3) The Small guys demand big sops: Demonetisation and GST have troubled the MSME sector the most. This sector accounts for 40% of India's workforce and contributes 45% to India's manufacturing GDP. Since the big corporates are not generating enough jobs in the country, it is important to provide sops to this sector. Of the many measures that needs to be take by the government to boost the MSME sector, the introduction of tax sops for creating jobs, as against the current practice of promoting investments, would be effective. This would ensure investment in labour intensive sectors by companies.

4) Export booster: Global growth is back on track. And this has improved prospects of India's export sector. While there is a separate policy that addresses the issues of the export sector in the country, this budget the government must increase the support for exporters of the country, who have struggled due to delay in the refund of input credit tax under the GST regime.

5) The middle class: This segment of the society has only one demand every year. To see reduction in tax rates. While Jaitley had introduced the 5% tax slab last year to make the middle-class happy, but in the absence of new jobs and rising inflation, an increase in the investment rebate (which currently is Rs 1.5 lakh per annum under section 80C) will go a long way in making this segment happy.

Edited by Joyjeet Das

First published: 31 January 2018, 17:55 IST
 
Neeraj Thakur @neerajthakur2

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