The Union Budget of 2018-19 will be a breakout budget in many ways. It will be the first post-GST budget of India and the last full budget before the 2019 general elections. Since it is also the first budget after one of the biggest financial decisions- demonetisation, the expectations are also high. Also, it will be the fifth budget presentation in a row for Finance Minister Arun Jaitley.
While many believe that the upcoming budget will be populist as many states will go to polls this year. The politically important states include Madhya Pradesh, Rajasthan, Chhattisgarh and Karnataka. Apart from this the north Indian states Meghalaya, Mizoram, Nagaland and Tripura will also have elections this year. The Assembly Elections in Chhattisgarh, Madhya Pradesh and Rajasthan are important for BJP while the Congress will look out for the results at Karnataka, Meghalaya and Mizoram. The victory at Gujarat and Himachal Pradesh will boost the confidence of BJP. The supporters of the ruling front believe that budget will focus on welfare sectors to improvise the lives of people than false promises.
Coming back to the budget 2018, the country is looking eagerly at the speech of Finance Minister Jaitley on Feb 1. Can the rural sector expect something big from him especially at a situation when the efforts aren’t effective? Will the FM consider the struggles of middle-class in the upcoming budget? The MSME sector looks out for a boost in the budget as it is a job generator and contributes to the economy. The news that Global ratings agency Moody’s Investors Service upgraded India’s rating and changed its rating outlook to ‘Baa2’ (stable) from ‘Baa3’ (positive) has provided much relief and confidence to PM Modi and FM Jaitley.
Income Tax slabs to be revised?
Among the prospective side, it is believed that Budget 2018 will bring down the income-tax rates. Many point out that the government set up Arbind Modi (Member, Central Board of Direct Taxes) led panel to simplify income tax laws which were drafted more than 50 years ago is a decision in favour of this. The tax payers are hopeful that the panel will recommend direct tax laws in line with tax laws prevalent in other countries incorporating international best practices and keeping in mind the economic needs of the country. A reform in the income tax especially something like decision to hike personal tax exemption limit or to tweak the tax slabs will be a huge relief for the struggling middle-class. As per the reports, the proposals before the ministry is to hike the tax exemption limit from the existing Rs.2.5 lakh per annum to at least Rs.3 lakh if not 5 lakh. The decision will also help the government in assisting the individuals to get over the impact of retail inflation which is on the rise. Reducing tax rate on insurance premium is also on the consideration of government.
There are also reports on the government decision to abolish dividend distribution tax (DDT) which currently features an applicable rate of around 20%. As per existing rules, DDT is applicable to dividends distributed by mutual funds as well as other domestic companies that are desirous of distributing dividends to share holders. The abolition of DDT is expected to encourage companies announce higher dividends which would improve yields for investors. Considering the fact that Mutual funds as a sector didn’t got any considerations in any of the previous budgets by FM Jaitley, it is likely to happen. Moreover, the mutual fund industry has asked for the simplification of GST rules to ease implementation of GST for the mutual funds.
Besides individuals are also looking at Budget 2018 for bringing National Pension Scheme with an option to allow higher corpus to be withdrawn without tax implication. There is also widespread hope that there will be a decision to raise annuity rates for NPS. Separate tax exemption for term insurance, separate exemption for principal repayment on home loans, increase medical reimbursement limit are some of other aspects which individuals look out for in Budget 2018. However the government will be cautious on Corporate tax and chances are that it will be lowered by one or two percentage points although FM Jaitley in 2016 promised to lower corporate tax rate to 25% in 5 years. On the bleak side, the possibility of long-term capital gain tax may make a comeback. The profit from shares sold after a year, known as LTCG have been exempt from tax since 2005.
The NDA government, in the previous Budgets, has allocated huge sums of funds on the nfrastructure sector. Infrastructure development will be among the top priorities of FM Jaitley in the upcoming budget as well. As it could create job creation, the market experts believe that a package of incentives for infrastructure and labourintensive sectors will be announced in the Budget 2018. Textiles and garments, agriculture, transport, housing and skill development are some of the sectors will definitely get a higher allocation, believes them. The infrastructure sector is being pegged as the biggest growth-oriented sector in the next five years. Jaitley had also mentioned earlier that the focus of the government next year will be on the momentum of infrastructure creation.
FICCI (Federation of Indian Chambers of Commerce and Industry) had already lauded government’s decision to reduce GST rates on specified works contract pertaining to roads, bridge, tunnel or terminal for road transportation for use by general public and specified schemes. They also suggested government to consider reducing rates on ports, airports, metro,monorails from 18% to 12% to boost infrastructure development.
Another suggestion from FICCI is with regard to the non-performing assets issue in the banking system to revive the ailing infrastructure sector with fresh capital. On tax methodology on infrastructure creation, FICCI said that the Application of Book Value as the Fair Market Value of infrastructure (except in case of certain assets) leads to severe tax consequences.
Infrastructural development of the Railways could be a top priority. Already, the Railway ministry has asked for Rs.20 lakh crore investment plan for high speed corridors and other projects for the modernisation. The Bullet train project, in partnership with Japan, will need at least Rs.1.1 lakh crore of investment during the 2017-22 period.
Although several mega infrastructure development projects are running behind schedule like Delhi-Mumbai Industrial Corridor, Navi Mumbai International Airport, Nariyara coal-based power plant project, Polavaram irrigation project and Delhi Jaipur Expressway, the industry is hopeful that it will aid the growth of India. The big infrastructure projects like Sagarmala and Bharatmala may also get a share in this budget.
Financial services sector (Fintech)
Fintech or financial technology is an emerging sector in the financial services sector. In the last couple of months, the Fintech space has driven the Indian economy to a path of a more promising transformation and has also helped make digital payments a day-to-day reality developing the most evolved digital payments system among countries including the UK, China and Japan. Last year, India ranked second in the growth rate of fintech adoption among digitally active consumers across the globe.
The Indian Fintech sector is looking at Budget 2018 positively as they believe there will be a ustained push towards a digital-first economy. “The government has created crucial supplyside infrastructure - UPI, India Stack, eKYC, and Aadhar - but it must address demand-side concerns and continue to incentivise digital payments and their providers to help the ecosystem gain greater adoption and synergy,” says Alok Mittal, CEO & Co-Founder, Indifi Technologies Pvt Ltd.
Analysing the fact that the next impetus for growth in Indian economy is from small and medium sized businesses or MSME and startups, the Fintech companies which fuel MSME or startups to expand, grow and go digital will surely get a boost in Budget 2018. China’s remarkable growth in the last few decades has largely been driven by its massive disbursal of credit throughout the economy and its keenness to adopt and deploy new technology to optimise systems.
Reduction of GST rates
Different sectors has also approached Finance Ministry to reduce the GST rates. Solar industry had asked the government to reconsider the levy imposed on the solar panels in Budget 2018. The biodiesel industry has also raised their concern.