A sort of masterstroke : The Tribune India

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A sort of masterstroke

This Budget of 2018-19 needs to be seen within the parameters of some important determinants, including (i) little scope for enhancement in indirect tax, except custom duties because it is no longer in the purview of the government, (ii) people expected some exemptions and lowering of tax slabs, (iii) the government committed to bring down the fiscal deficit, (iv) increased liabilities in terms of salaries, pensions, gratuities, interest payments and other committed expenditure ,and (v) lingering slowdown of the economy due to demonetisation and hasty implementation of the goods and services tax (GST).

A sort of masterstroke


SS Johl
Chancellor, Central University of Punjab

This Budget of 2018-19 needs to be seen within the parameters of some important determinants, including  (i) little scope for enhancement in indirect tax, except custom duties because it is no longer in the purview of the government, (ii) people expected some exemptions and lowering of tax slabs, (iii) the government committed to bring down the fiscal deficit, (iv) increased liabilities in terms of salaries, pensions, gratuities, interest payments and other committed expenditure ,and (v) lingering slowdown of the economy due to demonetisation and hasty implementation of the goods and services tax (GST). On the other hand, impending elections in eight states and the General Election in 2019 demand an all-sectors pleasing Budget. Within these constraints and expectations, the Budget has done a reasonable balancing. The main focus is on agriculture, health, education and infrastructure as well as employment generation. 

In the agriculture sector, the minimum support price for kharif crops (the next paddy season) has been increased to 150 per cent of the cost of production. This step has fulfilled the election promise of the BJP, though in the last year of its term. This will be de facto applicable to rice crop only because this is the only crop that the government procures in the kharif season in addition to cotton which is purchased by the Cotton Corporation of India for government mills. This will surely meet the pending demand of the farmers' organisations. Yet, one aspect of this step is that 84 per cent of the farmers in the country are small and marginal farmers. They have not much to sell and some 25 per cent of them resort to distress sales in the post-harvest season and have to buy the same product in the lean period at a higher price. This will certainly benefit farmers, but only the medium and large ones. If this is the approach for doubling the farm incomes, the Budget could adopt MSP at 200 per cent of the production cost! So easy, isn't it!! Also, agricultural commodities have to be consumed by the people. The question is: will the purchasing power of the consumers increase correspondingly to buy these products at these higher prices? 

An important positive provision for the agriculture sector is the complete tax exemption on agricultural produce processing. This will lend value addition to the produce and create substantial additional employment opportunities in the rural areas. It would have been further beneficial for generating gainful employment opportunities, enhanced incomes and removal of socio-economic stress if setting up of other SMEs and agricultural service centres in rural areas were also given reasonable tax exemptions. Subsidy on handling the pollution emanating out of burning of stubbles and crop residues is long-awaited step taken in the right direction. Setting up of mega food parks will certainly promote the much-needed diversification, though partially, replacing the environment-damaging and water-guzzling rice-wheat crop rotation in Punjab and parts of Haryana. Recognition of farm producer companies/ societies for 100 per cent tax exemption, e-markets, and export liberalisation are also the steps in right direction. 

Given the constraints and expectations due to impending elections this year, the Budget can be rated as reasonably good. It is oriented towards improving and enhancing the infrastructure of roads, Railways track improvement and expansion and safety, ports, airports, helipads, fast tagging etc and opening of new hospitals, health centres, medical insurance as well as improving education. The Budget is, by and large, people-oriented and vote-bank friendly. Although, as per the roadmap delineated by this government, the fiscal deficit should have been reduced to 3.0 per cent of the GDP, keeping in mind the fundamentals and need of boosting the economy, the fiscal deficit has been pegged marginally higher at 3.3 per cent of the GDP. That is somewhat justified in view of the recommendation of the expert committee to keep the debt-GDP ratio below 40 per cent. In a nutshell, every segment of the society has been given something to rejoice. Also, along with being development oriented, it is vote-bank friendly.

A farmers’ Budget

Kharif crops' MSP hiked to 1.5 times of the cost of production 

  • Applicable to rice crop only.
  • Will benefit only the few medium and large farmers as 84 per cent of our farmers are small and marginal and they don't have much to sell.

Full tax exemption on agricultural produce processing

  • Will lend value addition to the produce.
  • Will create job opportunities in rural areas.
  • Other SMEs and agricultural service centres in rural areas should also have been given reasonable tax exemptions for removal of socio-economic stress.

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