Some Populist Steps Expected for Various Sectors in Budget 2018

The Budget 2018-19 will be the last full Budget before the Lok Sabha elections in 2019. Also before the said elections there will be assembly election in eight states in 2018 namely Meghalaya, Tripura, Nagaland, Karnataka, Mizoram, Chhattisgarh, Madhya Pradesh and Rajasthan. As a result both Political compulsions and opportunism is expected to play out in the Budget 2018-19. Although keeping in mind the fiscal compulsions and recent statements made by Finance Minister Arun Jaitley and also Prime Minister Narendra Modi himself it is given that the Budget 2018-19 is not going to be overly populist in nature. During a recent media interaction Prime Minister Narendra Modi has stated that the common man doesn’t want freebies and sops and that his government is committed to reforms, fiscal targets and prudence. Elsewhere he has also stated that he isn’t sure whether corporate India will like him after the Budget 2018 or not. Having said that the results of the recent Gujarat assembly elections indicated electoral losses for the government due to rural distress; thus to address the said issue and to reward people for shouldering the pain of demonetization and other reforms some populistic measures are expected in the Budget 2018. Some expected measures are listed below.

Cut in Personal and Corporate Tax Rates – It is widely expected that there would a revision in the tax slabs and an increase of exemption limit for personal income tax in the Budget 2018. Tax exemption limit which is currently 2.5 Lakhs is all but expected to be made 3 Lakhs. Industry leaders from various sectors and bodies such as CII and FICCI have also recommended that said step to the FM to increase disposable income of the middle class to fuel demand and growth. Other that raising the tax exemption limit existing tax slabs may also be tweaked to provide relief to tax payers. Corporate India is also optimistic that the corporate tax rate may see a cut from the current 30% to 25%. But given the recent statements by the FM and fiscal challenges the said move may or may not be made by the government in the Budget 2018. Some corporates may receive some tax relief and incentives though.

Other Tax Sops – Some other tax sops for individual tax payers are also expected in the Budget 2018. At present a maximum tax benefits of 1.5 Lakhs is allowed under Section 80C on various tax saving schemes such as PPF, EPF, ELSS, NSCs, life insurance and more. This said is also expected to be raised by 50000 so that individuals can avail deduction of a maximum of 2 Lakh rupees. An increase in the limit of deduction for medical insurance and health checkups under Section 80D is also expected. Additional tax benefits on insurance policies and investments in to mutual funds has also been desired by the insurance and finance sector but will the FM heed to their demands is something we have to wait and see.

Pensioners and Senior Citizens – Pensioners and senior citizens have emerged as a big block of voters and it is quite likely that the government will try and woo them with sops. In the Budget 2018 the Government is expected to make retirement benefits as tax free. Higher tax exemption for pensioners and senior citizens is also on the cards in the Budget 2018. It is believed that the government is seriously considering a proposal made by MP Shashi Tharoor that pension up to Rs 5 Lakhs should be made tax free. In the Budget 2018 there also may be sops for early retirees between the age of 55 and 60. Easier tax compliance through separate process and grievance redressal system is also believed to be under review.

Increased Spending on Social Causes – Increased public spending on healthcare, social welfare, education and housing for the poor will most likely also find its way in the Budget 2018. More fund allocation for establishment of hospitals, schools and colleges is expected in the Budget 2018. Government may also opt for public-private partnership to execute various projects in the said sectors. Building of quality public health infrastructure is likely to get focus in the Budget 2018.

Sops for Rural India – Due to the slip in performance in rural Gujarat in the assembly elections, expect a renewed attempt to woo rural India again in the Budget 2018. The upcoming budget is also expected to focus on the government’s flagship program on doubling the farmers’ income by 2022. Thus sops to address rural and farmer distress covering issues such as fair price for farm produce, better rural infrastructure and housing, easier access to markets are also most likely to be addressed in the Budget 2018. 

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