Budget 2018: Focus to be on farming sector, fiscal deficit and tax sops in the forecast

As the country awaits the Union Budget for 2018, speculation is rife over the announcements Finance Minister Arun Jaitley is likely to make on Thursday. This will be the last full-year Budget of the Bharatiya Janata Party-led National Democratic Alliance government before the Lok Sabha elections, which are currently scheduled for the summer of 2019.

There are several polls and opinions of analysts on what to expect from Budget 2018, all of which have some common expectations:

A Budget for the farming sector

Assembly elections are in the pipeline in eight states this year, so the government is largely expected to focus on the agriculture sector and rural programmes. At an event earlier this week, Jaitley had emphasised on the farming sector being the Centre’s top priority, which makes measures to improve productivity and revenue in agriculture highly probable.

Expectations are also high for a boost in funding for programmes aimed at rural India, such as the Mahatma Gandhi National Rural Employment Guarantee Act, better known as the MGNREGA, the Pradhan Mantri Awaas Yojana for housing, and schemes on crop insurance.

An increase in funding to improve infrastructure, including expansion of highways and modernisation of the Indian Railways, will also be closely watched as the Centre is expected to take measures to create more jobs and boost the dwindling economy.

Tax sops for the middle class

In Budget 2018, the Centre may come up with changes to income tax slabs and rates to lessen the burden on citizens, especially those in the middle class strata of society. In Budget 2017, the Finance Ministry had proposed reducing the rate of taxation from 10% to 5% on those in the Rs 2.5 lakh to Rs 5 lakh income slab.

The Budget could also come with news on the government moving ahead with its decision to replace the Income Tax Act with a new law on direct taxes. The Centre had formed a task force in November 2017 to draft the new legislation, which is aimed at making the system of both income and corporate taxes simpler.

Fiscal deficit

There has been much discussion on India’s widening fiscal deficit – the difference between expenditure and revenue. The government had already exceeded its fiscal deficit target for the current financial year – 3.2% of the Gross Domestic Product – in November 2017. The deficit in the April to November period was Rs 6.12 lakh crore, while the Budget 2017 estimate was Rs 5.46 lakh crore.

Chief Economic Adviser Arvind Subramanian’s Economic Survey 2018, which was tabled in Parliament on Monday, called for a halt in the government’s measures towards fiscal consolidation, which added to concerns about the widening fiscal deficit targets.

More tax talk

This year, the government has low scope to increase revenue through indirect taxes because of the Goods and Services Tax that was implemented in July 2017. It is the GST Council, and not the government directly, that now has the authority to levy indirect taxes, which make up about half of the total tax collections.

While analysts will watch out for announcements on the new tax regime, it will be the Finance Ministry’s decisions on corporate tax that will draw most of the attention in this segment of the Budget. After presenting his Economic Survey 2018, the chief economic adviser had said India cannot ignore the corporate tax cuts brought in by the United States and other foreign governments, explaining that they were needed to maintain competitiveness and attract foreign capital.

In his Budget for 2015-’16, Jaitley had proposed bringing down the corporate tax rate from 30% to 25% over four years.