23 June 2018

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Budget 2018 Review -The Winners and the Losers

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Considering that the Indian economy is reeling under a 1 lakh crore deficit due to GST tax cuts on more than 200 products, low tax collections since November, less than the anticipated dividend, a decrease in telecom spectrum revenue, rising fuel prices, excise duty cuts on petrol and diesel. Moreover, the exports grew slowly at a steady rate of 12 percent a month while private investments have reduced from 2014-15 to 8-lakh cr. Farmers were unable to get remunerative prices for their produce and the agriculture was reeling under distress.

Did the Budget meet your expectations? Well, not really. There were a few hits and misses. The Union Budget 2018 was an election budget where the Indian middle class was left out while the salaried class and investors were left disappointed. The budget focuses more on the rural economy, farmers, healthcare, education, and infrastructure.

The MD & CEO, Yes Bank Rana Kapoor said, “In the framework of past reforms concluding into early green shoots for savings, a sincere increase in provision for infrastructure by 21% with an increase of corporate tax relaxation for MSMEs, a chiseled emphasis on creating livelihood in agronomy and rural sectors through new Operation Green and National Health Protection schemes, inducements to augment employment in labor-intensive sectors of textile, leather and footwear will ensure a robust consumption and investment push in FY 2019.  In addition, the global economy directed renewal in exports will really let India’s growth become multi-dimensional hereafter. The fiscal strategy appears to channelize expenditure to sectors that have the potential to maximize backward and forward links in the economy through capacity augmentation and job creation.”

The Hits and Misses of the Union Budget 2018

SME’s and MSME’s: Companies with a turnover of less than Rs 250 crore in FY 2017 would now pay tax at 25 percent instead of the 30 percent they paid before. This move could benefit the micro, small and medium scale businesses; however, there was no relief for large-scale businesses. Around 20.3 percent companies from more than 4000 listed companies stand to gain from this change in taxation. According to the KPMG, the maximum tax rate for businesses with a turnover of more than 250-cr will be 34.61 percent. The budget did not mention any tax benefits for startups and IBC companies. The government also allocated Rs 3,794 crore to provide credit support, capital and interest subsidy, and innovations in the MSME sector.

Healthcare: The finance minister announced a Universal Healthcare Scheme where 10 crore families would be included under the family floater insurance to the tune of Rs 5 lakh. What remains to be seen is how this scheme would be executed and whether they do help the poor families.

Airports: The budget provided for regional airport construction, which means a jump of 5 times the current capacity. It would approximately mean 1 billion trips a year in the future. The government has allocated funds under the Ude Desh ka Aam Nangrik (UDAN) scheme 56 new unserved airports, 31 unserved helipads with an idea to connect small towns by air.

Infrastructure: Infrastructure was one of the core industries emphasized on in the Union Budget 2018. The finance minister allocated 1,014.09-crore for the revival of 50 airports in the upcoming fiscal year and improving the air connectivity in the north-eastern states under the regional aviation scheme. The budget provided 1.48 crore for the redevelopment of 600 major railway stations including setting up of escalators, CCTV and Wi-fi systems.

Telecom: The government allocated 10000 crores to set up the infrastructure for 5 lakh Wi-fi hotspots in the country.

Banks: The budget offered very little to banks and looked to fix things that were wrong from risings NPA’s to low credit growth in the country. The finance minister expected the banks to provide incremental loans worth five lakh crore in FY 2019. The budget made it mandatory for large companies to borrow a fourth of their investment needs from the bond market. The interest rates could remain stable for the next 3 to 4 months and may increase as the government is looking to maintain its fiscal deficit of 3.2%.

FMCG: The Union budget 2018’s measures for agriculture, its focus on rural customers and a promise to increase farmers income may boost FMCG consumption in the rural areas. The government’s focus on MSME, healthcare, agriculture, education, infrastructure and job creation will impact the FMCG market directly. These measures are bound to increase job opportunities and the disposable income people will have, especially in the rural areas.

Dhirendra Singh, the Chairman of Manpasand Beverages said, "Doubling farmers' income and increasing investments in the food processing industry will have a positive effect on businesses that are linked to agriculture and its allied divisions. The Government has provided a productive ground to streamline and formalize the supply-chain sector through the promotion of agro-processing and agri-logistics. This will lead to direct links between farmers and food processing sector."

Agriculture: The MSP (minimum support price) for produce raised to 1.5 times the input cost. Instead of 6 parameters that were considered while putting up an MSP earlier, it will now solely depend on the cost of production.  The finance minister cleared the path for heavy investment in the agriculture markets while assured the farmers that the Niti Aayog would find a way to make sure all farmers reaped the benefits of MSP. The government to set up an Agricultural Market Fund with a 2000-crore corpus.

Households: The finance minister promised a gas connection, electricity and a toilet to the poor. Under the Ujjwala scheme, free LPG connections will be given to 8-crore poor women instead of the 5-crore allocated earlier. 3.34 crore LPG connections have been released till now. Under the Saubhagya Yojna, the ministry promised an outlay of 16000-cr to provide electricity to 4-crore households. 1-crore homes to be built for poor by 2019, as part of the target of 'Housing for All' by 2022. 54 percent rise in expenditure for Smart City Mission to Rs 6,000 crore

Looking at the sectors that were focused on, the Budget 2018 managed to focus on farmers, agriculture, housing, and infrastructure leaving out others in the cold. The new LTCG tax is bound to examine the investor's faith in the Modi government. On the whole, there was very little for the common salaried class to rejoice about.

Last Updated ( Tuesday, 06 February 2018 09:28 )  
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