2018 has not hidden the stress the Narendra Modi government is facing. On the slip in fiscal deficit for 2017-18 to 3.5 per cent of gross domestic product (GDP) and the anticipated 3.3 per cent fiscal deficit for 2018-19, Finance Minister Arun Jaitley said “due to one tail wind and one head wind”.
The tail wind he says is demonetisation — it increased formalisation in the economy.
Jaitley claimed he had got Rs 960 billion more as direct tax from it. The headwind is the Goods and Services Tax (GST). “This discontinuity in the taxation regime of the country was but a step towards removing inter-state barriers of trade and commerce in the country,” he noted. It has taken out Rs 350 billion form his tax purse. “This one-time impact… will lead to a temporary and one-time spike in fiscal deficit over and above the estimated fiscal deficit,” he claimed. In fact the entire Budget
arithmetic for 2017-18 is liberally peppered with the GST
overhang. It is also the reason why he has imposed a new levy — road and infrastructure cess to mop up over Rs 2 trillion from the petrol and diesel sales.
The minister was aware of this constraint as a spoiler in his Budget.
His switch between speaking in Hindi in those segments of the Budget
that address the “social sector” concerns was possibly to ensure that what he had to offer went home. For the agriculture sector, he promised to bring all kharif crops under MSP and promised those would be pegged at one-and-a-half time the cost of production. One would expect rabi crops to get the same treatment. This is why his food subsidy has jumped by Rs 290.4 billion to make the total spend on Food Corporation of India that will do these buying operations to Rs 1.38 trillion.
The minister, consequently, did not attempt heavy expenditure workload in sectors like health or education. The plans for 150,000 health and wellness centres and the much-needed national health protection scheme would also not stretch the health sector budget
immediately. The allocation for health ministry hardly moves. Jaitley, however, made up with innovative measures by integrating the administrative structure for delivery of school education and integrated revised teaching programme for school teachers. These seem to strike the right notes and prudently leave the stress on their execution to line ministries.
Within these constraints, he pushed the state-owned companies to instead do the heavy lifting in the next financial year. The aggregate spending on infrastructure was raised by Rs 1 trillion to Rs 9.97 trillion in 2018-19, but mostly through extra budgetary resources. So, spending for key sectors through direct additional capital expenditure was limited.
The Railways got Rs 150 billion more on capex (Rs 530.7 billion) from Jaitley; that on road spend rose by only Rs 100 billion. In both, it is the state-owned companies that would do the additional heavy lifting. The inability of the Railways to improve its operating ratio (efficiency of expenditure) – 96 per cent for 201718, virtually unchanged from 96.5 per cent the previous year – is also a reason why the minister would have been parsimonious.
The minister did not disturb the tax structures for direct tax, except simplifying the set-offs for the salaried by clubbing transport allowance and medical benefit to a flat standard deduction and similarly delivered on the expected long-term capital gains tax and on the dividend distribution tax. He was forced to raise Customs duties after several years. It was a stock-taking exercise that would keep the momentum going for the year ahead, without being ambitious in laying out the government purse.