Budget expectations were clearly geared towards addressing rural constituency and the Budget did not disappoint in that context. While earlier governments’ focus has traditionally been on the inputs (fertiliser subsidy, electricity subsidy etc.), it was refreshing to see the focus of this government on the output from the farms.
With an aim of increasing farm incomes, government announced policy of increasing minimum support price (MSP) to 1.5x of cost of produce for kharif crops. Other initiatives for this sector included higher spends for implementing eNAM in more mandis, special focus in food processing, agricultural exports (from current $30billion to its potential of $100 billion), fisheries and aqua culture and animal husbandry.
This, along with increased spending on rural roads and rural housing can definitely go a long way in tackling the rural distress and augurs well for rural consumption.
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Given the lack of social security, the government’s announcement of universal health insurance — providing 10 crore households with a cover of ₹5 lakh per household is a big game changer. Rolled on the lines of crop insurance, health insurance can be an elegant cost-effective solution to one of the biggest worries for any household. Besides this, the continued focus on jobs along with the earlier announced reduction in GST of most household consumption goods augurs well for consumption theme for Bharat.
Make in India
With most taxation of goods and services now under the ambit of GST, the Budget focused on customs duties and raised duties across sectors — electronics, footwear, auto ancillaries, furniture, toys, food processing etc.
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Corporate India has surplus capacities in many sectors, also in a few cases most of the value addition was happening outside India earlier. This move will signal long term players to move from a trading model to a manufacturing model. Taxation for SME (with turnover of less than ₹250crore) has also been reduced to 25%. The focus of bank lending on SMEs, as announced in the PSU recap package, will also help the smaller companies.
While one may quibble about the miss in fiscal deficit target, one must see the context in which the tax revenues for the year were impacted by the implementation of momentous reform of GST. While there has been a miss, at least government has mentioned a glide path for fiscal consolidation and debt to GDP. One can only hope that there won’t be any more misses.
An important takeaway is that this increased borrowing is not being wasted on populism and freebies but going towards more productive infrastructure creation (roads, railways, health insurance, affordable housing, farm processing etc.) and that is a big relief.
The other big sentimental negative is the introduction of long term capital gains tax (LTCG) on equities, the only solace being that investments till January 31, 2018 are grandfathered. This definitely increases the cost of capital that market participants have to factor in, while evaluating fresh investments, but as the dust settles down and market participants impute this additional cost, journey of wealth creation through long term allocation to equities will continue.
Nilesh Shah is MD, Kotak Mahindra Asset Management Co Ltd.