Modinomics has done a great job by marrying high growth with low inflation. The Government will be on the same trajectory and present a dream Budget
With the International Monetary Fund projecting a 7.4 per cent and 7.8 per cent growth for India in 2018 and 2019, well past the 6.6 per cent and 6.4 per cent for China, clearly, India's leadership in the global growth sweepstakes remains unparalleled. Against this backdrop, Union Budget 2018-19 will, despite contrarian compulsions, marry growth with fiscal prudence. Direct tax collection, that has risen by 18 per cent, mopping up Rs 6.89 lakh crore, is on the course to achieve the full-year target of Rs 9.8 lakh crore for fiscal 2017-18. Revenue collections have been buttressed by a stupendous show on the divestment front, wherein for the first time, in a long time, the Government should exceed its overall target of Rs 72,500 crore. Post-demonetisation, 56 lakh new tax payers were added last year, with the total number of assesses in July at 6.26 crore and counting.
Again, post the Goods and Services Tax (GST), the number of GSTR-3B returns filed rose from 28 lakh in August 2017 to a whopping 56 lakh in December 2017. Most importantly, from just 60 lakh in August 2017, overall registrations under Goods and Service Tax Network GSTN have risen to more than 11 crore and growing, which is huge. The moot point is: For fiscal 2018-19, sticking to a gross market borrowing programme of Rs 6.37 lakh crore, which implies a fiscal deficit target of 3.2 per cent of the Gross Domestic Product (GDP), should come easy because demonetisation and GST together have paved the way for a robust tax structure that ensures better compliance and efficiency, making it easier to stick to the path of fiscal discipline, without compromising on growth.
Equally, the Government will refrain from doling out unwanted freebies, as populism is an anathema to Modinomics. Any gap in resource mobilisation, domestically, will be met by way of the sweeping Foreign Direct Investment reforms in single brand retail, construction and aviation, announced recently. The decision to privatise IDBI Bank and allow 49 per cent foreign shareholding in Air India are bold moves that give a loud message: Modinomics means business. The Union Budget will carry forward this message through strategic stake sales in PSUs.
For those seeking a hike in the income tax exemption limit from the current Rs 2.5 lakh to say three lakh or five lakh rupees, suffice to say, the tax to GDP ratio in India is still low versus global peers. Despite that, a change in the income tax slab structure may be on the anvil. Currently, the income tax rate is 20 per cent for income above five lakh rupees and 30 per cent for income above Rs 10 lakh. The possibility of tax rate being reduced to 10 per cent in the five lakh rupees to Rs 10 lakh bracket cannot be ruled out. Also, a new slab may be added for those in the Rs 10lakh-20 lakh category, at a tax rate of 20 per cent.
The return of standard deduction for the salaried class, including debt mutual fund schemes under Section 80-C, giving senior citizens fixed deposit related tax benefits under 80TTA, changing the definition of long-term capital gains, while continuing to not tax it, higher threshold limit for health insurance premium under Section 80D and making NPS more tax friendly, may be on the cards.
On the corporate side, let it not be forgotten, the Modi Government brought down the tax rate to 25 per cent for corporates with turnover of less than Rs 50 crore. If the Minimum Alternate Tax rate is brought down from the current 18.5 per cent to say 15 per cent and Dividend Distribution Tax is lowered or completely abolished, those will be big giveaways for India Inc. What has been underreported is that post-demonetisation, thanks to lower borrowing costs, India Inc raised Rs 6.2 lakh crore last year via private placement of corporate bonds, reflecting the uptick in private capex cycle. Deepening the corporate bond market further seems likely.
Modinomics has done a stupendous job of marrying growth with inflation. Retail inflation, as measured by Consumer Price Index, between April-December 2017, stands at barely 3.2 per cent, despite the 55 per cent plus jump in international oil prices since June 2017. Current Account Deficit fell from 2.4 per cent in the June 2017 quarter to just 1.2 per cent in the September 2017 quarter, reflecting buoyancy in trade and invisibles.
However, India is the world's third largest consumer of crude oil, importing 4.2 million barrels per day, and galloping crude oil prices, which imply that the import Bill will inflate by $1.5 billion for every dollar increase in crude price. The good news is that as per estimates from ICRA, even if the Indian crude basket is valued at $70/barrel versus $55 in fiscal 2017-18, fuel subsidy burden in the Budget will go up from Rs 22,400 crore to only Rs 34,300 crore in fiscal 2018-19.
The Railway Budget, as part of the Union Budget, will continue to focus on removal of all unmanned crossings by 2020, adding more bio-toilets in trains to the current target of 17,000, boosting e-ticketing system, track electrification and more. From less than 100 tickets a day under the UPA Government, IRCTC, has seen a huge surge in online bookings to more than 13 lakh tickets a day in what is a marked improvement in ease of travel. Thrust on infrastructure on the lines of the Bharatmala project, which seeks to build 84,000kms of national highways, including 35,000kms in Phase-1 alone, shall be one of the mainstays of the Budget, and the roadmap for financing the same via Rupee Denominated Bonds may get an impetus.
Allocation of Rs 40,000 crore to North East Frontier Railway last year, broad gauging lumding-Silchar line in Assam, broad guaging Agartala in Tripura for the first time in seven decades and steps to broadguage Mizoram and Manipur speak volumes about how Modinomics has embraced ‘Sabka saath, sabka vikas’ by mainstreaming development in the North-East, a hitherto ignored region under 10 years of a corrupt Congress-led UPA dispensation. Focus on the North-East shall continue.
last but not the least, the Union Budget will continue to focus on the agrarian economy as rural India has always been the fulcrum of Modinomics. Further strengthening e-NAM, the electronic national agriculture market, to hasten integration of 585 regulated wholesale mandis so that farmers get the best price for their produce, without depending on middlemen, will remain a priority. Do note that more than 250 mandis in 17 States have already been integrated, benefitting millions of farmers.
Of the Rs 10 lakh crore agri-credit target in the last Budget, Rs 6.25 lakh crore was already disbursed by September 2017 by banks, empowering scores of marginalised farmers and rural artisans. That trajectory will continue with agri-credit target likely to be hiked to Rs 11 lakh crore reflecting the Modi-led BJP Government's unflinching commitment towards the agrarian class, which in many ways, oils the wheels of the 2.3 trillion dollar Indian economic juggernaut.
(The writer is an economist and chief spokesperson for the BJP, Mumbai)