New initiatives that the budget has put to spur growth

Economy | Published on 1st February 2018 | 57

Union budget 2018 has actually been a big picture budget. It has not been about the nuances of taxes and levies but it has been more about the macro issues and the focus areas for the government from an economic perspective. The following new initiatives in the Union Budget are critical from the long term perspective…

  • The budget has made a quantum shift in its policy from reduction of customs duties to enhancing levies on customs. This has the twin purposes of enhancing revenues and also to push the “Make in India” dream further. The Social Welfare surcharge of 10% on all imported goods is a good step in that direction and that should get compensated through better ports infrastructure.
  • The formula of fixing Minimum Support price (MSP) for Kharif crops at 1.5 times the production cost is another measure on the lines of enhancing farm incomes. This is a genuine measure to double farm incomes by the year 2022 as originally envisaged.
  • The allocation of Rs.2 trillion for smart cities is a major move towards improving the quality of infrastructure in tier-2 and tier-3 towns so that the costs of urbanization can be spread more equitably. That is the way the US progressed and India needs to take a cue from that.
  • The creation of the Rs.2000 crore agricultural and market infrastructure fund is another step in this direction. Farmers are currently getting low prices as they are dependent on agents at APMCs to sell their produce. The electronic national Agricultural Market (eNAM) will offer competitive prices and also the benefit of hedging of price risk to farmers
  • The allocation of 8 crore LPG connections and power connections to 4 crore rural households will be huge in terms of enhancing the purchasing power and the productivity of the rural dwellers. The decision to construct of 2 crore toilets in the rural areas is also a good initiative in this direction.
  • The most innovative of these, perhaps, is the creation of rural livelihood scheme which has an allocation of Rs.14,34,000 crore. This will provide alternate employment through gainful work so that the dependence on agriculture can be minimized.
  • The big take-away from the budget is the Rs.100,000 crore allocation to revitalization and upgrading of education. In fact, the government has adopted a lateral approach by focusing purely on the digital intensity of education and using technology to spread the reach of education substantially.
  • The budget has also created the worlds’ largest government funded healthcare programs with coverage of over 50 crore families. Each family will get health coverage of Rs.5 lakhs and this likely to largely spur the risk taking capacity of these households.
  • SEBI may ask large companies to meet 25% of their borrowing needs through the bond market which will reduce the pressure on banking system and also reduce the scope for NPAs in future.
  • After taking the consolidation initiative in the oil sector, the government plans to extend to insurance companies. Three insurance companies will be merged into a single entity and will subsequently be listed.
  • The decision to provide broadband internet access to 10 crore rural households is another measure that could bridge the information gap between the rural and urban households and give a boost for rural income levels.
  • The government has also clarified in the budget that it does not consider crypto currencies as legal tender which makes India the first country to take an affirmative view on Bitcoins and other such instruments without explicitly banning them
  • The decision to connect 470 APMCs through the eNAM will be value accretive for farmers to get a good price in the market. It will also enable them to hedge their risk through the use of futures.

The message of the budget is not to be obsessed with the nuances of taxes and rather focus on the big picture. From that standpoint, the government has taken some meaningful initiatives. That the Nifty is holding above the 11,000 mark despite the disappointment over LTCG is testimony to the fact that the market does see value in this budget from a medium to long term perspective.