NEW DELHI/MUMBAI: Any budget ahead of an election year is predictable. The tone remains populist, while investors and industry can look forward to loads of incentives, or at least the promise of it. But the backdrop for Union Budget 2019 is far from normal, making it Finance Minister Arun Jaitley’s toughest balancing act yet.
There’s rural distress, so agriculture needs immediate attention. Equally important is the need for job creation and economic growth. But private investment refuses to revive and inflation is under risk from threateningly high crude prices, which could spark interest rate hikes and drag bank credit growth.
Global economic factors too are discouraging, particularly the US government’s latest tax reforms that could box our foreign capital inflows into a corner. There’s neither enough money in the treasury nor headroom for fiscal manoeuvring to spur public spending.
Still, Team Jaitley is expected to increase gross borrowings to Rs 6.5 lakh crore in FY19 as against Rs 6.05 lakh crore in FY18. Considering the increase in direct and indirect taxpayers following demonetisation and the Goods and Services Tax, the government is placing its bets on higher collections.
Also in lockstep will be disinvestment proceeds, which for the first time in history overshot the target and may rake in an ambitious Rs 1 lakh crore in FY19.
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In line with tradition, infrastructure will likely get a booster shot, as it spurs jobs and growth, while expenditure on railways could be grand. As for India Inc, all eyes are on corporate taxes, hoping Jaitley will walk the talk on his promised capping it at 25 per cent.
Such a move will erode corporate tax collections, but make India internationally competitive. To compensate for the tax loss, Jaitley may look elsewhere, like tweaking long-term capital gains tax.
On Tuesday, Chief Economic Adviser Arvind Subramanian had said India can’t ignore the US cutting its corporate tax rate to 21% from 35% to prod businesses to invest locally and repatriate profits. “Nobody is preventing us from responding to it. If you want to be investor-friendly, you need to have policies to do that,” he said.
Prime Minister Narendra Modi a few weeks ago tried to calm down expectations, saying “citizens don’t want incentives but honesty.” Nevertheless, Jaitley is under pressure from several quarters, including rural voters reeling under an agrarian crisis, which contributed to the BJP’s worst performance in Gujarat.
Presenting the NDA government’s first budget in 2014, Jaitley had projected an economic future of unprecedented rosiness. Unarguably, Thursday’s Budget will be his moment in the limelight, but is he the man who can help regain growth and create jobs? We shall know soon.
What all to watch for:
Budget deficit: The target is 3.2% of GDP in FY2018; 3% in FY2019, ay major deviation may upset market
Borrowing: Market will be closely watching gross borrowing target, expected to rise to Rs 6.5 trillion in FY2019
Revenue: Target set as Rs 21 trillion for FY2018. Any dip will have a negative impact
Big spends: Expect more spending on rural sector, job creation, infrastructure, road, agriculture and irrigation projects
Corporate tax cut: Industry wants it trimmed from the current 30%. Major dip unlikely, it could at best be capped at 28%
Personal taxation: Demand to increase minimum tax slab from Rs 2.5 lakh to Rs 3 lakh. Some relief expected in medical reimbursement, insurance
Core sector growth slows
Growth of the eight core sectors slowed to 4% in December 2017 due to negative performance of various segments
Union Budget 2018: All eyes on Arun Jaitley’s briefcase; here is what to expect
Arun Jaitley has tough task to choose between populism, fiscal prudence in today's Budget
India Inc expects Budget 2018-19 to include GST reforms, friendly business policies
No spending spree due in last Indian budget before elections: Reuters poll
50 percent professionals expect Budget to steep cut in corporate tax: Deloitte Survey
Budget session 2018: 28 bills in Lok Sabha, 39 listed for Rajya Sabha