Union Budget 2017-18 is realistic, high on substance and has positively surprised the markets by defying expectations of populism amid demonetisation and impending state elections. As expected, the Budget focused on key areas such as agriculture, job generation, infrastructure, Housing for All and digital economy while maintaining fiscal discipline. The continued spending on rural infra and social schemes is likely to be a key driver for the consumption story. Similarly, the infrastructure theme focus is likely to be driven by increased allocation to roads, railways, energy and broadband infrastructure. There was also increased focus on areas such as healthcare, sanitation and other public services as the pillar of development. Consequently, it was aptly termed as a step towards TEC (Transform, Energise and Clean) India. All these measures are expected to provide the much needed boost to rural job creation and urban spending, which was running low on energy post demonetisation.
The Budget also marked an important step towards making the country a tax complaint one through tax administration and digital economy, which will bring more transparency and reduce the shadow economy. With stringent measures towards cash transaction limits and political funding, the Budget lived up to the theme of “effective governance”.
What will be key highlights of upcoming Budget
While the government has marginally deviated from its fiscal path, emphasis has clearly been laid on growth by focusing more on capital expenditure. With healthy tax collection growth & disinvestments, we expect the government to broadly maintain the fiscal deficit target for FY18BE. We expect tax collection growth to remain buoyant given the fact that the government is expected to benefit from tax transparency and better compliance.
The structural decline in primary deficit (fiscal deficit minus interest payment) augurs well for the balance sheet of the government. The decline in primary deficit implies a continuous improvement in quality of expenditure being pegged by the government. Allocation to capital expenditure is pegged at Rs 310000 crore for FY18BE. This will have a multiplier effect on the economy in terms of infrastructure creation, employment creation, which, in turn, will provide an impetus to growth.
There is a clear focus on achieving the aspiration of doubling farm income by 2022 with due emphasis on both productivity as well as better farm realisations. The total allocation towards agriculture & farmer welfare was increased 16% YoY to Rs 41,855 crore in FY18E. Notably, a sizable increase in allocation to the insurance scheme PMFBY to Rs 9000 crore (up 64% YoY) and irrigation scheme (PMKSY) to Rs 7377 crore (up 28% YoY) during FY18E was encouraging and augurs well for growth in farm income.
The government has focused on employment generation through highest ever allocation in various social and rural schemes. In social schemes, MNREGA spending was revised significantly upwards at Rs 47499 crore in FY17 vs. Rs 38,500 crore budgeted earlier and made highest ever allocation of Rs 48,000 crore for FY18BE. Similarly, rural development scheme such as PMGSY (Rs 27,000 crore in FY18BE) and PMAY(G) (Rs 23,000 crore in FY18BE with a target of 1 crore house completion in FY17E-19E) also witnessed highest ever allocation.