By Ananya Singh
Finance Minister Arun Jaitley is set to reveal the incumbent government’s last full-fledged annual budget statement on Thursday, 1 February 2018. When one considers the upcoming 2019 General Elections as well as eight state assembly elections, this year’s Union Budget becomes all the more important for the Modi-led government.
The present year witnessed several setbacks to national growth as the country was busy grappling with the after-effects of the demonetisation drive along with the chaotic roll out of the national Goods and Services Tax (GST). While the Economic Survey predicts a growth between 7 and 7.5% in 2018-19, the government must tackle growing rural discontentment, rising inflation and unemployment to achieve this target.
Pre-budget analysis
India’s economic growth for the current fiscal year, ending March is predicted to fall to 6.5 percent, the lowest in four years. Poor performance of the agricultural and manufacturing sectors are primary reasons for the decline. With agriculture forming 17 percent of the GDP, this proves to be a worrying issue.
The recent Gujarat and Himachal Pradesh assembly elections jolted Bharatiya Janata Party (BJP) back to reality. The party performed poorly in the agriculture-dominated Saurashtra region in their home state of Gujarat. These elections served as a public announcement of the brewing discontent among the agricultural populace.
Burdened with heavy debt and declining incomes, farmers hold many grievances against the government. Reduced output and lack of adequate remuneration for goods have hurtled farmers to the brink of despair. Moreover, the withdrawal of cash from the system during demonetisation adversely affected their lives.
Small businesses are BJP’s primary supporters. However, the burden of convoluted GST procedures coupled with the withdrawal of cash from the system has turned them sour. Rising unemployment among the youth entering the labour force is another major concern for the rural population.
Pulsating with anger, many parts of rural India have withdrawn support for the BJP. The annual budget must contend with the problems of rural unemployment, supplementing farmers’ incomes and providing an impetus to small businesses, or suffer by losing a large chunk of its vote bank.
The suffering sectors
The 2017-18 Union Budget was criticised for its relatively low social sector spending. Healthcare is an issue India continues to battle on a daily basis. With the government spending 1 percent of its GDP on healthcare, and the country spending 4 percent of its GDP, India still falls short of the OECD average of 9 percent.
Healthcare costs continue to rise, especially in private medical facilities. The country remains plagued with diseases (such as Tuberculosis, Pneumonia, Malaria), low immunisation coverage and high mortality rates. The approval of the National Health Policy 2017 requires the government to further increase expenditure on health to meet the envisaged goals.
The budget’s expenditure on education in 2017-18 was also deemed unsatisfactory. With 4 percent of the GDP allocated to the education sector and only 1 percent to research and development, India has a long way ahead if it wants to achieve a 100 percent literacy rate. This sector also suffers from a shortage of funds for improving infrastructure, as well as poor quality of teaching. Absenteeism among students and teachers both proves a formidable task to overcome. There is no incentive for private players to enter the rural education field. India has initiated Skill India Mission to focus on developing vocational training. However, inadequate implementation of such policies is a dismal reality.
With the surge in imports, India’s trade and fiscal deficit has grown. The government must focus on increasing net exports or be dragged down to an unsatisfactory level of growth. Rising inflation and straitened cash flow add to fiscal pressures. Expectations of increasing revenues are limited to the indirect tax, under which half of the tax collections fall under the ambit of the GST Council. Will the government compromise on fiscal prudence to achieve growth?
Expectations: Rural and education sector
The upcoming Union Budget is expected to steer financial allocation towards rural and farm sectors along with focusing on guaranteeing jobs to the masses. Of course, political considerations are partly the reason.
Pro-farmer policies are to be expected, with increased funding to meet the government’s plan of doubling a farmer’s income by 2022. Funding is predicted to increase in agri-education to emphasise innovation and use of technology. The government will attempt to retain the support of rural India by focusing on job guarantee schemes, crop insurance schemes and infrastructure development.
An important consideration for the government is the burgeoning problem of debt-afflicted farmers. While authorities have taken to waiving off debts as a solution to the same, a more positive result can be achieved by improving their repayment capacities. Steps must be taken to increase productivity and farmer’s incomes.
The social sector is expected to benefit from this year’s budget. With the NHP 2017, there is a visible change in direction from “sick care” to “wellness“. The upcoming budget is predicted to increase funding towards preventing the spread of non-communicable diseases. District and town level health centres must be revamped to provide quality services with existing infrastructure.
Education sector spending is projected to increase (reaching between 11 and 14 percent). Funding for school education is expected to rise to 14 percent. Allocations for Mid-day Meal Scheme and RTE Act are also expected to increase. Experts further make a case for introducing technology-driven education. For high quality teaching and positive learning outcomes, improvement of implementation must be deliberated upon.
Should the industries be optimistic?
The automotive industry has been suffering from fluctuating profits and setbacks to business operations due to ever-changing tax rates. A primary expectation for this sector is rate stabilisation. The industry has further asked that there be no changes in funds allocated for research and development so as to allow for innovation.
India has made immense progress on the renewable energy front. As the sixth largest consumer of energy, India also ranks as the second most attractive market for renewable energy. As an active promoter of clean energy sources, India has launched the solar park project, and undertaken complete rural electrification. Keeping in mind the growing discourse around the significance of renewable energy and sustainable development, expectations veer toward an increase in budget for the sector to meet prescribed goals.
GST has proved a temporary menace not only for small businesses, but also the hospitality industry. Hotels taxed at 18 and 25 percent are rooting for a cut in tax rates by bringing them into the 12 percent tax slab. Tax rebates are awaited eagerly. An increase in allocation for tourism infrastructure is expected, along with a push toward boosting investment in the sector.
With China looming across India’s borders, the defence sector will be an important consideration for the government. India, today has the third largest military force in the world. Expectations from the upcoming budget for this sector include heavy investment in new capital and recruiting fewer soldiers to cut expenditure. It has been recommended that a minimum of 2.5-3 percent of the GDP be allocated to the defence sector to allow for technological developments that can help counter China.
Are funds enough?
Many sectors are expected to witness an increase in funds allocated. However, a hike in government expenditure alone will not serve to achieve the progress level India aspires to reach. Truth be told, fund allocation, though crucial, is only the first step for any sector. Post that, it all comes down to implementation.
As former RBI Governor Raghuram Rajan stated, I would like to see a budget focused more on implementation. He recommended the government focus its efforts on implementation of existing policies rather than fiscal expansion.
What the 2018 Union Budget has in store for us remains to be seen.
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