India Economy Update
Union Budget 2018
On February 1, India’s finance minister Arun Jaitley delivered his fifth and final budget speech for the upcoming fiscal year 2018-19 announcing Rs. 24.42 trillion rupees for government expenditure. Jaitley’s proposed plan aims to revive India’s growth this year targeting a 7.2% growth in GDP against the expected 6.5% last year. Struggling with certain macroeconomic shocks such as demonetization, a nationwide goods and services tax (GST) and declining investment in the Indian economy, this budget is primarily targeted at protecting the rural sector, increasing consumer demand and creating more jobs in manufacturing.
Low crop prices and consequently low incomes for India’s rural population have resulted in several protests over the years. To address this concern, Jaitley discussed fixing minimum support prices (MSPs) which will be determined at least 50% more than the costs of producing crops to double incomes of farmers, which was also a pledge made by Prime Minister Narendra Modi back in 2014. To ensure that farmers are the actual beneficiaries of this policy, the government has decided to either buy crops directly or compensate them with the difference between the MSP and market prices. Other measures discussed by the minister included the creation of an agriculture fund to connect rural markets to the national electronic market (eNAM). Overall, government spending in the agriculture industry will be increased by 15% from Rs. 50,264 crores in the 2017-18 budget to Rs. 57,600 this year.
This year’s budget also discussed the National Health Protection Scheme, dubbed colloquially as ‘Modicare,’ which aims to provide 100 million families with an annual health coverage of 500,000 rupees reserved for the treatment of tertiary ailments. Experts have said that this healthcare scheme would cost roughly 110 billion rupees each year to be shared between state and federal governments, with an initial budget allocation of 20 billion rupees and the rest of the funds being made available later in the year. Attempting to reform a public healthcare system that constantly has a shortage of hospitals and doctors, Modicare might go a long way in winning the hearts of the Indian public, just in time for Lok Sabha elections in 2019.
Other noteworthy features of the budget included increased customs duties on many electronic items such as mobile phones and automobile parts, in an attempt to promote Modi’s ‘Make in India’ campaign in the hope that these barriers to imports will create jobs in India’s dwindling manufacturing sector. Recognizing small- and medium-sized enterprises (MSEs) as a pivotal engine of economic growth, Jaitley also introduced a reduction of corporate tax for companies with revenue up to Rs. 2.5 billion, up from a previous limit of Rs. 500 million.