Union Budget 2018

What could be the key themes of the Union Budget?

The Union Budget 2018 could be quite interesting in more ways than one. Firstly, this will be the last full budget that the NDA government will present during their current term. The next budget will be a vote-on-account ahead of the general elections. What could be the big thrust and theme of the budget? Obviously, Arun Jaitley would like to sign off with a bang. Here are 3 big themes that we foresee

Consolidation of reforms

To be fair, the current government has taken up some far reaching reforms. The FDI policy has been substantially eased. The government has given a big thrust to the disinvestment exercise even as the IPO and secondary markets are showing signs of buoyancy. The introduction of GST in July 2017 was a landmark shift in the indirect tax regime. But above all, the government has managed to bite the bullet on reforming banks and bringing errant borrowers to the negotiating table. The Budget 2018 could be the time for consolidation of these reforms. GST needs to be fine tuned and rates need to align favorably for business. The IBC must now lead to a tangible solution to the NPA problem so that banks can get back to their core dharma of lending. Above all, the government will want to build on the cornerstone of demonetization to push digital India and for arresting the growth of black money. The time to consolidate on all fronts is now!

FRBM explanation

The government will have a challenge on the fiscal deficit front. It has already touched 112% of the full year fiscal deficit by November. That means, we may end up with a spillage of 50 basis points and end up with fiscal deficit of around 3.7%. The government must use the budget to tackle this issue head on. Remember, this higher fiscal deficit is a conscious strategy to buy growth and that is perfectly acceptable. Globally, countries adopt a counter cyclical strategy of expanding the fiscal deficit when growth turns tepid. Over the last few years the government has stuck to fiscal discipline. If a higher fiscal deficit is matched by smarter spends to spur growth, markets will only be too pleased.

The big rural focus

We believe that rural theme could be the big focus in this budget. Agriculture is already dragging the GDP down. Farm distress is high and the government’s goal of doubling farm incomes by 2022 is still way off. This budget could be all about rural focus. One can expect more liberal farm loan waivers, greater spend on rural infrastructure, boost to irrigation schemes etc. This budget could give a big boost to many agri support sectors like hybrid seeds, agro-chemicals, fertilizers and post-harvest infrastructure. Watch out for the big rural push in this budget! ©

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