The Central Government is aiming to revert to the path of fiscal rectitude after the temporary blip in the following year, i.e FY 2018-19.
1) With a twin focus on reducing debt and fiscal deficit, the Government aims to reach the Fiscal Deficit target of 3.3% of GDP in Budget Estimate 2018-19.
2) The Gross tax revenue of the Government is expected to increase to Rs. 22,71,242 Crs. in Budget Estimate 2018-19 from a Revised Estimate of Rs. 19,46,119 Crs.. This implies a growth of 16.7% over the Revised Estimate. As a percentage of GDP this is anticipated to be 12.1% compared to 11.6% assumed in Revised Estimate 2017-18.
3) Direct taxes have been projected to increase to Rs. 11,50,000 Crs. in Budget Estimate 2018-19. This implies a growth of 14.4% in 2018-19 compared to Revised Estimate 2017-18.The increase in direct taxes is expected to be from both the arms of direct tax, namely Corporate Income Tax and Personal Income Tax. These have been budgeted to increase to Rs. 6,21,000 Crs. and Rs. 5,29,000 Crs. respectively.
4) Indirect taxes in Budget Estimate 2018-19 are expected to be Rs. 11,16,000 Crs.. It is anticipated that the GST revenues will be Rs. 7,43,900 Crs. in Budget Estimate 2018-19 compared to Rs. 4,44,631 Crs. in Revised Estimate 2017-18. The non-GST component of Indirect Taxes would be Rs. 3,72,100 Crs. in Budget Estimate 2018-19. This is compared to Rs. 4,91,744 Crs. in Revised Estimate 2017-18. It is expected that Indirect Taxes will grow by 17.3% in 2018-19 over Revised Estimate 2017-18.
5) The Non-tax revenue is expected to grow over the Revised Estimate 2017-18 by 3.9% to an amount of Rs. 2,45,089 Crs. in Budget Estimate 2018-19. As a percent of GDP, the Non-tax Revenue component constitutes 1.3%. Non-debt capital receipts have been budgeted in Budget Estimate 2018-19 to be Rs. 9,21,99 Crs. compared to the Revenue Estimate 2017-18 figure of Rs. 1,17,473 Crs.. The main contributor to this kitty is from disinvestment receipts, which has been anticipated to be Rs. 80,000 Crs. in Budget Estimate 2018-19. Net Borrowings and other liabilities are expected to be Rs. 6,24,276 Crs. to finance the fiscal deficit.
A) DIRECT TAXES
1) No change is proposed in the personal income-tax rates in respect of income earned in financial year 2018-19.
2) It is proposed to levy additional cess of 1% to take care of the needs of education and health of rural families.
3) At present, capital gains arising from sale of long term capital assets are exempt from tax. It is proposed to tax long term capital gains exceeding Rs. 1,00,000 @ 10%arising from such assets without allowing the benefit of indexation. However, gain upto 31.01.2018 in respect of such assets is proposed to be grandfathered. It is also proposed to introduce dividend distribution tax @ 10% in respect of distributed income by equity oriented mutual fund.
4) An additional amount of Rs. 40,000 being interest from deposits in banks and post office is proposed to be exempted from tax for senior citizens. Further, the deduction for payment towards medical insurance and medical expenditure is proposed to be increased from Rs.30,000 to Rs.50,000 and deduction for critical illness proposed to be enhanced to Rs. 1 lakh incase of senior citizens. Similarly, a standard deduction of Rs. 40,000 is proposed to be provided to salaried taxpayers to provide relief from higher cost of incidental expenses relating to employment.
5) Introduction of e-assessment on pilot basis thereby eliminating person to person contact leading to greater efficiency and transparency.
B) INDIRECT TAXES
The introduction of GST has removed the cascading of taxes. Between June and July 2017, 6.6 lakh new entities previously outside the tax net have sought GST registeration. Preliminary estimates point to potentially large increases in the tax base as a consequence. GST makes the supply chain and logistics efficient. With introduction of GST, the check posts in states have been removed as the whole nation has same tax and compliance structure. If this trend continues, the reduction in transport costs, fuel use, and corruption could be significant.
1) Total expenditure in Budget Estimate 2018-19 is anticipated to be Rs. 24,42,213 Crs. compare to the Revised Estimate of Rs. 22,17,750 Crs.. The total expenditure in Budget Estimate 2018-19 shows an increase of Rs. 2,24,463 Crs. and works out to be 10.1% increase over the RE of 2017-18.
2) The need to focus on bridging the development gaps in the rural sector has occupied the mind of Central Government. In tune with this focus the allocations for agriculture and allied departments have been increased. Rs. 46,700 has been allocated for the Department of Agriculture alone.
3) Allocations to health, education and other social sectors such as Department of minorities, tribals, women and social justice have also shown an increase. In tune with this policy of the Government, it has been decided to fund the expenditure of health, education, road transport and highways and Railways ministries through National Investment Fund. Sums of Rs. 85,100 Crs. in Revised Estimate 2017-18 and Rs. 82,440 Crs. in Budget Estimate 2018-19 are rooted through National Investment Fund.
4) The focus on above sectors to mitigate development deficits has led to an increase in revenue expenditure to the tune of Rs. 1,97,467 Crs. from Rs. 19,44,305 Crs. in Revised Estimate 2017-18 to Rs. 21,41,772 Crs. in Budget Estimate 2018-19 in absolute terms which amounts to an increase of 10.2%. Interest payments have been budgeted to show an increase of Rs. 44,952 Crs.(8.5% increases) from RE 2017-18. These increased to Rs. 5,75,795 Crs. in Budget Estimate 2018-19 from Rs. 5,30,843 Crs. in RE 2017-18. Pension payments have increased by 14.3%. The expenditure on major subsidies have increased by 15.1%.
5) Expenditure on Defence Services have witnessed an increase of 5.9% compared to RE 2017-18.
6) As a percent of GDP capital expenditure is expected to be 1.6% in 2018-19. Additionally, for bodies like NHAI,Metro, etc. The government has given permission to raise bonds from the market.
1) Outgo on major subsidies is budgeted at 1.4% of GDP in BE 2018-19.
GOVERNMENT BORROWINGS, LENDING AND INVESTMENTS
1) In RE 2017-18, net market borrowings through dated securities at Rs. 4,02,394 Crs. have been budgeted to finance 67.6% of Gross Fiscal Deficit. Other sources of financing such as treasury bills, external assistances, state provident funds and National Small Savings Fund have been budgeted to finance the remaining 32.4% of GFD. Net borrowings requirement for 2018-19 has been budgeted at Rs. 3,90,120 Crs..
2) Government debt portfolio continues to be low as weighted average maturity of outstanding dated securities remains close to 10.71 years as on December 26, 2017, which is on higher side compared to international standards. The share of short-term debt in outstanding dated securities as onDecember 26, 2017 is around 3.1% and securities maturing in next 5 years are around 27.4% of total outstanding dated securities, which reinforces the low level of rollover risks in short term. The weighted average yield of dated securities issued during the same period of 2017-18 stood at 6.90% as compared to 7.16% during 2016-17 indicating lower yield environment. Pursuing its strategy to borrow from market, borrowing from dated securities at Rs. 3,90,120 Crs. is budgeted to finance nearly 62.5% of GFD in 2018-19.
3) One of key features on country’s debt profile is diminishing proportion of external debt as percentage of total liabilities and it is about 5% of Central Government’s total liabilities as estimated on March 31,2018.
4) As explained in Medium-Term Fiscal Policy Statement, total outstanding liabilities of the Central Government are estimated at about 50.1% of GDP in RE 2017-18 and will fall down to about 48.8% of GDP by end of financial year 2018-19. Keeping in view the fiscal consolidation as envisaged for medium-term, the total outstanding liabilities have been estimated to decline to about 44.6% of GDP by end of FY 2020-21. As proposed in the FRBM framework, the Central Government will endeavour to reduce its debt/ total outstanding liabilities to 40% of GDP by FY 2024-25.
1) FRBM Rules prescribe a ceiling of 0.5% of GDP for incremental guarantees that Government can assume in a particular financial year.
2) FRBM ceiling on guarantees which can be assumed by Government during a FY has resulted in reduced contingent liability to GDP ratio. This ratio which stood at 3.3% in 2004-05 has now reduced to 2.41% in 2016-17.
STRATEGIC PRIORITIES FOR THE ENSUING YEAR
1) The main focus of the Government in the ensuing financial year will be on agriculture and allied sectors and also on social sector expenditure.
2) The focus will also be on re-caliberated path of fiscal consolidation by reducing fiscal deficit and the Government debt as a percentage of GDP and supporting tax revenue growththroug policies that result in increasing the tax net and higher tax compliance to enhance the tax to GDP ratio to support the expenditure growth and thereby improve the fiscal discipline and over-all macro economic environment.
3) In new framework, the following key changes are being instituted :
a) To target simultaneously on fiscal deficit and debt
b) To target fiscal deficit as an operational target and to ensure that the FD of 3% of GDP is reached by the Government by FY 2020-21.
c) The Central Government shall endeavour to follow a declining debt trajectory and the Central Government reach a debt target of 40% of GDP as also to keep the General Government debt at 60% of GDP by FY 2024-25.