Union Budget2018-19

February 1, 2018

For Internal Circulation only

Synopsis

Key Takeaways

― Continuing the vision of the government

― Focus on agriculture and healthcare

― Fiscal roadmap delayed again

Specific proposals

― Customs duty raised in certain sectors, like food processing, electronics, auto components, footwear andfurniture, in order to encourage domestic value addition and Make in India

― Corporate tax rate for MSME with revenue of upto Rs 250 crore reduced to 25% from 30%

― Fiscal Deficit target for 2018-19 is 3.3%; Fiscal consolidation roadmap revised once again

― The Revenue deficit for FY18 is pegged at 2.2% against 2% mandated by FRBM Act

Macro assumptions for FY19BE

― Nominal GDP growth at 11.5%

― Subsidy kept unchanged as a % of GDP

― Net borrowings at Rs.4.6 Trillion, unchanged compared to FY18

Capital spending budgeted to grow by just 9.9% in FY19

Aggressive targets for indirect tax collections at ~+20% in FY19

Modest growth in total spending of 10.1% in FY19

2

Budget Profile

3

Food

1.69Subsidy

2.95

Central

Sector

Schemes

7.09

Economic

Services

2.27

Scheme

Expenditure

(CS+CSS)

10.15

Transfers,

Establishmentand Other

Expenditure

14.27

Other

Central

Expenditure

6.78

Interest

Payment

5.78

Autonomous Bodies

0.61

Regulatory/Statutory

Bodies

0.07

Others

0.28

Salary &

Allowances

2.07

Pension

1.68Establishment

Expenditure

5.08

OtherGrants/

Loaans

1.32

Finance

Commission

Transfers

1.09

Transfer

toStates

2.41

Core of the Core

Schemes 0.78

Core

Schemes

2.28

Centrally

SponsoredSchemes

3.06

Petroleum

0.25

Fertilizer

0.70

Others

0.31

Social

services

0.45

General Services

1.02

Others

0.40

Budget

Size

24.42

Debt

Receipts

6.24

Non Debt Capital

Receipts, 0.92

Others

1.25

Capital

Receipts

7.16

Customs

1.12Taxes on

UTs 0.05

GST

7.44

Union

Excise

Duties

2.60

Taxes on

Income

5.29

Gross Tax

Revenue

22.71

Transfer to

NDR Fund

0.03

Corporation

Tax

6.21

Others

1.23

Dividend&

Profit,

1.07

Net Tax

Receipts

14.81

Market

Loans

4.07

Non-Tax

Revenue

2.45

State Share

of Taxes

7.88

Small Savings and

State Provident Fund

0.92

Others

1.33

Budget guided by mission to strengthen agriculture, rural development, health, education,employment, MSME and infrastructure sectors

(In lakh crore)

Interest

Receipts

0.15

Public Sector Undertakings

0.04

Government says a series of structural reforms will propel India among the fastest growing

economies of the world. Country firmly on course to achieve over 8% growth as manufacturing,

services and exports back on good growth path.

Fiscal deficit pegged at 3.5%, projected at 3.3% for 2018-19

Disinvestment crossed target of Rs 72,500 crore to reach Rs 1,00,000 crore

Taxes

No change in income tax for individuals

Standard deduction of Rs. 40,000 for salaried employees in lieu of transport and medical expenses.

2.5 crore salaried employees and pensioners to benefit.

Corporate tax rate for companies generating up to Rs. 250 crore turnover reduced to 25%

The existing 3% education cess will be replaced by a 4% health and education cess

Tax on long-term capital gains exceeding Rs. 1 lakh at the rate of 10%, without allowing any

indexation benefit. However, all gains up to 31st January, 2018 will be grandfathered.

Short term capital tax remains at 15%

A 10% tax on distributed income by equity oriented mutual funds has been proposed

Budget Highlights

For Senior Citizens

Senior citizens allowed Rs 50,000 deduction on health insurance premium paid in a year from the

earlier Rs 30,000.

Increase in deduction limit for medical expenditure for certain critical illness from Rs. 60,000 (in case

of senior citizens) and from Rs. 80,000 (in case of very senior citizens) to Rs. 1 lakh for all senior

citizens, under section 80DDB.

Exemption of interest income on deposits with banks and post offices to be increased from Rs.

10,000 to Rs. 50,000. TDS not required to be deducted under section 194A. Benefit also available for

interest from all fixed deposit schemes and recurring deposit schemes.

The government proposed to extend Pradhan Mantri VayaVandana Yojana up to March, 2020.

Current investment limit proposed to be increased to Rs. 15 lakh from the existing limit of Rs. 7.5 lakh

per senior citizen.

Financial Sector

The Government will expand the coverage under Prime Minister Jan DhanYojana by bringing all

60 crore basic accounts within its fold and undertake measures to provide services of micro

insurance and unorganized sector pension schemes through these accounts.

Government makes PAN mandatory for any entity entering into a financial transaction of Rs. 2.5

lakh or more.

Comprehensive Gold Policy on the anvil to develop yellow metal as an asset class

Budget Highlights

Agriculture

MSP for all unannounced kharif crops will be one & a half times of their production cost like majority

of rabi crops: Institutional Farm Credit raised to 11 lakh cr in 2018-19 from 8.5 lakh cr in 2014-15.

22,000 rural haats to be developed & upgraded into Gramin Agricultural Markets to protect the

interests of 86% small and marginal farmers. An Agri-Market Infrastructure Fund with a corpus of Rs.

2,000 cr will be set up for developing and upgrading agricultural marketing infrastructure.

‘Operation Greens’ launched to address price fluctuations in potato, tomato and onion for benefit

of farmers and consumers.

Two new funds of Rs. 10,000 cr announced for Fisheries and Animal Husbandary sectors; re-

structured National Bamboo Mission gets Rs.1,290 cr.

Rs. 200 cr for supporting the cultivation of highly-specialized medicinal and aromatic plants, &

supporting cottage industries that manufacture perfumes, essential oils, & associated products.

Agricultural credit target increased from Rs. 10 lakh cr in 2017-18 to Rs. 11 lakh cr for 2018-2019.

100% deduction proposed to companies registered as Farmer Producer Companies with an annual

turnover upto Rs. 100 cr on profit derived from such activities, for five years from 2018-19.

Food processing sector allocation almost doubled from Rs. 715 cr in 2017-18 to Rs. 1400 cr in 2018-19

Budget Highlights

Infrastructure

Rs. 5.97 lakh crore allocated for infrastructure, proposed spending on rural infra is Rs. 14.34 lakh crore

Smart Cities Mission aims at building 100 Smart Cities with state-of-the-art amenities. Projects worth

Rs. 2350 crore have been completed and works of Rs. 20,852 crore are in progress.

The AAI (Airports Authority of India) has proposed to expand airport capacity to 1 billion trips a year.

Defence

The government will develop two defence industrial production corridors and bring out an industry-

friendly Defence Production Policy 2018 to promote domestic production by public sector, private

sector and MSMEs.

Railways

Rs. 1.48 lakh crore for railways, capacity expansion is priority

4,000km of new railway track will be laid down by 2019, all railways stations with footfall of more

than 25,000 to have escalators. The government will undertake redevelopment of 600 major railway

stations across the country

Allocated Rs. 11,000 crore for expansion of Mumbai’s suburban train network and Rs. 17,000 crore

for the Bengaluru rail network. Also planned to allocate an additional Rs. 40,000 crore for Mumbai’s

rail network.

Budget Highlights

Digital India

5 lakh WiFi hotspots to provide broadband access to 5 crore rural people

All crypto currencies, which include bitcoins, are considered illegal, and the government will take

all measures to eliminate their use.

NITI Aayog to initiate a national programme on Artificial Intelligence(AI)

Centres of excellence to be set up on robotics, AI, Internet of things, etc.

Education

The government launches a major initiative named ‘Revitalising Infrastructure and Systems in

Education (RISE) by 2022’ with a total investment of Rs. 1 lakh crore in the next 4 years.

Ekalavya Model Residential Schools to be started by 2022 for blocks with more than 50% scheduled

tribe population and at least 20,000 tribal persons.

Launch of National Apprenticeship Scheme with stipend support and sharing of the cost of basic

training by the government to give training to 50 lakh youth by 2020.

Housing and Real Estate

51 lakh affordable homes will be made. The government to reduce hardships faced in realty deals

No adjustment to be made in a case where circle rate value does not exceed 5% of sale

consideration

Budget Highlights

Health

The World’s largest Health Protection Scheme covering over 10 crore poor and vulnerable families

launched with a family limit upto Rs. 5 lakh rupees for secondary and tertiary treatment.

Under the Aayushman Bharat programme, 1.5 lakh centres will be set up to provide health

facilities closer home.

Earmarked Rs. 600 crore to provide nutritional support to all TB patients

1 medical college for every three parliamentary constituencies and at least 1 government

medical college in each state of the country

For Women

Contributions from women employees will be brought down from 12 % to 8 % to enable them to

get a higher take-home pay

Women below the poverty line to get 8 crore free gas connections under Prime Minister’s Ujjwala

Scheme

Loans to women self help groups will increase to Rs.75,000crore in 2019 from 42,500 crore last year.

The government gives Rs. 9,975 crore for social security and protection programme for all widows

and orphaned children for the next fiscal year

Budget Highlights

Social sector

Government plans to construct 2 crore toilets in next financial year under the Swachh Bharat

Mission

4 crore poor households will be provided with electricity connections under the Prime Minister

SaubhagyaYojana

A social welfare surcharge at the rate of 10% is imposed in place of the Education Cess and

Secondary and Higher Education Cess on imported goods.

The government announces Amrut Programme to provide water supply to all households in 500

cities. Water supply contracts for 494 projects worth Rs. 19,428 crore will be awarded

Higher targets for Ujjwala, Saubhagya and Swachh Mission to cater to lower and middle class in

providing free LPG connections, electricity and toilets.

Outlay on health, education and social protection will be Rs. 1.38 lakh crore. Welfare fund for

scheduled castes gets a boost.

Miscellaneous

Customs duty on mobile phones has been increased from 15% to 20% in a bid to promote 'Make

in India' and create jobs in the country.

10 prominent sites to be developed as iconic tourist destinations

Budget Highlights

An Overview Union Budget FY 2019

For Internal Circulation only

Fiscal Deficit target for 2018-19 is 3.3%; higher than the self-imposed target of 3%

12

Fiscal Consolidation Path Falling Subsidy Burden

Subsidy burden kept unchanged at 1.6% of GDP in FY19

Source: CSO, MOSPI, CGA & MoF

2.5

6.0

6.5

4.8

5.9

4.94.5

4.13.9

3.5 3.53.3

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

RE

FY

19

BE

Fiscal Deficit as % of GDP

1,414

1,734

2,179

2,571

2,546

2,583 2,641

2,348

2,660

2,949

2.2 2.2

2.52.6

2.3

2.11.9 1.5 1.6 1.6

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0

500

1,000

1,500

2,000

2,500

3,000

3,500

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

RE

FY

19

BE

Subsidies Subsidies (RHS)(INR bn) (% of GDP)

Fiscal Consolidation Roadmap delayed further

Tax-to-GDP expected to continue to improve

Tax to GDP ratio is improved over last few years but it is still lower as compared to most EMs

13Source: CSO, MOSPI, CGA & MoF

16.1

12.9

15.1

20.2

12.2

13.813.0

10.89.9

11.911.1 11.5

0.0

5.0

10.0

15.0

20.0

25.0

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

RE

FY

19

BE

Nominal GDP(% YoY)

24.6

2.53.9

27.8

12.4

16.8

9.9 9.9

16.917.9

13.4

16.7

11.6

10.5

9.5

10.110.110.4

10.110.0

10.6

11.211.5

12.0

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

RE

FY

19

BE

Gross tax receipts

% YoY (LHS) % of GDP (RHS)

(% YoY)

Nominal GDP growth and it’s impact

Trend of Capital Expenditure

Govt. capex to increase by ~10% in FY19

14Source: CSO, MOSPI, CGA & MoF

1,127

1,566 1,5861,669

1,8771,967

2,530

2,8462,734

3,004

1.7

2.0

1.81.7 1.7

1.6

1.8

1.9 1.6 1.6

0.0

0.5

1.0

1.5

2.0

2.5

0

500

1,000

1,500

2,000

2,500

3,000

3,500

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

RE

FY

19

BE

Capital Exp Capital expenditure (RHS)(INR bn) (% of GDP)(%)enditure

Sector level actions

Sector Outlook

Consumer

No change in the duty or imposition of any additional tax for Cigarette is positive for

Cigarette companies (although GST rates can change in GST council)

Custom duty increase on safflower, palm oil is negative for few FMCG companies

using these commodities as inputs

Custom duty increase on watches and sunglasses increases competitiveness of

domestic manufacturers

Healthcare

Launch of the much awaited ‘’National Healthcare protection scheme’’, with about

10 Cr families covered for up to Rs 5 lakh per family per year for secondary and

tertiary care.

This will improve the spending power of the people.

― The overall growth in the healthcare spend can double

Auto Customs duty on TBR tyres increased from 10 to 15%,

― This would help domestic players

Sector level actions

Sector Outlook

Capital Goods

Higher infra spends

Budgeted railway capex for FY19 at Rs1.47tn is up 12% over FY18RE .

Defence capex for FY19 at Rs0.94tn is up 9% YoY; moreover R&D spends budget up

29% to Rs97bn

Real Estate

Continued push for affordable housing

To achieve the vision of “Housing for all” by 2022, 5mn houses to be built in 2018-19 in

rural area under Prime Minister Awas Scheme

Establish a dedicated Affordable Housing Fund (AHF) in National Housing Bank

Addresses anomaly under Sec. 43 CA to tax real estate transactions

Oil & Gas Despite the higher oil prices, the FY19 petroleum subsidy provisioning has been kept

flat at Rs. 248 bn

Agriculture

The fertilizer subsidy for FY19 has been kept at Rs.700Bn vs. Rs 650 bn FY18RE numbers.

― This could imply lower subsidy liquidation before nation-wide DBT roll-out unless

amendments are made

Sector level actions

Sector Outlook

Infrastructure

Overall infrastructure spends expected at Rs.5971Bn (up 21% YoY) with Roads

Highways spends increasing by 10%.

Targeted spend under Pradhan Mantri Awas Yojana of Rs.525Bn against Rs.290Bn for

FY18.

― Relying on off-budgetary resources at Rs 250bln, from zero in FY18

Insurance/MF

Introduction of govt. sponsored health insurance programme for lower-income

households, no clarity on amount allocated for the scheme

LTCG on mutual funds – Increase in tax from 0% to 10%

Life Insurance – No change in tax rates, ULIPs will continue to be exempt from LTCG

subject to minimum sum assured

Banks/NBFC

Deviation from fiscal consolidation path and govt borrowing plans put pressure on

yields

Higher MSP for Kharif crops reduces pressure on rural asset quality

Lower tax incidence on interest income for senior citizens –Exemption on interest

income on banks deposits raised from 10000 to 50000, positive for deposit growth

Carry forward of loss for acquired company in insolvency cases – Benefits of carry

forward of accumulated loss extended to acquirer in IBC cases

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