New Delhi: When finance minister Arun Jaitley will rise on Thursday to present the last full budget of the current Modi government, he will have a daunting task of appeasing the relentless middle class with tax sops, revive the rural and agri-sector, push growth and at the same time stick to a tight fiscal deficit target when revenue from GST is yet to stabilise.
Mr Jaitley is widely expected to give relief to the middle class in personal income-tax by raising tax slabs to win the support of this segment of the population which has been hit by GST which among other raised service tax to 18 per cent compared to around 12.50 per cent during UPA xII era making phone calls, car repairing, paying insurance among a huge number of services costlier.
It is the middle and the salaried class who have been severely hit by the high service tax in GST.
With crude oil prices rising and subsequently petrol and diesel prices hitting new peak, Mr Jaitley could also be forced to slash excise duty on petrol and diesel.
A high petrol and diesel prices could push up inflation and transport cost. Petroleum ministry has already recommended to the finance ministry to cut excise duty on fuel to give relief.
The other challenge for the finance minister will be to cater to the rural and the agriculture especially after BJP didn’t perform that well in rural areas during the recent Gujarat elections.
This is especially significant since 2018 is “state-election-heavy” with 8 states going to polls.
HDFC Bank’s chief economist Abheek Barua in a report said that rural distress seems to have intensified across the country and will be a challenge that the centre will have to address comprehensively.
“In fact, the farm sector is likely to figure on top of the list of priorities,” said Mr Barua.
Addressing rural distress could mean higher allocations towards doubling farm income by 2022, affordable housing for the rural economy, tying up various schemes with each other for better efficiency for instance MGNREGA with affordable housing, enhanced funding for schemes which are predominantly rural in nature for instance PMGSY, he said.
With growth at lowest rate during Modi regime, Mr Jaitley is expected to increase allocation for infrastructure projects and give relief in corporate tax to industry to help them tide over the slowdown.
However, amid demand to increase allocation for various sector, the biggest challenge for the finance minister will be to stick to the fiscal deficit roadmap of 3 percent from 3.2 percent in current fiscal.
“Allocation to various segments will largely depend upon the revenue expectation for the next year but the government can’t also dismiss the electoral politics pull. So finance minister will have to do a balance between fiscal prudence and electoral compulsions,” said a senior economist.
To raise revenue Mr Jaitley may sharply raise asset-sale target for the next financial year with about 36 companies in line for strategic disinvestment. The Cabinet committee on economic affairs has already given approval for strategic sales in 23 of them.
