Union Budget 2018 takes a step in the right direction, tries to fix core issues


Union BudgetThe Union Budget rightly focuses on some of the critical issues in the rural and social sectors.

Steps such as raising the Minimum Support Price (MSP) offered to farmers for crops; increased resources for irrigation and aquaculture projects; Rs. 10,000 crore fund for fisheries, animal husbandry and related infrastructure; allocating Agriculture market fund of Rs. 2,000 crores, are likely to give the desired boost to this sector.

Allocation of Rs 19,000 crore for PradhanMantri Gram Sadak Yojana and Rs 33,000 crore to PradhanMantriAwasYojana are also big positives for rural infrastructure.

The accent on job creation is also emphasised with the renewed focus on the MSME sector, which is a key driver for employment generation. Lower tax rate for companies with turnover upto Rs 250 crore is expected to help small and medium companies increase their investible surplus. Further, the proposal for the contribution of the employer’s share of contribution by the Government for three years for new employees is expected to help incremental job creation.

The proposed target of Rs 3 lakh crore for lending under MUDRA is expected to improve access to credit to the sector.On boarding, Public sector banks to the Trade Electronic Receivable Discounting System (TReDS) platform and linking it to GSTN will help in improving the working capital situation of MSMEs.

The total Infrastructure outlay for the Infrastructure sector increased from an estimated expenditure of Rs 4.94 lakh crore in 2017-18 to almost Rs6 lakh crore. This will boost employment and growth. Further, in addition to the more than budgetary allocations for capital outlay, the government proposes to increase reliance on funding public investments through borrowings by the public sector units, like SPVs like the Affordable Housing Fund and monetisation of assets like the Toll-Operate-Transfer model being implemented by the NHAI.

By asking SEBI to consider mandating large companies to raise 25% of their debt from the bond markets, the Government is consciously strengthening the Bond market. Further, it has proposed to consider corporate bonds with ‘A’ rating as eligible for investment, instead of the current practice of considering only ‘AA’ rating eligible for investing by most regulators. In addition to deepening the bond market, this is also expected to reduce the pressure on banks. However, the appetite of the market for such large debt issuances is something that needs to be watched.

Overall the Budget is focussed on investing in the rural and social sectors to improve rural infrastructure and healthcare and in helping the smaller corporates with tax cut and incentives to increase employment generation, all of which could help in a more inclusive and sustainable growth.

This article is written by V. Sriram, COO, ICRA Management Consulting Services

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