Budget 2018: Situation and Expectations

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Budget 2018 is nearly upon us and as ever, expectations, concerns, and anticipation all run high. SRMS International Business School’s Finance department helps to set the tone for themes that will dominate and proposals that are likely to find mention in the annual fiscal exercise.

Budget Themes are aspects that will be top of mind for the Finance Minister when he presents his proposals. Here is a list of themes that will influence his proposals:

GST improvements

This will be the first budget after introduction of GST. Apart from rationalization of rates, the Budget will set the tone for the GST Council’s measures through the year on increasing the currently low level of compliance, boosting matching of invoices, and carrying forward reforms like the e-way bill that will in turn help make the GST regime stronger.

Underprivileged sections of society

With rising income inequality, the Budget is likely to focus on aspects like social security, health care, and affordable housing, which benefit lower sections more directly while boosting growth. Delivery of public services, especially to the poorer segments,is also likely to receive special focus.

Rural economy and agriculture

Agriculture provides employment to nearly 50% of the Indian workforce and is the primary driver of the rural economy. With its stated objective of doubling farmer income, the government will use Budget 2018 to introduce measures that boost producer share of income. Moreover, with eight states going to elections this year and rural distress in many parts of the country, rural employment andgrowth producing infrastructureshould dominate.


Continued focus on infrastructure can be assumed, primarily because a) private sector investment continues to remain weak, hence government investment and expenditure has to dominate in order to drive growth; and b) due to the continued shortcomings in sections like transport, communications, power distribution, etc.

Job creation

With over a million new workers joining the workforce every month, India cannot afford to have any kind of jobless growth. Job creation schemes, a focus on sectors that are labour intensive, and the Make in India theme will dominate the government’s fiscal math.

Fiscal management

Higher oil prices and lower growth rates compared to the past have meant that the fiscal position is delicate to say the least. Hence, spending is likely to be prioritized for where it can delivery both largest economic growth, social benefits, and political capital.

The average price of the Indian basket of crude oil is estimated to be in the range of $65-70 per barrel in FY2019, up considerably from FY2018 levels. This would generate pressure on the government to reduce excise duties on fuels to temper inflation, while simultaneously pushing up the fuel subsidy.

Coming to specific proposals, this indicative list shows what may find mention given the current circumstances and needs of the hour:

Focus on Ease of Doing Business

Improvement in Ease of Doing Business rankings has been one of the key tangible KPIs of this government. This focus is unlikely to reduce given the large amount of political capital it can drive. Compliances, permissions, filings, inspections, registrations, etc. to the extent they are influenced by Budgetary proposals are likely to see continued focus.

Financial Services

Notwithstanding the recapitalization measures amounting to Rs2.11 lakh crores already announced, Public Sector Banks will require large amounts of capital to tide over the losses arising from bad loans. The two themes that will dominate Budget 2018 are: a) banking sector reforms; and b) infusion of fresh capital into the neediest institutions that show maximum promise of revival.

Income Tax: Corporate

Depending on expectations on the Indirect Taxes (mainly GST) front, direct tax measures could be focused on providing relief to businesses. This could involve reduction in the corporate tax rate to 25% in line with the Finance Minister’s four-year-old announcement. Moreover, US has substantially reduced its corporate tax rate to 21% from January 2018 creating expectations of reductions here.

Income Tax: Individuals

The last full Budget before General Elections in 2019 means that the salaried middle class, a significant support base for the government, will receive focus. Most experts expect a renewed focus on populism and the aamaadmi, which could see measures like reintroduction of standard deduction, increase in overall limit for deduction under Section 80C, and increasing the meagre allowances for medical expenditure.

One of the most widely speculated aspects of individual direct tax has been the reintroduction of tax on Long Term Capital Gains (LTCG) on sale of equity shares. While there is high expectation of such a proposal, the government will need to consider optics, impact on market sentiment, and whether the small amount by which tax revenues will go up will be worth the trouble.

Industry / Manufacturing / Make in India


Growth of capital expenditure on Defence has been stagnating over the last few years. This combined with the focus on internal security and need for enhanced capabilities at India’s borders is likely to drive a larger allocation towards Defence, with a special focus on Make in India.


As per Economic Survey 2018, which sets the tone for policy making, Exports offers the biggest potential for upside in terms of both growth and fiscal balance. Moreover, given that both Demonetization and GST have impacted the Exports segment (especially MSMEs) disproportionately, one can expect significant incentives for exporters.

Savings / Investments

Cost of loans has not shown any significant fall due to the RBI’s inability to reduce interest rates. At the same time, interest on government savings schemes and bank deposits has seen a consistent slide. This squeeze has been felt most by the middle class. Hence the Finance Minister may have some sops to offer, which can boost returns, incentivize financial savings, and put more money in the hands of people.