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NEW DELHI: Finance minister Arun Jaitley on Thursday read out long portions of his speech in Hindi. The repeated resort to the vernacular, as much as the content of what he said, revealed the political nature of his Budget. The appeal was primarily to sections that make up the numbers at the hustings – the poor, farmers, lower middle class, young jobseekers, senior citizens.
In sharp contrast, the well-heeled will have to pay more income tax, including cess, as well as for imported goodies like cellphones, TVs and high-end cars. They’ll also see the taxman claiming his cut of what they gain from successful punts on the stock market.
The contrast is expected to serve as a message of the Modi government’s attempt to reassure the constituencies that will be key for BJP’s fortunes in the state elections due this year and, more importantly, his re-election in 2019. It completes the transformation of a government, which was seen as pro-market when it came to office, into a promoter of welfarism. It is an extension of the drive to ‘image-correct’, most dramatically showcased till now by demonetisation in 2016.
That politics, more than economics, was the flavour of the day showed also in the willingness to slacken fiscal controls. The current year is estimated to end with a deficit of 3.5% of GDP against the target of 3.2% and next year’s goal is now 3.3% rather than the 3% it should have been according to the government’s pre-set ‘glide path’.
Even this target appears somewhat ambitious given the promised welfare splurge on health, agriculture, senior citizens and rural infrastructure, all of which put together would “build a New India 2022”, according to the minister. The Budget numbers left several questions hanging over how exactly all of these are to be funded.
The numbers are premised on 11.5% growth in nominal GDP, in line with 7-7.5% real growth projected in the Economic Survey, with inflation at 4-4.5%. Whether high oil prices and the government’s intent to boost farm produce prices will fan inflation and throw these assumptions out of kilter will be watched. The enormous scale of the proposed welfare schemes means the challenge of implementing them in time to reap benefits in the 2019 polls will be correspondingly huge and will be a race against time.
For the poor, the Budget promised “the world’s largest government-funded health care programme”, which by the end of the day was widely being dubbed Modicare – an insurance scheme that will provide a cover of Rs 5 lakh a year for 10 crore families, or about 40% of India’s population. The key could lie in how quickly the government identifies beneficiaries, puts mechanisms in place, and gets them rolling while ensuring the gains aren’t skimmed away by insurance firms and private hospitals – a tough ask, but one which holds the potential of being Bhajpa’s Brahmastra a year from now.
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If implemented with reasonable success, the proposed mega health insurance scheme will mark a huge stride towards creating a social security net for the underprivileged in a country where healthcare is scarce and costly.
For farmers, there was the promise that minimum support prices for the crop to be harvested post-monsoon this year will be at least 50% higher than what it costs to produce. The government will also ensure that MSP is actually available to many more cultivators than at present. Details on both these ambitious schemes — in terms of what the model will be and how they are to be funded — were scanty in the Budget documents, but the FM later said he was confident money wouldn’t be a constraint.
Again, delivery will be crucial. But if the cost+50% scheme gets off the ground, BJP can have a realistic shot at appeasing a restive countryside and its teeming numbers who gave BJP a big hand in 2014 but have since vented their frustration in Gujarat and, on Budget-day, in the Rajasthan bypolls.
For those with relatively modest incomes, the return of standard deduction on income tax, at Rs 40,000, meant a saving on their tax bill would be partly negated by a 4% cess for education and health replacing the current 3% cess for education and by the doing away of exemptions for medical and transport allowances. For those with higher incomes, the math works against them as the cess more than erodes the tax savings.
Young job-seekers, however, can take heart from the promise that the government will pay 12% of their wages into their provident fund for the first three years, thus incentivising employers to hire them. Women entering the organised labour force are also expected to benefit from having to pay just 8.3% of their salaries into the PF account for three years. A cut in the corporate tax rate from 30% to 25% for firms with turnovers between Rs 50 crore and Rs 250 crore, the FM hoped, would also provide such mid-sized units some extra cash to expand jobs.
The push for employment is hoped to be complemented with the focus on infrastructure, including rural roads and housing.
Senior citizens are to get a whole slew of benefits. Pensioners, for instance, can make the most of the Rs 40,000 standard deduction since they don’t lose by the elimination of the medical and transport allowance exemptions. Further, those above 60 can now get tax exemption on interest income up to Rs 50,000 against the current limit of Rs 10,000. The limit on deduction for health insurance premia or medical expenses will go up from Rs 30,000 to Rs 50,000. And if the spending is for certain critical illnesses, they can get up to Rs 1lakh deducted from their income. This sort of deduction is now available up to Rs 60,000 for those aged between 60 and 80 and Rs 80,000 for those above 80.
Viewed together with the incentives for women, schemes for seniors mark the recognition of their emergence as independent political constituencies.
While generously promising the moon to the aam aadmi, the FM dipped into the pockets of the high-income classes. Not only will the enhanced cess on I-T leave them net losers, he’s brought back the long-term capital gains tax, which means gains made on selling securities after a one-year holding period will be taxed at 10% beyond Rs 1 lakh. Thankfully for them, gains already made till Jan 31this year will not be taxed.
The better-off will also have to pay more for their imported goods, with the FM imposing an across-the-board 10% surcharge on all customs duties and raising the duty rates on several white goods like TVs, cellphones and cars. While this move dovetails with the government’s Make in India programme, it doesn’t quite match the Prime Minister’s anti-protectionist appeal at Davos barely a week ago. But then, the PM and FM are probably looking more at Dewas (in poll-bound Madhya Pradesh) than Davos right now.