Budget 2018: An election Budget with an unkind cut to equity investors

Budget 2018 was widely expected to be a populist one, as it was the last full Budget of the current NDA government ahead of the general elections next year. Experts had predicted it to be a ‘something for everyone’ Budget with a strong agri/rural underpinning.

The talking point of the Budget was the health insurance for 100 million financially weak families under the National Health Protection Scheme. The Finance Minister touted it as the world’s largest health care programme, and while it does sound grand, the Budget has not spelt out how much funds will be allocated for the ambitious scheme.

It is a laudable effort no doubt, considering millions of Indian still don’t have access to decent healthcare facilities, and given India’s poor rankings in most social indicators. More importantly, spending on healthcare is any day a better way of pleasing voters instead of something unproductive like loan waivers.

Still, implementation and the math of NHPS will matter the most. Many are skeptical that the scheme cannot be a meaningful success unless the government backs its intent with funds and execution at the ground level. Else, it will just be another case of an outlay without the desired outcome.

Also, the proposal to pay a minimum support price 50 percent above the cost of production may not benefit many farmers. First, the Government only includes operational expenses (inputs costs and family labour) while calculating the cost of production. The calculation doesn't include the expenses farmer incurs on rent on land or capital. Therefore even at 1.5 times the cost of production, the MSP may not add much money to a farmer's kitty.

Moreover, MSP cover only 35 percent of the agriculture output. The MSP doesn't apply on milk, fruits and vegetables.

For the salaried class which thought that the government would try to woo them with tax sops, the Budget was a major let down. The reintroduction of a standard deduction of Rs 40,000 comes is too a large extent offset by the scrapping of transport allowance and medical reimbursement.

The government has tried to do its bit for job creation by reducing the corporate tax rate to 25 percent for companies with a turnover of up to Rs 250 crore. But it could have perhaps done more by addressing the thorny issue of angel tax for start-ups. Start-ups have been a major engine for job creation over the last 3-4 years. A relaxation of the rules for angle tax would have helped ease the early stage funding woes that many start-ups are facing right now.

But the biggest blow appeared to have been reserved for stock market investors, with the proposal to tax long-term capital gains above Rs 1 lakh at 10 percent.

Talk that this tax would be introduced in the Budget had been doing the rounds for the last few weeks. It was felt that the government may not want to rock market sentiment this year at least, considering that it still had to raise money through the sale of shares in state-owned companies.

The stock market has been on a tear over the last twelve months and many feel equity investors should not grudge paying a small portion of their meaty profits as tax. That argument holds water. But what seems to have put off long-term investors is that the securities transaction tax remains along with the new tax on long-term capital gains. When STT was introduced in Budget 2004, it was to balance the abolition of long-term capital gains tax.

(The writer is Editor, moneycontrol.com)