Union Budget 2018: Highlights from the Expenditure Budget

Union Budget 2018: Expenditure Budget Increased with a Focus on Rural Development

The Union Budget 2018 unveiled by finance minister Arun Jaitley outlined various allocations for government expenditure. As expected, government spending focused primarily on rural development and overall infrastructure development. The expenditure budget has been increased marginally for the 2018-19 period owing to higher allocations in various sectors. All expenditure including allocation for central projects and establishment expenditure has been raised from the previous year.

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Overall expenditure budget

The overall government expenditure in the Union Budget 2018 (2018-19) was estimated to be around Rs.24.42 lakh crore. When discussing the fiscal situation of 2017-18, the finance minister revised the total expenditure estimate to Rs.21.57 lakh crore. This represents a marginal increase from the budget estimate of Rs.21.47 lakh crore. He also noted that the central government would receive GST revenues for 11 months rather than 12 months in the 2017-18 period. This fiscal effect has been offset by the higher revenues generated from direct tax and disinvestment receipts. Also, fiscal deficit for 2018-19 has been estimated to be 3.3%.

Sector wise allocation - key beneficiaries

This year’s budget was expected to have higher spending compared to Union Budget 2017. Another major expectation was the increased spending in rural development and infrastructure. Both these expectations have come true in this budget. Some of the sector wise beneficiaries of the budget can be listed as follows.

Sectors 2017-18 2018-19
Rural development Rs.1.35 lakh crore Rs.1.38 lakh crore
Agriculture and allied activities Rs.56,589 crore Rs.63,836 crore
Subsidy for fertilizer Rs.64,974 crore Rs.70,080 crore
Subsidy for food Rs.1.40 lakh crore Rs.1.69 lakh crore
Defence Rs.2.67 lakh crore Rs.2.82 lakh crore

The government has allocated Rs.2.04 lakh crore for the development of 100 smart cities all over the country. As expected, the defence sector did not receive a major boost in this year’s budget allocation.

Key highlights of Union Budget 2018

Some of the key highlights of Union Budget 2018 can be listed as follows:

  • Rs.2,000 crore for the development of 22,000 Grameen Agricultural Markets
  • Allocation doubled to Rs.1,400 crore for ministry of food processing
  • Agricultural export potential of the country expected to be $100 billion as against the current $30 billion
  • Rs.2,600 crore allocation for ground water irrigation scheme
  • Institutional credit for agriculture raised to Rs.11 lakh crore
  • Infrastructure investments estimated to be in excess of Rs.50 lakh crore

The last full budget of the current regime is all set to be unveiled on February 1, 2018. It is expected that the government will take the necessary measures to satisfy all major stakeholders ahead of the general elections in 2019. Unlike the previous budgets, the NDA government has to tread a fine line when it comes to satisfying all parties involved. This is why expenditure budget is one of the most critical aspects of Union Budget 2018. Since the implementation of the Goods and Services Tax (GST) is expected to impact the revenue estimate, this factor may also have an effect on government spending and overall expenditure.

Significance of expenditure budget

Expenditure plays a major role in any union budget drafted by the government. A drastic increase in government spending and expenditure could widen the fiscal deficit and affect the economy. With that being said, inadequate spending could slow down investment and affect growth across various sectors in the country. It goes without saying that the government must strike a proper balance between revenue and expenditure in order to sustain economic growth across the country.

Fiscal deficit and possible slippage

Fiscal deficit refers to difference between the government’s revenues and expenditure. In the Union Budget 2017, the government set a fiscal deficit target of 3.2% for the current fiscal year. However, analysts across the country expect that the finance minister may announce a slippage from the fiscal deficit target mainly because of declining revenues. While capital expenditure has remained under control for the last year, lower revenues that followed the GST rollout in mid-2017 could very well be the reason behind this slippage.

Expenditure in previous budgets

Compared to Union Budget 2016, the government has increased spending in various sectors in last year’s budget. For instance, the defense sector received an additional Rs.14,000 crore and the education sector received an additional Rs.4,500 crore in the previous budget. In the previous budget, total expenditure through budget stood at Rs.21.47 lakh crore. Of this, central spending totaled more an Rs.17 lakh crore. Expenditure budget for last year increased significantly mainly because of government spending in infrastructure and other central schemes.

What to expect in Union Budget 2018?

While policy initiatives were the focus of the previous regime, the reigning NDA government is focusing more on structural reforms. The scenario is slightly different now due to the implementation of GST and other structural reforms. The government’s revenue estimate is expected to decline due to the impact of GST implementation and the manufacturing slowdown that followed. However, the government cannot compromise on its spending since this is the last full budget before the general election of 2019. Hence, it is safe to assume that there will be a slight increase in expenditure budget in the Union Budget 2018. Most analysts predict that infrastructure and rural development will be the primary focus of this year’s expenditure budget. Considering the fact that agricultural growth has slowed down to 2.1%, it is highly likely that the rural sector will be a major beneficiary in the upcoming budget.

Since the expenditure budget is likely to be increased, the government must look for alternative sources of revenues in order to narrow down the fiscal deficit. The budget announcement will reveal more about the indirect taxes that the government might levy to narrow the deficit. With the current level of revenues and expenditure, the government must come up with innovative measures to strike a balance.

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