Budget 2018 will be Modi govt's biggest challenge in 4 years. Here's why

Budget 2018

Unlike most countries, the budget is usually an eventful affair in India and is a heated topic of national conversation around the time of its release. The underlying national interest behind it is mostly because the budget holds something for everyone -- ranging from a small farmer to a big industrialist. However, from this year onwards, much of its sheen will be off by a bit.

The tinkering of indirect taxes, which was an aspect of the budget that affected everyone in all corners of the country, is not within the Centre's domain anymore. Since the implementation of the Goods and Services Tax (GST), all indirect taxes -- except for customs duty -- have to be decided upon by the GST Council instead of being annually altered based on short-term political interests. Therefore, the first budget after the GST reform will be a challenging one for the government.

The fact that this will be the last full budget before the 2019 elections and that the government has already spent all of its budgeted expenditure for this financial year will further complicate matters. The oncoming elections affect the budget in multiple ways.

First, if the Gujarat election results are to be taken as indicative of the national sentiment, the BJP government is more popular in urban areas than it is in the countryside. The recently released CSO growth estimates show why. The farm and allied sector grew at 2.1 per cent in the current financial year as compared to 4.9 per cent in the preceding year. So, the ailing agricultural sector will receive much-needed redressal in the upcoming budget. In fact, the Finance Minister has already confirmed this. Reviving growth in the sector can also be a viable mechanism for job creation -- another economic aspect that the government will be looking to address the budget.

Second, with the elections around the corner, firming up economic growth will be foremost on the government's agenda. Investments have declined from 34.3 per cent of the GDP in 2011-12 to 27 per cent in 2016-17. They still do not seem to have picked up. First advanced estimates show that this has further fallen to 26.4 per cent in 2017-18. Estimates of the Centre for Monitoring Indian Economy (CMIE) show that new investment proposals are likely to amount to around Rs 8 trillion ($126 billion) in 2017-18, which would be merely 60 per cent of the new proposals made in 2016-17. This would also be the lowest since 2004-05.

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