The Finance Minister announced Union Budget proposals for the financial year 2018-19 on 1 February 2018 which was more focused towards agricultural development along with showing commitment towards the welfare of farmers and growth in rural employment. The Budget was also focused on incentivising Medium, Small and Micro Enterprises (MSMEs) wherein industry enhancement has been witnessed post-demonetisation and introduction of Goods and Services Tax (GST).
The government has aimed at substantially increasing investments in the agricultural sector and has committed to keeping Minimum Support Price (MSP) for all the unannounced kharif crops at atleast 1.5 times of production cost. Policy measures have also been announced to boost investments for developing and upgrading agricultural market infrastructure to eventually support farmers for direct sale to consumers and bulk purchasers. This will help farmers to sell at attractive prices directly to consumers and maximise returns which is currently earned by the intermediaries who charge a hefty mark-up before selling the same to the end consumers.
As part of the development of the food processing sector which is growing at the rate of 8 percent per annum, the government has almost doubled the allocation towards the Ministry of Food Processing to Rs 1,400 crores and will also promote establishment of specialized agro-processing financial institutions in this sector.
In order to overcome the challenge of providing perishable items such as tomatoes, onions, potatoes, etc. which are consumed throughout the year, the government has proposed to provide support for agri-logistics, processing facilities and professional management for delivering such items directly to consumers. It has also been proposed to make investments in setting up of state-of-the-art testing facilities to liberalise the export of agricultural produce and increase India’s potential to export its agricultural produce.
As part of tax incentives, a 100 percent tax deduction has been extended to the Farm Producer Companies having a total turnover of up to Rs 100 crores which includes income from marketing of agricultural produce, purchase of agricultural implements, seeds, etc., or processing of agricultural produce. Accordingly, giving full deduction for farmer producing companies is a win-win announcement and will certainly lead to an overall increase in the standard of living of the farmers as well as the common man. This will have a cascading impact on retail of perishable goods.
The Finance Minister has also proposed a strong support to the MSMEs terming them as the major engine of growth and employment in the country. In its move to incentivise the MSME’s, the government has proposed to extend the benefit of lower corporate tax rate of 25 percent to companies with a reported turnover of Rs 250 crores. The government has also generated a database of MSME businesses which will help in financing their working capital requirements.
It has also been proposed to revamp the online loan sanctioning facility for MSMEs for ease of financing. Such measures will help these budding enterprises to improve their performance and take advantage of such facilities to become key contributors to the growth of the consumer-related sector. Special tax benefits have also been proposed for enterprises in the footwear and leather industry which will act as a helping hand to these enterprises to increase their resources by reducing their tax outflow.
In addition to the above, the government has announced various measures for consumers for gold exchanges, transport and travel infrastructure, relief to salaried persons, increase in disposable income in the hands of the salaried class as well as senior citizens which will lead to increase in their consumption pattern leading to acting as a catalyst to growth of the retail sector.
Union Budget 2018 focusses on strengthening the rural economy in all aspects including from farmers to the salaried class, cutting across the poor and middle class society. With special mention to the MSMEs, the government has provided them with various types of incentives to grow and prosper. The focus on providing stimuli to the domestic farmers and artisans industry, allocation to various schemes and funds created in the agricultural sector is a smart way to boost the economy and achieve the desired growth target.
In summary, Union Budget 2018 has sowed the seeds of growth for the agriculture sector which is the backbone of the Indian economy. The proposals have the potential of leading to a solid platform for overall increase in the standard of living, per capita income and ultimately resulting in macro-economic growth.
(Talreja is Partner, Deloitte India; Khire, Director and Shah is Manager, Deloitte Haskins and Sells LLP)
Updated Date: Feb 09, 2018 12:56 PM