Jaitley’s 2018 Budget Doesn’t Rock the Boat (and That’s a Good Thing)

The 2018 budget announcement comes at a watershed moment in India’s development, with the South Asian powerhouse projected to have the fastest GDP growth of any nation over the next three years. Between surging FDI and a consistent reduction of red tape, India is becoming a more mature, process-driven economy, a dynamic that will only increase the country’s appeal as an investment destination. In fact, India, with about 7% of the world’s GDP, created a remarkable 17% of new global wealth in 2017.

This growth is, in no small part, due to the Modi government’s ambitious approach to economic policy. From the surprise of demonetization to the scope of GST, Modi has proven he is not afraid to think big and follow through. The real estate sector, especially, has borne witness to a suite of modernizing reforms, which have propelled the industry towards more sustainable and predictable growth.

Apart from the massive health care overhaul immediately dubbed ‘Modicare’, yesterday’s budget had a relative lack of groundbreaking announcements. This should not come as a surprise. While FM Jaitley’s promise to increase the ‘ease of living,’ makes for a fantastic soundbite, the concrete economic policy within the budget appears to be an incremental improvement on Modi’s extant policy reforms. The budget appears designed to provide populist political capital during an election year, and is unlikely to have the economic impact of, say, GST, or continually liberalizing FDI norms.

Still, the 2018 budget is a major affair, and several of its policies will seriously impact the economy as a whole and real estate in particular. For the discerning investor, key takeaways include:

  • The landmark announcement of Modicare, the world’s biggest health care program.
    Benefiting an astonishing 100 million people, the program will establish 150,000 health and wellness centers and provide up to Rs 5 lakh for medical coverage.
  • The establishment of a dedicated Affordable Housing Fund.
    This is in line with Modi’s ‘Housing for All’ initiative, and will boost both demand from end users and lead to an increase in the supply of affordable homes.
  • The introduction of a Long Term Capital Gains tax on stocks and mutual funds held for more than a year.
    While such a policy is regressive, it will boost real estate vis-a-vis the stock market by reducing the tax difference between the two asset classes.
  • The reduction of income tax rates for small and medium-size businesses.
    This will boost the overall economy, though the differential between different sized companies is a troubling display of an overly activist government.
  • A push to have large corporations raise 25% of their capital from the bond market.
    This is a bold move, but one that will ultimately do more harm than good. As equity is often the safer way for companies to raise funds, this represents a step towards an overregulated and unbalanced regulatory regime.

From an economic perspective, the 2018 budget was a relatively mild affair. Given the surging growth India is currently undergoing, that’s a good thing.

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