Budget 2018: Tax relief likely as these 7 economic factors may dictate Arun Jaitley's fiscal math

The Union Budget 2018 is the last full Budget of the Narendra Modi government. As Arun Jaitley is prepping up to present the Budget 2018 on February 1, a tradition started last year, the global and India economy is going to play a crucial role while taking decisions. A lot of focus is also likely to be on the proposals made in the previous Budgets, besides announcing the new ones.The Budget 2018 comes against the backdrop of minor fiscal slippage from the 3.2% target of the Budgetary allocation, along with rallying crude oil prices on the global front. Here's where the economy -- domestic and global -- economy is, ahead of the presentation of the last full Budget of the government before the General Election 2019.

Global economy:Global investment activities: While 2017 was a bad year for the global economy, it is being projected that there will be a pickup in investment and industrial activities. As demand conditions in the European countries and growth prospects in Japan are expected to pick up, India's exports and other activities are likely to benefit.

Crude oil price: Rallying Crude Oil prices, even projected to touch $80 per barrel, could pose a big problem for the government in the fiscal year 2018-19 and would need a lot of fiscal math manoeuvring in the Budget 2018 to keep the fuel prices under check.

US' corporate tax rate cut: Of the major world economic events, the United Nations' decision to cut the corporate tax rate from 35% to 21%, which effectively would make Indian companies less competitive in the global market, unless India, too, fulfils its long-due promise of bringing down corporate tax rate from 30% to 25% in the Budget 2018. 

Indian economy:DeMo, GST and the GDP growth: Ahead of the Budget 2018, government's advance GDP data showed India's economic growth at 6.5%, the lowest growth rate during the Modi government. Despite, global slowdown, FICCI says, that India managed to exhibited resilience. However, even as the structural reforms -- the GST and demonetisation -- are going to ease out over the next few quarters, Arun Jaitley should work to improve purchasing power and create additional demand. FICCI suggests this can be done by easing the 30% Income Tax Rate.

Private Investment: The private domestic investment cycle that continues to remain weak. Corporate investment has slowed down from a peak of 15% of GDP in 2007-08 to around 11% of GDP since then. The slowdown in private investments is corroborated by the slowing credit growth to the private sector. The change in real credit to the private sector which earlier was over 10% of GDP has slowed down to under 5% of GDP. The twin balance sheet problem - overleveraged corporate balance sheets and bad loans on bank balance sheets - has been deterring investment revival. FICCI says there is ample scope for consolidation and even privatisation of some of the public sector banks, besides bank recapitalisation and clean-up. Finance Minister Arun Jaitley may announce bank consolidation plan in the Budget 2018.

High Forex Reserves: India's foreign exchange reserves stood at a lifetime high of $410 billion in January. It can provide an import cover for about 12 months. It is expected that robust capital inflows and healthy forex reserves will help in managing the balance of payments, and minor fiscal slippage will not be a big concern for Arun Jaitley in the Union Budget 2018.

Additional Cost: The Union Budget 2018 comes with an additional cost of the fiscal stimulus plan for road infrastructure and bank recapitalisation announced recently. The Budget 2018 needs to absorb this additional cost. There are at least eight major reforms implemented by the government in 2017-2018, which are going to dictate government's revenue and expenditure in the FY19. These reforms are Goods and Services Tax, Real Estate Regulation Act, PSU disinvestment, Banking Regulation, Bank consolidation, Bharatmala Prariyojna, Bank recapitalisation, Saubhagaya Yojna.