Budget 2019: Populism Could Trump Pragmatism in Poll Year, Farmers and Aam Aadmi Likely to be in Focus

Budget 2019: Populism Could Trump Pragmatism in Poll Year, Farmers and Aam Aadmi Likely to be in Focus

The speech of the Finance Minister Piyush Goyal may junk all past precedent and announce mega schemes to help farmers, some relief to the much-taxed common man and some other sections of society.

Sindhu Bhattacharya
Share this:

New Delhi: The country is in the grip of election fever and all major political parties are hinting at sops if they win the peoples’ mandate this summer. The Congress has already spoken repeatedly about a Minimum Income Guarantee (MIG) scheme for the poor, were it voted to power. But the Congress, like all others in the Opposition, will have to wait for a few months to ‘put the money where the mouth is’, so to speak.

The ruling NDA can actually make grand announcements right now. And from all available indications, the speech of the Finance Minister Piyush Goyal may junk all past precedent and announce mega schemes to help farmers, some relief to the much-taxed common man and some other sections of society. Goyal is slated to present the Budget (the Interim Budget, as some are saying) on Friday.

According to convention, which has always been followed by successive governments in Independent India, an outgoing government does not present a full Budget, nor does it introduce a Finance Bill in Parliament. An outgoing government merely seeks the Parliament’s approval for necessary expenditure for the next three-four months, till the new government is in place and ready to present a full Budget. Whether Goyal junks this convention entirely and launches into myriad new schemes, complete with outlays and financing details – this remains to be seen.

The buzz surrounding the Budget has been largely about a mega package for the distressed farmers, some income tax relaxations for the middle class and a likely set of measures to ease the pain of the small businessmen who were most affected by demonetisation. It is anyone’s guess if the government will at all acknowledge, let alone address, the acute shortage of employment in the country through some measures in this Budget. And whether the FM will pull out a rabbit from his hat to keep the fiscal deficit number at the targeted 3.3% of GDP will also be keenly watched.

Ratings agency Fitch Ratings said in a note on Thursday that the interim budget could actually give some indication of the government's commitment to fiscal consolidation, which is one of the main sensitivities in the sovereign rating. “Higher pre-election spending could risk a second consecutive year of fiscal slippage relative to the government's targets and would further delay plans to reduce the high general government fiscal deficit and debt burden… Pressure for new expenditure to attract votes, particularly among rural and small-business owner voters, has increased as polls have shown the ruling BJP is becoming less assured of victory in the general elections. The BJP has reportedly lost votes in some recent state elections due to rural distress and public concerns over job creation. Targeted cash programmes appear the most likely form of support, as they would avoid downside risks of alternatives, such as the farm loan waivers that undermined the loan repayment culture in the past.”

Fitch noted that populist spending would aggravate fiscal pressures, which are already building due to revenue shortfalls so far in FY19. Revenue from GST is well below target. “We believe the central government may still be able to meet its fiscal deficit target of 3.3% of GDP for FY19, which would help support its fiscal credibility, although this may be achieved by deferring capital expenditure and postponing bill payments until after March.”

Anyhow, what’s in store for farmers tomorrow? What President Ram Nath Kovind said during this joint address to both the houses of Parliament may provide some guidance on what may be in store on the Budget day. “My Government is striving day and night to attain the goal of doubling farmers’ income. Understanding the needs of farmers, the government is seeking to find permanent solutions to their problems. It is the priority of the government to provide better facilities and assistance to farmers for the entire spectrum of agriculture activities from purchase of equipment and seeds to transportation of produce and its sale.”

There have been various reports of the government working on a package for a guaranteed income scheme for farmers while removing all subsidies on inputs such as electricity, water, fertilizers, etc. Two such schemes – Rythu Bandhu in Telangana and the Kalia scheme in Odisha – have been studied by the government in detail before devising the latest farm package.

For the aam aadmi, there could be some minor tweaking in the income tax proposals, with some experts suggesting that the threshold for income tax exemption limit could be raised – some have said it could even be doubled from the current Rs 2.5 lakh. As of now, individuals earning up to Rs 2.5 lakh per year pay no income tax, those earning up to Rs 5 lakh are taxed at 5%. Then 20% tax for income up to Rs 10 lakh and the highest tax slab is 30% for individuals earning beyond Rs 10 lakh in a year. If the I-T exemption limit were to actually be doubled, many individuals will fall out of the tax net.

The Budget speech may also contain some sops for the small and medium business enterprises, largely in connection with the availability of funding for these businesses and taxation.

The Fitch note said that Indian budgets normally offer guidance on plans for structural reforms and tax changes. “The current government could choose in its interim budget to signal the reform direction it would adopt in a possible second term, but we believe it is more likely to include such plans in the final budget, in order to allow for negotiations between coalition members on more difficult or controversial proposals. The government's reform efforts have led to a strong improvement in the World Bank's Ease of Doing Business ranking in recent years, but FDI inflows have remained roughly stable as a percentage of GDP over the past five years, as there are lingering difficulties, such as in enforcing contracts and the functioning of the labour market,” Fitch added.

So any clarity on any major reforms this government may be planning, if returned to power, is unlikely in the budget speech.

Next Story