Weeks before the interim budget, the Indian capital was agog with speculation about its beneficiaries: farmers or the country’s burgeoning 250-plus crore middle class. On Friday, interim Finance Minister Piyush Goyal unveiled his game plan for the nation—political cognoscenti called it a silver bullet that soothsayers use to kill the proverbial werewolf—with loads of giveaways for rural and poorer citizens.
Almost instantly, television channels called it a move to help Prime Minister Narendra Modi pass a critical test in an election year and calm anger over depressed farm incomes and rising unemployment. This was the last budget of the Modi government, which will be seeking a second five-year term in national elections in May. The new government will determine the full-year budget for 2019-20.
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Goyal had elections on his mind when he poured extra cash for farmers and a tax cut for low-income workers, but that came at a cost, with the country letting its fiscal deficit targets slip this year and next. Farmers in India comprise more than 60 per cent of India’s 1.3-billion population, and have the capacity to sway the election’s outcome. For years, they have been demanding higher prices for their produce and a government waiver on farm loans to alleviate hardship. Many farmers have been driven to suicide by mounting debts for purchases of seeds, fertilizer and feed for their cattle.
Interestingly, there was also a pension scheme for informal workers and a doubling of tax relief for the lower middle class around the time when the BJP-led NDA government faced tremendous flak over a report in a business daily that the government was suppressing data showing the country’s unemployment rate has hit a 45-year high of 6.1 per cent, nearly double the 3.41 per cent rate when Modi’s government took office in 2014. Two top members of a government statistics panel resigned, blaming the Union government of delaying the release of the job data. The opposition Congress and other opposition parties vehemently raised the issue in Parliament on Thursday. Congress president Rahul Gandhi even reminded Modi of his promise when he took over as prime minister in 2014 to create 20 million jobs every year. The government, expectedly, pushed its headline managers to tell pesky reporters that the data is premature and official figures will be announced in March.
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But Goyal had his moments in the sun. The pro-farmer move triggered movements in the stock markets as Goyal said farmers would be paid Rs 6,000 annually. In one stroke, the stand-in finance minister—also the railway minister—appeared to have benefited a whopping 120 million households. And then, there was the news that approximately 100 million workers in informal sectors would receive a monthly pension of Rs 3,000 after retirement at 60 years. The budget doubled income tax exemptions for those earning up to Rs 5,00,000 a year from the existing Rs 2,50,000. The decision would benefit 30 million lower earning taxpayers, Goyal said.
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Goyal, probably keeping in mind the recent brouhaha over defence deals, allocated Rs 305 billion for defence during the 2019-20 financial year, a small increase from Rs 285 billion in the current financial year, which ends in March. He was sure that the minor rise will not make much difference in terms of critical purchases of defence equipment.
Seasoned writer and former corporate honcho Gurcharan Das, who once headed Proctor & Gamble in India, said the budget was “politically very smart” but added “Modi should have generated more jobs”. Das said the government did highlight improvements in sanitation and provision of electricity and expansion of public welfare provisions but the progress should have been both faster and extensive as promised.
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But there were others who felt the tax breaks were more than expected. Among them were Deloitte's Tapati Ghosh who said the budget was for the middle class. “With the additional tax rebate, an individual with total income up to Rs 5 lakh will have no tax to be paid. This results in an assured tax benefit including up to Rs 13,000 at this level. Increase in standard deduction by Rs 10,000 for salaried taxpayers would ensure additional tax saving of Rs 2,080 to Rs 3,120 for tax payers not paying surcharge.”
But the day’s best line came from Abheek Barua, chief economist of HDFC Bank, who said the interim budget was more of performance reporting and aspirations than any big-ticket changes. “This was expected as it is an interim budget valid for a few months. There is a slight slip in fiscal deficit. The new income support scheme is tepid, in terms of the actual numbers. It should not lead to a blowout in the fiscal deficit if it indeed is part of the budget when it is finally announced in full form.”
All eyes on the election boards.
Shantanu Guha Ray is a special editor with Business Television India.
