budget

Updated: Feb 01, 2019 23:29 IST

Combining a report card of its past performance and a political economy manifesto for the future, with the obvious aim of turning sentiment and rebuilding the multi-class, multi-caste, multi-regional coalition that brought it to power, the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) government presented on Friday, its final Budget ahead of the 2019 Lok Sabha elections.

In what was billed as an “interim” budget but turned out to be an expansive, and explicitly political one, finance minister Piyush Goyal reached out to the urban and small-town middle-class with a proposal for a significant tax sop; small and marginal farmers with a first of its kind national-level income support scheme; and workers in the unorganised sector with a pension scheme.

Goyal is in charge of the finance portfolio in the absence of Arun Jaitley, who is recovering from an illness.

The proposals come in the wake of a setback for the BJP in recent assembly polls in stronghold states, consistent feedback that the party’s core supporters among the middle class were disillusioned and alienated, recognition that farmers were suffering because of low incomes, and a growing sense that demonetisation and the roll out of the the Goods and Services Tax (GST) adversely affected the unorganised sector and created unemployment. An energised Opposition had capitalised on this.

Also read | ‘Just a trailer’, says PM Narendra Modi after interim budget’s poll push

With the new proposals, Goyal targeted precisely these constituencies, across geographies (urban, semi-urban, and rural); classes (middle- and lower middle-class, working poor, and small farmers); and castes.

Providing a counter-narrative to the Opposition’s charge of governance failures, he also listed the NDA’s achievements over the last four-and-a-half years, focusing on clean intent, decisive leadership, transparent government, structural reforms, and pro-poor policies. And with the aim of projecting political confidence and pre-election agenda-setting, Goyal outlined a 10-point vision of the government for the next decade up to 2030.

In his 103-minute speech, Goyal built up suspense and saved the taxation proposals for the very end. While recognising that convention dictated this was an interim budget and the full budget would lay out the taxation proposals, Goyal said it was important for the ordinary taxpayer to have “certainty” at the beginning of the year.

And given the improvement in both the tax base and tax compliance in the past few years, the government wanted to provide relief to taxpayers and institutionalise a “high compliance, moderate taxation regime”.

With that, he announced that those earning up to ₹5 lakh would no longer have to pay taxes from the next fiscal year. The earlier limit was up to ₹2.5 lakhs. With other exemptions on savings and investment, those with incomes of up to R10.15 lakh may actually not have to pay taxes. This, Goyal said, would benefit 30 million taxpayers. And the relief would be to the tune of ₹18,500 crore.

The proposal saw Prime Minister Narendra Modi thumping the desk with a wide smile, and prompted the treasury benches to break out in a prolonged cheer with chants of “Modi, Modi” in the house. The party believes that this is a “gamechanger” and will win back urban India as well as smaller towns.

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“It is true that the middle class felt let down. The fact that our votes dipped in urban areas in the assembly elections in even places such as Madhya Pradesh was a wake-up call. It is also true they have been our long-term supporters, but have had to go through some pain,” said a BJP leader on condition of anonymity .” We owed it to them. I believe their morale is now up and they will return to us with enthusiasm. This is politically good for us. But this is good for the economy too. It puts back money in their hands. Consumption will shoot up. There will be multiplier effect across sectors.”

Congress president Rahul Gandhi said the announcements were inadequate. “5 years of your incompetence and arrogance has destroyed the lives of our farmers. Giving them ₹17 a day is an insult to everything they stand and work for,” Gandhi wrote in a tweet. His reference is to the ₹6,000 a year direct income transfer for small farmers.

Prime Minister Narendra Modi said the interim budget was merely a “trailer” of what will guide India towards prosperity after the Lok Sabha elections, and described it as something that will benefit all sections of the society.

There were other messages , some direct and some indirect, for the middle-class. Goyal pointed out, at the beginning of the speech, that the government had succeeded in “breaking the back” of inflation and taming it from double-digit figures in the 2009-14 period to 4.6% in the post-2014 period. “If we had not done so, every household would be spending 35-40% more on expenses.”

The TDS [tax deducted at source] threshold on bank and post office deposits were raised to ₹40,000 from ₹10,000; TDS threshold on house rent payments were raised to ₹2.4 lakh from ₹1.8 lakh; and the capital gains rollover benefit was increased from one to two houses.

Opinion | The budget has exposed the NDA government’s nervousness

But even as urban India’s focus remained on taxation, the government recognised that the real political battle in 2019 would be fought in rural India, particularly among the farmers. Over the past few years, the government has experimented with a range of initiatives — including raising minimum support prices for a wide range of crops. But as Goyal acknowledged in his speech, the decline in international prices and low food inflation has meant that farmer incomes are low.

To address this, Goyal announced that small and marginal farmers, with land up to two hectares, would get an annual direct income support of ₹6,000. This would benefit 120 million farmer households.

The new scheme, named Pradhan Mantri Kisan Samman Nidhi, will be funded entirely by the central government; released in three instalments of ₹2,000 each; cost the exchequer ₹75,000 crore; and kick off with retrospective effect from December 1, 2018. The government will allocate ₹20,000 crore in the current fiscal year in the revised estimates for this and the first list of beneficiaries would be drawn up soon. And while unsaid, the government’s intent to transfer the first tranche possibly before the elections was apparent.

The government’s income support announcement comes soon after Congress president Rahul Gandhi declared at a rally in Chattisgarh earlier this week that, if elected to power, his party would guarantee a minimum income to all poor citizens — which was interpreted as a move to pre-empt the government’s announcement. But the central government’s scheme seems more directly inspired by two other states. In Telangana, the K Chandrasekhar Rao government provided ₹4,000 per season per acre to each farmer as a part of the Rythu Bandhu scheme (this was increased to ₹5,000 as an election promise late last year). In Odisha, the Naveen Patnaik government has promised ₹5,000 to all small and marginal farmers; a one-time sum of ₹12,500 to the landless; and ₹10,000 to vulnerable farmer families of the disabled and elderly under the Kalia scheme.

A farmer leader said Friday’s announcements were not enough. “We are steadfast on our demand for a full loan waiver. ₹6000 a year is not going to benefit farmers carrying burden of huge loans because of losses,” said Amra Ram, leader of All Indian Kisan Sabha, Rajasthan.

However, the farmer income support has come at the cost of fiscal discipline. Against the target of 3.3% of gross domestic product, the fiscal deficit for 2018-19 will now be 3.4%. The deficit target for 2019-20 will also be 3.4%. Without the scheme, the finance minister said, the government could have set a 3.1% deficit target in the next fiscal.

In yet another move, cutting across the urban and the rural, and recognising that a majority in India’s workforce, including those in the unorganised sector — with limited education and skills, and absolutely no social safety net — the government announced a pension scheme. As reported by Hindustan Times on Friday, this will entail a direct payment of ₹3,000 per month to workers above the age of 60. It is expected to benefit 100 million workers in the sector.

Goyal’s speech included other references to buttress the government’s claim of being pro-poor -- from declaring the poor had the first right to resources to increasing allocations for Scheduled Castes and Scheduled Tribes by over 35% and 28% respectively. He emphasised the improvement in infrastructure and the government’s rural welfare schemes from housing to distribution of gas cylinders.

In a move to help the real estate sector, the government extended the long-term capital gains tax waiver if a person sells a house and invests in two houses, with a cap of ₹2 crore. Previously, this waiver was allowed only for one purchase.

Realising fully well that this was its last opportunity to make, through policy announcements, a political pitch in the run-up to the elections, the BJP clearly converted its last budget into an all-out attempt to enthuse its own supporters, woo back the disillusioned, and neutralise the angry voter. With the budget, it has declared the 2019 election season well and truly open.

Also read | ‘Don’t shed crocodile tears for farmers’: Arun Jaitley hits back at Congress