In his last full budget, Finance Minister Arun Jaitley has focussed on rural distress, tinkered with taxes, but has not offered anything positive to the urban voters. The Budget 2018 appears to be reluctant to take big risks in the run-up to the looming national elections.
ThePrint asks: Has Modi just delivered a safe middle path budget in an election year?
The government has ended up neglecting the interests of the salaried middle class
Consultant, National Institute of Public Finance and Policy
The Modi government’s budget is rural-centric and geared towards MSME, education and agriculture. The government has tried to take a balanced middle path by emphasising on these sectors. The steps proposed seek to address rural distress — like raising the minimum support price (MSP) and improving market infrastructure. While the benefits of the latter will only be determined in the long term, MSP increase could lead to inflation. Moreover, it is hard to compute a singular cost of production since it varies from place to place. It’s a short-term measure fraught with difficulties.
The government has ended up neglecting the interests of the salaried middle class. They are the major source of consumption and demand. They sustain the market. By increasing the cess and providing virtually no rebate in terms of tax, they have offered them no respite. This may lead to an adverse impact on consumption which till now has been sustained. The market may suffer a jolt as disposable incomes of consumers will reduce.
Slippage in the fiscal deficit share may also negatively affect financial markets. The government until now had stuck to its fiscal consolidation roadmap, which reflected in a better Moody’s ranking. That advantage has now slipped. Slippage in fiscal consolidation roadmap could complicate the path for monetary policy.
They have tried to take a balanced path with an eye on the upcoming election. But the short-term intended benefits are doubtful but the pain points are visible.
The Union Budget 2018-19 addresses the pain points of the economy
Chairman, CII Karnataka and MD, Volvo Group
The Union Budget 2018-19 addresses the pain points of the economy and will go a long way in facilitating the path of 8 per cent plus growth rate. It carries forward from the ongoing landmark reform measures of GST, resolution of Twin Balance Sheet (TBS) problem, Direct Benefit Transfer (DBT), and so on.
Clearly, the budget aims to mitigate agrarian distress and a directional change is seen in the finance minister’s statement that agriculture is being considered an enterprise. Hence, 22,000 rural markets will be strengthened as Gramin Agricultural Markets with physical infrastructure and digital technologies. Farmer incomes will also be supported by the increase in the minimum support price to 1.5 times of the cost of cultivation.
In yet another innovative move, the budget introduces the National Health Protection Scheme to provide benefits to 500 million people with an annual limit of Rs 5 lakh for hospitalisation. Considering that out-of-pocket expenses cause many households to slip back into poverty, this will impart a huge measure of security to lower-income families.
The education sector sees a new initiative of ‘Revitalising Infrastructure and Systems in Education’ (RISE) which would increase research investments and infrastructure in higher education institutions with a significant outlay of Rs 1,00,000 crore over the next four years.
The budget addresses job creation in a big way by extending government contribution to EPF of 12 per cent of wages for all new employees for the next three years, and also reducing the contribution for women to 8 per cent. The MSME sector has received relief in corporate income tax rates to 25 per cent (down from 3 per cent) for companies with turnover up to Rs 250 crore, Mudra at Rs 3 lakh crore in 2018-19.
Reintroduction of standard deduction for salaried employees and removal of TDS on interest income (up to Rs 50,000) for senior citizens on FDs , which would go a long way in raising the standard of living of the middle class population.
It is not a populist budget like many had feared
President, Forum for Strategic Initiative & Chintan, former Chief Economic Advisor, former executive director of IMF
The fears expressed by many observers that this would be a populist budget directed primarily at the next election have not come true.
The budget builds on earlier initiatives of the government while responding to widespread demands for the Union government to do more on agriculture, education, health and employment generation, much of which are state subjects. In each case it tries to combine policy reform with increases in expenditure, mostly modest, with the exception of the insurance scheme for hospitalisation.
On agriculture, a NITI Aayog committee will try to identify policy constraints on external trade to promote exports while ensuring that ad hoc policy changes don’t hurt agricultural producers. Earlier programmes like e-markets will be complemented with physical markets. On education, the problem of low quality of basic education is sought to be improved by better teacher training, improved digital connectivity and better e-teaching resources and e-learning.
On health, the existing approach of providing endurance for catastrophic (in terms of poverty) health expenditures is to be expanded dramatically. Employment incentives and policy reforms (fixed-term employment) are also to be reformed and extended in scope to labour intensive export sectors like leather goods and shoes (from textiles).
There is also a modest amount of tax reform, but with very little simplification, perhaps awaiting recommendations of committee on direct tax reform.
My main disappointment is with respect to higher than projected deficits, which many economists had recommended.
Compiled by Deeksha Bhardwaj.