Has the Narendra Modi government touched the right chord with its Interim Budget?
In the morning of February 1 at the premises of the Parliament, a sniffer dog was busy helping security personnel ensure that the dozens of bundles containing reams of printed copies of the Interim Union Budget 2019-20 were safe enough to be taken inside for presentation at the Lok Sabha.
While big-bang economic reforms were a long shot at this stage, the sixth and final budget of the Narendra Modi-led National Democratic Alliance government was widely anticipated to be loaded with populist measures in view of the all-important general elections around the corner.
In the time leading up to Budget Day, many political and economic experts reckoned that this was the last chance for the Bharatiya Janata Party to win back over those significant sections of the society – from farmers to the middle class to the youth to small businesses – that were said to have been left disappointed with what was promised to be the ‘Sabka Saath Sabka Vikas’ (inclusive development) regime.
It was widely held that only with this interim budget could the BJP express its political intent to the people of the country through action, rather than mere words, in order to shore up national support that looks far from assured in the coming Lok Sabha elections after the party’s dismal electoral results in the Hindi heartland.
Most of those experts making such predictions and analyses also had a common overarching concern: Will such pre-election populism derail the fiscal deficit (government’s expenditure in excess of revenue – an important indicator of a country’s economic health) goal by pushing it up from the targeted 3.3 percent to 3.5 percent of the nation’s gross domestic product (GDP)?
This, along with many other questions, were answered by the time Interim Finance Minister Piyush Goyal concluded his budget speech.
The word on the street had been right on the mark: It was a pain-relieving Budget for the troubled, debt-ridden, small and marginal farmers of the country, a bonanza Budget for the tax-burdened, inflation-pinched middle class, and a lot more.
Right at the outset of his debut Budget address, the Finance Minister sought to allay expert concerns about pre-election sops raising risks of fiscal slippage by announcing that the fiscal deficit target had been revised upwards to 3.4 percent of the GDP – which was probably meant to be conveyed as an acceptable middle ground between the targeted 3.3 percent and the feared 3.5 percent.
Then came a deluge of big announcements that broke all conventions of an election-year Interim Budget.
First, and perhaps foremost, was the government’s commitment to a direct annual income support of Rs 6,000 for small farmers with land-holdings up to two hectares. Goyal announced that Rs 75,000 will be allocated for the Pradhan Mantri Fund Scheme, under which money would be transferred directly into these farmers’ bank accounts. This way some 12 crore farmer families will be directly benefitted.
In view of falling food prices in the international market and declining inflation resulting in reduced returns for farmers, Goyal said, the scheme would be implemented retrospectively from December 1 last year for which Rs 20,000 crore has been set in the revised estimates for the present fiscal and Rs 75,000 crore in the Interim Budget for the following one.
The Finance Minister also announced the allocation of Rs 1.7 lakh crore in food subsidies and Rs 60,000 crore for the Mahatma Gandhi National Rural Employment Guarantee Scheme.
The other major announcement involved a shower of tax sops for the nation’s burgeoning middle class and salaried taxpayers. The biggest among these perhaps was the doubling of the tax exemption threshold for individual annual incomes from the current Rs 2.5 lakh to Rs 5 lakh which, in simple terms, means that people earning less than Rs 5 lakh a year will no longer need to pay income tax.
Individuals with annual income of up to Rs 6.5 lakh shall also be exempt from paying income tax if they have invested suitably in tax saving schemes. With provision of additional deductions such as interest on home loans, national pension scheme contribution and medical expenditure on senior citizens, people with even higher income will not need to pay tax.
“This will provide tax benefit of 18,500 crore to over 3 crore middle class tax payers comprising self-employed, pensioners and senior citizens,” Goyal announced.
To further benefit the salaried class, the standard deduction limit – an amount that salaried individuals can show as expenditure pertaining to employment and can simply deduct from their taxable income without needing to furnish any evidence – was raised from Rs 40,000 to Rs 50,000.
The raising of the gratuity payment limit from Rs 10 lakh to Rs 20 lakh was another big gift from the Interim Budget.
Doubling up as a boost to the realty sector, apart from being financially beneficial particularly to the middle class, was the proposal of exemption of tax on rent from a second self-occupied house.
Goyal also announced the enhancement of TDS threshold on interest earned on bank and post office deposits (from Rs 10,000 to Rs 40,000) as well as on deduction of tax on rent (from Rs 180,000 to Rs 2,40,000), a move that came as a big relief particularly to senior citizens and pensioners.
The Budget was not all about appeasement of poor farmers and the salaried middle class, though.
In what was seen as the Modi government’s reparations to the demonetisation-ravaged unorganised sector, Goyal announced a contributory pension scheme for labourers that would assure them of receiving Rs 3,000 in pension every month after they turn 60. This scheme, for which an initial Rs 500 crore has been allocated, is expected to benefit 10 crore workers in the unorganized sector.
Similarly, for the small and medium enterprises (SMEs) sector that was hard hit by what was widely deemed to be a hasty rollout of Goods and Services Tax (GST), the Budget saw a continuation of the Modi government’s efforts to right some of the inadvertent wrongs. While the Modi government had already exempted many small businesses from paying taxes under the unified GST regime, it moved a step ahead on that front with the Budget announcement of 2 per cent interest rebate for micro, small and medium enterprises (MSMEs) for loans up to Rs 1 crore.
“The government has taken many steps to support the MSME sector that provides jobs to crores of people in the country. We recently announced a facility to avail Rs 1 crore loan within 59 minutes,” Finance Minister Piyush Goyal said while presenting the Interim Budget for 2019-20.
“All MSME units registered with the Goods and Services Tax (GST) will now have 2 per cent interest subvention for loans up to Rs 1 crore,” he added.
Despite these, the Budget managed to allocate an unprecedented Rs 3 lakh crore for defence expenditure. “If necessary, additional funds would be provided for securing our borders and to maintain preparedness of the highest order,” the Finance Minister assured, a decision that was seen as a reaffirmation by the Modi government of its commitment to the nation’s defence amidst the long-drawn-out Rafale fighter jet controversy.
As usual the evaluation of the budget was divided along party lines.
While the leadership and supporters of the BJP applauded the budget as being beneficial for all the sections of the society and sectors of the country, the Congress-led opposition roundly dismissed it off as a BJP manifesto for the coming elections that turned a blind eye to the agrarian and employment crises.
“This is nothing but trying to bribe the voters,” Leader of the Congress in Lok Sabha Mallikarjun Kharge told the media after the end of Goyal’s Budget speech.
“The budget is silent about the performance of the government in the last five years. What achievements they made, how much of their promises were fulfilled – and what about the promise of 10 crore jobs in five years or giving Rs 15 lakh each to the people of India?” he asked.
Congress President Rahul Gandhi slammed the government’s scheme to provide direct income support of Rs 6,000 each to poor farmers.
“Giving Rs 17 per day to our debt-ridden farmers is nothing but an insult. There can be no bigger insult,” said Gandhi after participating in a meeting of 21 Opposition parties where agrarian crisis and unemployment were the core issues discussed.
Congress veteran and former Finance Minister P Chidambaram said the Interim Budget “was not a Vote on Account but an Account for Votes”.
The Communist Party of India-Marxist (CPI-M) ridiculed the budget as another ‘jumla’ (fake promise) and questioned the BJP government’s move to present Budget for the entire year.
“This cannot be the final budget for this year because the government presenting it, and the Lok Sabha considering it, will both cease to exist less than two months into the financial year to which the budget pertains,” it said.
“Modi government came to power in 2014 promising 10 crore new jobs, 100 new smart cities, doubling of farmers income and Rs 15 lakh in each bank account. This is another attempt to fool people before polls but it won’t succeed,” he added.
Delhi Chief Minister and Aam Aadmi Party head Arvind Kejriwal also called it the “final jumla of Modi government”.
Former Finance Minister Yashwant Sinha also attacked the Budget as a “cash-for-votes budget”.
“I hope the people of India will not be fooled by these last-minute gimmicks,” he tweeted.
Offering a more measured and intelligent evaluation of the Budget, Odisha chief minister and Biju Janata Dal boss Naveen Patnaik hailed the tax benefits for the middle and lower income groups, but expressed disappointment with the lack of initiatives for landless poor, sharecroppers, MSMEs and social security.
“I also welcome the direct benefit transfer proposed for small and marginal farmers on lines of our KALIA Scheme. However, it would have benefitted the farmers more if the quantum of assistance is equal or more than our scheme,” Naveen noted.
The Chief Minister said some of the Budget initiatives for the MSME sector was encouraging, but they were not sufficient to generate enough employment in the country.
“I am deeply disappointed with the National Social Security Scheme (Old Age Pension) and other pensions have not been revised at all. The state is covering 48 lakh beneficiaries with Rs 500 per month while Centre is giving Rs 200 per month for 20 lakh beneficiaries only,” he pointed out.
However, if the reactions of the stock market and India Inc. were any indication, the Finance Ministry’s Interim Budget was a success.
Brimming with positive sentiments after announcement of income tax rebates and government measures to boost the rural economy and the SME sector, the BSE Sensex and Nifty ended 212 points and 62.70 points higher, respectively.
More importantly, the industry welcomed the budget as a forward-looking and pro-consumption one that would give a much-needed boost to the domestic manufacturing sector.
Welcoming the latest budget, industry body Confederation of Indian Industry (CII)President Rakesh Bharti Mittal said: “The measures announced in the Budget are likely to provide a significant impetus to consumption spending in the economy, which will boost growth in the near to medium term.”
“In an astute balancing act, the Finance Minister has presented a budget, which addresses issues of every segment of society. This a true people’s budget”.
Nangia Advisors Managing Partner Rakesh Nangia noted that with the Interim budget, the Modi government has “managed to please a huge chunk of taxpayers without losing much in tax revenue”.
Assocham president B.K. Goenka, President praised the Modi government’s farm giveaways in view of the fact that India is an agrarian economy with the largest number of people depending on it. “The PM Kisan Samman Nidhi … would encourage small farmers to continue in the field,” he said.
Sandip Somany, the President of FICCI, summed it up as “a progressive budget that addresses both the current challenges being faced by the economy as well as presents an outline of the vision the government has for the future of India ten years ahead.”
Goyal’s budget may not be the vote-on-account Budget that it was supposed to be. It may indeed be a full Budget as critics are pointing it out it to be. But it is a people-pleasing Budget – and that is nothing to be sniffed at.