The Modi government has announced some major incentives for voters at the cost of continued fiscal slippage. But will it provide BJP the expected electoral dividends?
- The Modi government presented the sixth budget in its five-year term on February 1.
- The budget has offered major sops for farmers, middle class and unorganised sector workers in view of the upcoming general elections.
- However, there are some major misses in the budget, especially with respect to its inability to address the unemployment situation.
- It is also doubtful whether the numbers would add up on the fiscal front
Interim Finance Minister Mr Piyush Goyal presented the sixth budget of the Modi government’s five-year term on February 1. While it was meant to be a vote on account, the BJP defied convention and announced more of an election-oriented budget for the full year. It had some major incentives for three broad sections – small farmers, middle class and workers in the unorganised sector.
The budget was announced in the backdrop of a major controversy – the issue of the withheld NSSO survey that pegs unemployment at 6.1%, a forty five-year high. This has been picked up by the opposition in a big way.
Piyush Goyal, while praising his government’s achievements over five years also defended his government on that front, stating, “High growth and formalisation of the economy has led to the expansion of employment opportunities as shown in EPFO membership, which has increased by nearly 2 crore in two years, reflecting formalisation of the economy and job creations.”
HIGHLIGHTS OF BUDGET 2019
Following are some of the major announcements in the Modi government’s interim budget for 2019:
- The government gave a big income tax gift to the middle class, exempting those with annual income upto Rs 5 lakh from paying taxes. Even those having an income of upto Rs 6.5 lakh have the opportunity for exemption if they invest in mutual funds and prescribed equities. This is expected to benefit over 3 crore middle class tax payers.
- For farmers, the government has launched the PM Kisan Samman Nidhi Yojana. This scheme will provide an annual support of Rs 6,000 per year to small farmers with landholding of less than 2 hectares. The amount will be transferred directly to the bank accounts of farmers in three installments of Rs. 2,000. It is expected to benefit around 12 crore families and cost the government around Rs 75,000 crore.
- For the working class, gratuity limit has been increased from Rs. 10 lakh to Rs. 30 lakh. The government has launched a pension scheme – Pradhan Mantri Shram Yogi Mandhan for the unorganised sector workers with monthly income of up to Rs. 15,000. The scheme will provide them with an assured monthly pension of Rs. 3,000 after retirement at the age of 60.
- Piyush Goyal announced plans to set up the Rashtriya Kamdhenu Aayog for cows. He has also announced a 2% interest subvention for animal husbandry, fisheries and farmers.
- The FM also announced that the government plans to get assessment of tax returns done electronically in the next two years, without any personal interface. All income tax returns will be processed within 24 hours.
- The budget endeavours to provide relief to both home buyers and builders. It has introduced a proposal that no notional rent will be charged for second self-occupied homes, and capital gains of up to Rs 2 crore can be used to buy two houses. The tax exemption limit for house rents has been raised to Rs 2.4 lakh from Rs 1.8 lakh earlier.
- Businesses with annual turnover less than Rs 5 crore, which account for 90% of GST payers, will now be allowed to file quarterly returns.
According to data provided by the FM, direct tax collections have grown from Rs 6.38 lakh crore in 2013-14 to nearly Rs 12 lakh crore and the tax base has grown from 3.79 crore to 6.85 crore. He also informed the house that the fiscal deficit is expected to touch 3.4% of GDP as opposed to the target of 3.3%.
Among other announcements that boded well for optics, the FM announced that the defence budget had crossed Rs 3 lakh crore for the first time this year. The FM also announced an increase in the package for the Northeast by 21% yoy to Rs 58,166 crore.
WHO SAID WHAT
“India is eradicating poverty at a record pace. It (Budget) takes care of all sectors and classes. This budget is an important step to strengthen the nation… Over 12 crore farmers and their families, over three crores salaried professionals and their families will gain thanks to the Budget for new India. It is good to see more people being removed from the shackles of poverty. Our neo-middle class is rising and so are their dreams.”
“5 years of your incompetence and arrogance has destroyed the lives of our farmers. Giving them Rs. 17 a day is an insult to everything they stand and work for.”
Rahul Gandhi, President, Indian National Congress
“If there is no job creation, as alleged, there should have logically been a great social unrest in the country. Past five years have passed off without a single major protest movement.”
Arun Jaitley, Minister of Finance and Corporate Affairs, Government of India
“The whole exercise has turned out to be a damp squib. We’ve seen one good thing that is tax exemption for the middle class. Rs. 6,000 in income support for farmers boils down to Rs. 500 per month. Is that supposed to enable them to live with honour and dignity?”
“The budget has met the expectations of farmers, labourers and middle class. By bearing a cost of Rs. 75,000 crore, the government will implement the Pradhan Mantri Kisan Samman Nidhi scheme. This scheme will also benefit those farmers who do not take loans.”
Every year the allocation for defence grows up, say by 10% or so. There is nothing unusual about it. Some years ago it crossed Rs. 1 lakh crore, then it crossed Rs. 2 lakh crore… it will grow again next year, very normal… Fishermen have got a department; they have not got money… And according to my calculations it is Rs. 17 a day for a farmer family. It’s not a vote on account; it’s an account for votes.”
“Final jumla of Modi govt: its interim budget too completely disappoints Delhi. Our share in central taxes remains frozen at Rs. 325 crore & nothing earmarked for local bodies. Delhi continues to be on its own financially.”
Arvind Kejriwal, Chief Minister, Delhi
DKODING THE FINE PRINT
Prime Minister Narendra Modi announced that this budget was just a trailer of the main budget that would be presented after the elections. Just like a good movie trailer, the interim budget has some really grand announcements to excite voters. But to view the full movie, you have to ‘pay’ the Modi government with your vote. Following are some of the big misses in this interim budget:
- The grant being given to farmers is being deemed as grossly inadequate – it amounts to around Rs 500 per month. Moreover, it is applicable to only landowners and not to tenant farmers or to urban poor.
- Among the major drawbacks of the interim budget, it does not delve into the issue of declining private investment as a proportion of GDP. CMIE has said that new projects have plummeted to a 14-year low in January. It also doesn’t touch on Make in India, one of the government’s pet projects. Given the controversial NSSSO report on unemployment, the government needs to take some urgent steps to boost investment and thereby create jobs.
- The budget provides for affordable housing, but there was no mention of the creation of the stress fund for over 3 lakh home buyers whose projects are stuck for over a decade.
- The government has given a huge SOP to the middle class as well as a major handout to farmers. There is a big question mark on whether the numbers would add up. Economist Swaminathan Aiyar comments, “The figures do not add up. If you are going to spend so much more on the farm sector and give up so much income tax, the idea that you can maintain the fiscal deficit at 3.4% would mean extremely detailed calculations. This is only possible with a certain amount of smoke and mirrors of having a certain amount of supposed divestment, all of which are funding the deficit and not bringing the deficit down.” He feels that since the lower income classes account for a major portion of direct tax revenues, the numbers just do not add up. This point can be leveraged by the opposition.
- Startups were a little disappointed that the budget did not address the angel tax issue. Although it is an interim budget, the fact that it announced mega sops for middle class and farmers and did not give priority to startups is not being taken positively.
Essentially, the budget makes the right noises politically, but the opposition may raise questions on the numbers being presented by the government in the coming days. Moreover, one may argue that it is more of a perception-building budget which may have come a bit too late, given the disenchantment across sections that handed BJP electoral defeats in five states recently.
Given this context, will this blockbuster trailer be enough for BJP to return and showcase the complete film?