Expert Speak India Matters
Published on Feb 02, 2018
Budget 2018 – An unusual effort to focus on rural poor

Union Finance Minister Arun Jaitley’s Budget 2018 was clearly an election budget. A lot of big changes have been offered, especially in the health sector, but why at the fag end of the NDA government’s tenure? The benefits of the incentives in the health sector will take time to pan out and the question is ‘can it be achieved in one year’s time’? In any case, it is a laudatory move towards a system of universal health care. The pathetic state of public healthcare has been pointed out by many and experienced by all sections of the population and till last year, the public expenditure on health did not exceed 2 per cent of GDP. The Out of Pocket expenditure on healthcare for Indians is one of the highest in the world.

 With one shot, the health insurance coverage has been extended to 100 million low income households (effectively reaching 500 million people) and the amount is an impressive Rs 5 lakhs per year. This has been applauded by famous doctors like Medanta head Dr. Naresh Trehan. But the question of provision of the required public medical infrastructure to fulfil the needs of the poorer sections, especially in rural areas, has to be examined  closely. More medical colleges have been planned and so more doctors can be deployed to take care of the people in rural areas and towns but all this will take time. The next step could be roping in the private sector closely to which Dr. Trehan agreed fully. But to reap the benefit from the insurance scheme, people have to guard against the pranks of insurance companies.

The next big item has been revamping of the rural economy, a theme taken up in the last Budget also.  Jaitley is getting a little closer to reaching the goal of doubling farmers’ incomes in the Budget 2018. The Minimum Support Prices are to be fixed at 1.5 times the market rate and its coverage has been extended to  crops other  than just food grains.

Increasing MSP by itself will not help farmers because many times agricultural prices have fallen below MSP. Other solutions to relieve distressed farmers like storage and access to distant buyers are important. Rural haats ( 22,000 of them) will be upgraded using MNREGA and these will be exempted of the usual APMC  ( Agricultural Produce Marketing Committee) regulations, allowing farmers to sell directly to purchasers from other States. But the States themselves have to cooperate and abolish APMC first. So far, few have done so. Besides, production costs of farmers also depend on crude oil prices which are rising and the government cannot move away from the generous guarantee of higher MSP when crude prices shoot up further.

Rural electrification, housing, roads and sanitation have all been revamped like in the previous Budget. Implementation remains the key to rural transformation.

In this Budget, surprisingly the middle class has been left high and dry. Clearly, it is a pro poor Budget and the middle class is assumed to be a satisfied lot due to the raising of income tax slabs last year. The cess on corporate tax has increased from 3 to 4 per cent to fund the government’s education and healthcare spending. Bigger MSMEs ( up to Rs 250 crore turnover) will now be paying 25 per cent corporate tax but the 7000 or so big companies will have to pay 30 per cent as before even though according to recent TV interview of the Finance secretary, the effective rate is 24 per cent. This has upset the corporate sector as well as the tax on long term gains from listed equity and equity oriented mutual funds of 10 per cent.

The market has reacted adversely to the slippage in the fiscal deficit for 2017-18 by a few points due to glitches in the rolling out of GST. The conservative economists fault this seriously. In any case, next year’s deficit will be on target. But the government’s borrowings from the market to fund the deficit will have an impact on interest rates which could be pushed up thwarting investment further. The government’s coffers may receive money from future disinvestment and Jaitley gave the good news that disinvestment was proceeding according to target. But the sale of Air India is pending and has to be done in a transparent manner.

There is nothing much in the Budget to incentivise new investment which is the main cause for the slowdown of GDP growth and the lack of sufficient job creation to absorb all young job seekers. The Budget did not take note of the fact that capital formation has decreased to 26 per cent from 33 per cent in 2007-08.

For job creation, the government’s provident fund subsidy has been extended to new employees of all industries. Also, the use of fixed term contract earlier which was restricted only to apparel and footwear has now been extended to all industries. These may help in creating more jobs in the private sector.

To fund the grandiose health and infrastructure expenditure of the Budget, customs duties have been raised for a number of items. Protecting infant industries has been a common practice in developing countries but imposing higher customs duties and at the same time championing free trade and globalization as Modi did in Davos, is a little strange. But the compulsions of protecting ‘Make in India’ project are perhaps politically too important to risk letting in duty free imports of luxury consumer goods.

As usual, senior citizens and women, especially rural women with free gas connections, have found a place in the Budget. The incremental incomes to Senior citizens through tax exemptions, is rather insignificant to please them greatly. Poorer rural women may find it difficult to fill the gas cylinders once they are empty unless their incomes are enhanced. There was no mention about increasing rural women’s incomes through income generation schemes.

It is an unusual Budget in many ways as it aims at a clear transfer of resources from the rich, the middle class to the poor which in principle is good as it goes well with combining high GDP growth target with inclusive growth. But the devil is in the details and how well the schemes are executed and whether there is time enough for them to fructify and yield benefits to the poor before the elections is yet to be seen. Most interestingly, the Budget aims at fulfilling many of its promises by 2022 which translates into a confirmation by the NDA government of its return to power in 2019.

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David Rusnok

David Rusnok

David Rusnok Researcher Strengthening National Climate Policy Implementation (SNAPFI) project DIW Germany

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