It is a budget whose politics overrides its economics, whose economics plays with politics, and whose pitch is sharply focused on Elections 2019.
Finance Minister Piyush Goyal’s interim Budget 2019 is a 3-by-3 budget. First, it veers around three pillars — political, political economy, and economics. Second, it addresses three key constituencies — poor farmers, unorganised labour, and the low tax paying middle class. And third, it makes a case for re-election with a three-part vision — a $5 trillion economy by 2024 and a $10 trillion India by 2032, led by 10 ‘dimensions’, and with a strong focus on the poor. For business, upon whom the country leans to create jobs, it is business as usual: no new big reforms — but no new big hurdles either.
You may dismiss these with a cynical ‘what’s-new?’ shrug. Every outgoing government in its outgoing interim budget or a vote on account spells out its politics — Manmohan Singh did so in his February 1996 budget when he sold the 1991 reforms initiated by the P.V. Narasimha Rao government, Yashwant Sinha followed in his February 2004 budget when he outlined the reforms of the Atal Bihari Vajpayee government, and P. Chidambaram repeated it in his February 2014 budget when he captured the risks to the economy and how the Manmohan Singh government managed them.
To that extent, Goyal’s budget is no different. It talks about achievements of the Narendra Modi government in the past four-and-a-half years, and holds forth on the expected direction if it is voted back to power. From the goods and services tax to the attack on black money — including the dreaded D-word, demonetisation — Goyal has sold every statistic he could lay his hands on, particularly how the government addressed inflation, and managed economic growth. But he went off-track, when he used the J-word, jobs, while discussing the doubling of domestic air traffic, the invisible make in India programme, or start-ups in the digital ecosystem. Even if we take them as truth, they are way off the current discourse on why the government is not releasing the jobs data.
But before we examine its politics, we should focus on the single-most important decision in Goyal’s budget: the technologically-driven tax scrutiny project. Under this, over the next two years — presuming the BJP-led coalition returns to power — all verification and assessment of returns for scrutiny will be done electronically through anonymised back office, manned by tax experts and officials. The end of personal interface between tax officials and assessees should reduce corruption. Along with the respect that taxpayers are finally getting from the government, this move strengthens the idea of a tax regime that is shifting from one being extractive and corrupt towards one that is supportive yet firm. A bureaucratically-disruptive move, this will be a gamechanger.
Further, extending the rebate on income tax to Rs 500,000, or Rs 975,000 if they make the right investments, will help about 30 million small tax payers, such as self-employed, small traders, salary earners, pensioners and senior citizens, at a cost of Rs 18,500 crore. To illustrate, if you have a taxable income of Rs 5 lakh, you pay zero tax. If your income rises to Rs 7 lakh, and you invest Rs 1.5 lakh in instruments that come under Section 80C (such as provident fund or equity linked savings schemes), you pay zero tax. Finally, if your income is Rs 9.75 lakh, in addition to the above, you take the Rs 2 lakh deduction on home loan, spend Rs 25,000 on Mediclaim, and invest Rs 50,000 on National Pension Scheme, you pay zero tax.
The budget is political to the extent that it reminds voters of what the government has delivered, from controlling inflation (“Hamari sarkar ne kamar-tord mehngai ki kamar hi tord di”; our government has broken the back of back-breaking inflation) to curbing corruption. On the latter, he listed out three laws — the failing Real Estate (Regulation and Development) Act; the yet-to-deliver Benami Transaction (Prohibition) Act; and the work-in-progress Fugitive Economic Offenders Act — the deliveries of which are awaited. Perhaps these are good laws and will be executed in spirit to deliver the corrupt. But for now, we wait.
On black money, Goyal claimed the government has captured Rs 130,000 crore of undisclosed income, seized and attached assets worth Rs 50,000 crore, detected and deregistered 338,000 shell companies. The 18% growth in direct tax collection last year and the increase in tax base by 10.6 million people filing income tax returns for the first time in FY 2017-18, he said, was mainly on account of demonetisation, even if the causal line between the two remains missing.
The budget embraces India’s political economy of entitlements and freebies. The Rs 75,000 crore Pradhan Mantri KIsan Samman Nidhi programme, under which small farmers with cultivable land of upto 2 hectares would be given Rs 6,000 per annum directly into their bank accounts in three instalments, beginning retrospectively on 1 December 2018, is one such. This will benefit 120 million small and marginal farmers. Next follow the benefits to 420 million unorganised workers. Under the Pradhan Mantri Shram-Yogi Maandhan, they would get a monthly pension of Rs 3,000 from the age of 60 years, on a monthly contribution of Rs 55-100 per month.
On the economic side, Goyal has increased outlays on infrastructure, railways (Rs 158,658 crore), defence (Rs 300,000 crore) and yet has managed to keep the fiscal deficit at 3.4% of GDP — it would have been 3.3% had the Rs 75,000 crore income support to farmers been excluded. Despite this, the 3.0% fiscal deficit glide path to 2020-21 is underway. Once this fiscal consolidation programme is on the right path, he would focus on debt consolidation and bring the debt-GDP ratio to 40% from 46.5%. For the current year, Goyal is confident of crossing the disinvestment target of Rs 80,000 crore, with 57 public sector enterprises carting a market capitalisation of more than Rs 1,300,000 crore. This target, when executed, will not only buffer the government’s finances; it would also bring a little more depth in the stock market.
Finally, Goyal offers a ‘vision’ for votes by articulating his 10 most important dimensions in 2030. These are:
Overall, a budget whose politics overrides its economics, whose economics plays with politics, and whose pitch is sharply focused on Elections 2019. The underlying focus on economic growth has visibly shifted to political appeasement, with it being relegated from the present to the future. Sensex that remained steady, rising by less than 0.6% during the day, reflects that, relieved that there’s nothing in the budget that hurts growth. Could Goyal have done better? Certainly. But within the constraints and confines of India’s dusty political economy and managing conflicting interests three months away from elections, his Budget 2019 is a trimurti of troikas.
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