Originally Published 2018-02-02 10:22:49 Published on Feb 02, 2018
ore reassurance comes from the fiscal deficit target for 2018-19 set at 3.3 per cent of GDP.
FM walks the talk, honestly and judiciously, but very diffidently

The Union Budget 2018-19 appears an honest and judicious construct when conveyed aurally. The biggest relief is that there has been no substantive deviation from the path of fiscal discipline. The fiscal deficit for 2017-18 is pegged at 3.5 per cent of GDP. This is 0.30 per cent higher than the budgeted estimate for this year.

But it is well within the 0.50 leeway recommended by the N.K. Singh Committee report on Fiscal Responsibility and Budgetary Management. With the disruptions caused by GST still lingering and the need to recapitalise banks and push public investment in an environment where the private sector is still sitting on its funds, the stage seems set for losing the leeway in the interest of growth and jobs.

More reassurance comes from the fiscal deficit target for 2018-19 set at 3.3 per cent of GDP. This re-establishes the declining trend for fiscal deficit towards the magic number of three per cent of GDP, which has eluded us so far.

On the expenditure side, agriculture and rural development takes centrestage. This is more than welcome against the backdrop of agrarian distress and farmer suicides. Ajay Jhakkar of the Bharat Krishak Samaj points out that an Indian farmer commits suicide every 40 minutes.

No wonder then that Mr Jaitley outlined, in great detail, many of the specific measures proposed to reverse this trend.

One popular, but possibly ineffective step is an assurance that all the crops notified for the kharif cycle will be covered under the minimum support price (MSP) scheme.

Basically, this means that if market prices fall below the cost of production plus 50 per cent as margin for the farmer, the government will stand committed to make good the difference (as is being done in Madhya Pradesh now) or to physically procure the produce.

But representatives of farmers’ interests are not satisfied. They assert that the manner in which costs are to be determined should be spelt out in a participative manner first to ensure that a meaningful MSP is assured. The downside of an MSP type of production incentive is that it kills innovation and crop diversification away from those covered under MSP. This way of assuring farmer incomes also privileges the traditional “Green Revolution” areas in the North, which unfortunately are not well endowed with the natural resources — water, for example — to sustain intensive modern farming, at the expense of Eastern India, which has all of nature’s bounties except that it is very far from the national capital-oriented policy structure.

Other big-ticket items in agriculture are a more than doubling of the outlay for agro-processing industries to Rs 14 billion and assurances that the export of agri products would be liberalised to boost their exports threefold to their potential of around $100 billion.

For the Northeast, a Bamboo Mission was announced with an outlay of Rs 13 billion. Two new infrastructure funds are to set up — one for fisheries and aquaculture infrastructure and another for animal husbandry infrastructure — at a total outlay of Rs 100 billion. Crop credit would increase by 10 per cent to Rs 11 trillion and lessee farmers would be facilitated to access crop credit from banks — something which they cannot do today and have, instead, to rely on private moneylenders.

The budgetary outlay for rural roads, affordable houses, toilets and electricity extension of Rs 2.4 trillion will leverage five time more funds from other sources and generate work for 10 million people, as per the Budget documents.

Big changes were also announced in healthcare. A new flagship scheme will provide in-hospital medical insurance to 100 million poor families with an insurance cover of Rs 5 lakhs. Compare this with the measly cover now available of Rs 30,000 only under the Rashtriya Swastha Bima Yojana. The outlay on health, education and social protection increases by around 13 per cent over the 2017-18 spend to Rs 1.4 trillion.

To boost employment in manufacturing, the government proposes to extend the existing scheme under which it meets the cost of a contribution of 12 per cent per year towards the Employees’ Provident Fund contribution in the medium, small and micro enterprises to all the manufacturing sectors.

The idea is to increase the attractiveness of employing young job seekers by reducing their cost to the employer for three years, by which time it is expected the skills they acquire will make their value addition viable on its own.

The highlights for new projects in infrastructure are that 99 smart cities have been selected with an outlay of Rs 2.4 trillion,  against which projects worth around 10 per cent of the outlay are ongoing and projects worth one per cent of the outlay have been completed. The government expects to complete 9,000 km of highways in this year. Bharat Net, the fiber connectivity programme, is also proceeding apace. The Railways will spend Rs 1.48 trillion on capital investments, mostly in new works in 2018-19. Six hundred railway stations are to be upgraded.

The total expenditure next year is around 10 per cent higher than the estimate for 2017-18 of Rs 22.2 trillion. The nominal GDP in 2018-19 is estimated to be 11.5 per cent higher than in the current year. On the revenue side, the big increase is an estimated increase of 12 per cent in GST revenues next year by around Rs 2.6 trillion to a level of Rs 4.4 trillion, and Rs 20,000 crores from the new capital gains tax of 10 per cent on equity sold after holding it for one year. This makes sticking to the 3.3 fiscal deficit target a bit dodgy in 2018-19.

But who knows, maybe the finance minister has some artillery hidden up his sleeve.. Disinvestment has been assessed conservatively in 2018-19 at Rs 80,000 crores, against the achievement this year of Rs 1 trillion. The bank recapitalisation support of Rs 80,000 crores is expected to leverage new lending capacity of Rs 5 trillion. But one cannot but het the feeling that some of the expenditure estimates are a bit conservative relative to the ambition embedded in the programmes.

The good news is ending 2018-19 with a fiscal deficit equal to this year’s at 3.5 per cent is no big deal. But for the Narendra Modi government, which takes targets seriously, it could be a bit of a come down.

This commentary originally appeared in The Asian Age.

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Sanjeev Ahluwalia

Sanjeev Ahluwalia

Sanjeev S. Ahluwalia has core skills in institutional analysis, energy and economic regulation and public financial management backed by eight years of project management experience ...

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