JUMLANOMICS 4.0

On the first day of this month, the Finance Minister Mr Arun Jaitley presented the last full budget of the Modi Government before the general elections of 2019. There has been some churning within the Government since the ruling BJP faced a stiff backlash from the rural voters in its fortress Gujarat and the Budget was expected to pacify the rural folk ahead of elections in seven states and the general elections. Therefore, it was nothing but natural for the Finance Minister to play the ‘Bharat’ card.

However, with an economic slowdown persisting and rising global oil prices likely to cause further pressure on the Government’s expenditure, Mr Jaitley was expected to come up with some bold and radical steps, but to that end, the Budget was a huge disappointment.

In my earlier piece, ‘The State of the Economy’, I had written that by the end of November itself the Government had breached the target for fiscal deficit. The Fiscal Deficit, which was estimated at 3.2% of GDP in budget estimates for 2017-18 has been revised to 3.5% of GDP. Going by the Economic Survey, the fiscal deficit may end up higher than the revised estimate. At this backdrop, the Finance Minister has pegged the fiscal deficit for 2018-19 at 3.2% (against the target of 3% set earlier), raising doubts over the credibility of the estimate. In an election year, it also raises doubts over the Government’s commitment to fiscal prudence over populism.

As far as agriculture is concerned, the Finance Minister has promised to increase the MSP 1.5 times the cost of production. While the move is laudable, there is no clarity on whether the cost of production will take into account the labour of the farmer’s family. However, it is interesting that the government has accepted the Swaminathan Committee’s recommendation in the last year of its term after taking a position that the recommendation is ‘not feasible’. Apart from this there is no measure in the budget that would ease the distress in the farm sector. 

There was no laudable measure in the budget to encourage the private sector to invest nor was there any radical step to push Start-Up India further. Coming to exports, it is critical for us to boost our exports as our Current Account Deficit is widening. But I did not find any measure to boost exports which makes me wonder whether increasing exports is a serious part of the Government’s agenda.

The Finance Minister announced a new Health care scheme which is being described as ModiCare by the media. While the intention of Government is welcome, it does not seem serious to me as I did not find any sizeable allocation to the scheme. Moreover, allocations to certain important schemes like Deen Dayal Upadhay Gram Jyoti Yojana, MGNREGA, Mid-day Meals, etc… have not been prioritised. 

On the tax side, I was personally disappointed not to find even a mention of the Direct Taxes Code (DTC). With an overwhelming majority in the Lok Sabha and full confidence of the Prime Minister, I expected Mr Jaitley to initiate steps towards the introduction of DTC as this was the last opportunity to do so, in this term. It was surprising to see the return of Long Term Capital Gains Tax and of Standard Deduction for individuals. There was no tax relief to the middle class, but the 5% tax relief to corporates with an income of upto ₹250 crore should be welcomed.

Conclusion

On the political side, the Government does not seem to have the appetite for radical reforms in an election year given the outcomes of demonetisation and faulty GST. It was also interesting to observe that PM Modi seems to look beyond 2019, which means that he is confident of victory whenever the next general elections are held. On the other hand, the government is in no mood to let go of their love for slogans as they have replaced ‘Acche Din’ with ‘New India – 2022’. However, it remains to be seen if the BJP’s acche din continues or whether it will meet the fate of ‘India Shining’.