IT’S RAIN­ING SOPS IN MODI’S BHARAT

WITH HIS DE­CI­SION TO LAV­ISH AT­TEN­TION ON THE FARM SEC­TOR, JAIT­LEY CHOSE TO LOOK AWAY FROM OTHER PER­SIS­TENT ECO­NOMIC IS­SUES

India Today - - COVER STORY | BUDGET 2018-19 - By M.G. Arun & Sh­weta Punj

TTHE MES­SAGE FOR THE Naren­dra Modi gov­ern­ment from the re­cent Gu­jarat elec­tions—where the rul­ing BJP was re­duced to 99 assem­bly seats from 115 in 2012 and fell far short of its am­bi­tious tar­get of 150 seats—was quite clear: ad­dress the con­cerns of the ru­ral econ­omy in quick time or risk the wrath of the voter in the 2019 gen­eral elec­tions. The mes­sage was not lost on fi­nance min­is­ter Arun Jait­ley as he pre­sented the Modi gov­ern­ment’s last full bud­get be­fore the gen­eral elec­tions. The re­sult was a bud­get many ex­perts found “pop­ulist”, given how it rained sops for the ru­ral sec­tor and largesse for the so­cial sec­tor: from a 50 per cent in­crease in the min­i­mum sup­port price (MSP) of farm prod­ucts to a Rs 2.5 lakh crore hike in farm credit in 2018-19. There was also ‘Op­er­a­tion Green’ to ad­dress price fluc­tu­a­tions in veg­eta­bles like tomato and onion and a health in­surance scheme that is es­ti­mated to cover 40 per cent of the coun­try’s pop­u­la­tion.

At the economists’ meet held be­fore the bud­get to seek in­puts, Jait­ley was heard com­plain­ing about the length of his bud­get speech. Since states now have the lion’s share of rev­enues, he was of the view that pop­ulism was best left to the states. But iron­i­cally, a week later, when he rose to present the bud­get, Jait­ley spoke for nearly two hours, spend­ing half the time ad­dress­ing the plight of farm­ers—a stress point for the rul­ing BJP, which lost to the Congress in the Ra­jasthan by­polls for two Lok Sabha and one assem­bly seat on the same day.

IM­PLE­MEN­TA­TION WOES

Nearly all bud­gets of the Modi gov­ern­ment have had a ru­ral fo­cus. How­ever, this year, Jait­ley steered clear of some of the favourites of past bud­gets—smart cities, start-ups, Make in In­dia. Sev­eral an­nounce­ments lacked de­tails on fund al­lo­ca­tions, like Ayush­man Bharat, touted as the world’s biggest health­care scheme. De­tails on how in­put costs will be cal­cu­lated for re­vis­ing the MSP for crops were miss­ing. Im­ple­men­ta­tion, there­fore, re­mains a big con­cern. “There is an an­nounce­ment of a Rs 10,000 crore fund for fish­eries and an­i­mal hus­bandry. Where is the pro­vi­sion for this?” asks Ashok Gu­lati, In­fosys chair pro­fes­sor for agri­cul­ture at the In­dian Coun­cil for Re­search on In­ter­na­tional Eco­nomic Re­la­tions (ICRIER). “Even the funds for the Dairy Pro­cess­ing and In­fra­struc­ture De­vel­op­ment Fund an­nounced last year were ap­proved just a few days back.”

The In­dian econ­omy is in the throes of a con­sump­tion and in­vest­ment slow­down, a job crunch and agrar­ian dis­tress. Big on an­nounce­ments, the bud­get has sought to tackle these chal­lenges through the ru­ral route. With the em­pha­sis on ru­ral in­fra­struc­ture, ru­ral hous­ing, roads and higher MSPs, the econ­omy is ex­pected to cre­ate jobs and

boost ru­ral con­sump­tion. Economists say the bud­get as­sump­tion of real growth of about 7.3 per cent and nom­i­nal growth of 11.5 per cent looks cred­i­ble since the econ­omy has come out of the shad­ows of de­mon­eti­sa­tion and ini­tial glitches in im­ple­ment­ing GST.

FIS­CAL STA­BIL­ITY IN­TACT

This time, the gov­ern­ment de­cided to de­vi­ate slightly from its fis­cal con­sol­i­da­tion path—a change from Jait­ley’s ear­lier pro­nounce­ments. “We can­not spend be­yond our means,” he had said while pre­sent­ing his first bud­get in 2014. While every­one ex­pected the gov­ern­ment to slip on the fis­cal deficit, what is wor­ry­ing is that the slip­page from the tar­geted 3.2 per cent to 3.5 per cent this fis­cal hap­pened even after a dip in cap­i­tal ex­pen­di­ture. How­ever, Jayant Sinha, min­is­ter of state for civil avi­a­tion, termed the bud­get as “well-crafted, fis­cally pru­dent, with no real slip­page”. A re­port from Mor­gan Stan­ley said that “while pol­i­cy­mak­ers have changed the glide path for fis­cal con­sol­i­da­tion... the over­all im­pact on macro sta­bil­ity will be man­age­able”.

What’s com­fort­ing is that the mar­ket bor­row­ings, at Rs 6.1 lakh crore, are lower than the ex­pected Rs 6.5 lakh crore, giv­ing out a mes­sage of fis­cal pru­dence. A Lon­don-based inves-

tor terms it a “big boost for the coun­try’s eco­nomic cred­i­bil­ity”. Ac­cord­ing to him, gone are the days when In­dia was as­so­ci­ated with fis­cal profli­gacy, and nearly all bud­gets of the Modi gov­ern­ment have been fis­cally con­ser­va­tive. More­over, the gov­ern­ment has set a tar­get of rais­ing Rs 80,000 crore in 2018-19 by sell­ing state-owned as­sets after ex­ceed­ing its record di­vest­ment tar­get in the pre­vi­ous year.

De­spite the as­sur­ances, the mar­kets re­mained un­en­thused. While big con­cerns on the im­ple­men­ta­tion of these schemes re­main (in cases like the MSP, the very premise of cal­cu­lat­ing agri­cul­tural costs is be­ing ques­tioned), it is the rel­a­tive si­lence on mea­sures that would have spurred growth that has caused worry. Is the gov­ern­ment seek­ing too much so­lace in some un­con­vinc­ing re­cent sur­veys that put new jobs cre­ated at over 7 mil­lion an­nu­ally?

JOBS IN IN­FRA­STRUC­TURE

Four ma­jor ar­eas needed ur­gent at­ten­tion and were ex­pected to be ad­dressed in the bud­get—agri­cul­ture, jobs, in­vest­ments and ex­ports. While agri­cul­ture seems to have re­ceived all the bounty, the scope to cre­ate more jobs through gov­ern­ment spend­ing seems to be lim­ited by fis­cal con­straints. How­ever, some say peg­ging the al­lo­ca­tion for the Ma­hatma Gandhi Na­tional Ru­ral Em­ploy­ment Guar­an­tee Act at Rs 55,000 crore will be help­ful. So is the ex­tra bud­getary al­lo­ca­tion (a 32 per cent in­crease) for the Na­tional Ru­ral Liveli­hoods Mis­sion, and the 12.4 per cent in­crease in al­lo­ca­tion for ru­ral road con­struc­tion un­der the Prad­han Mantri Gram Sadak Yo­jana. But not much was done to spur in­vest­ment. “Ini­tia­tives like agri-mar­ket in­fra­struc­ture and ex­ten­sion of the Kisan card fa­cil­ity to fish­eries may have a neg­li­gi­ble im­pact on the over­all in­vest­ment as the al­lo­ca­tions are very small,” says D.K. Sri­vas­tava, chief pol­icy ad­vi­sor, EY. Also, de­spite re­forms, the econ­omy is not at its full po­ten­tial. In­vest­ments have fallen from 34.3 per cent of the GDP in 2011-12 to 27 per cent in 2016-17. Many feel the bud­get has done lit­tle to ad­dress this.

NO CHEER FOR COR­PO­RATES

There has been no change in the per­sonal in­come tax struc­ture. More­over, the cor­po­rate sec­tor, which has long been hop­ing that the cor­po­rate tax rate will be brought down to 25 per cent, has been left high and dry. The sops are only for com­pa­nies with a turnover of up to Rs 250 crore. They will be taxed at 25 per cent in­stead of the present 35 per cent. Jait­ley said the move would ben­e­fit 99 per cent of com­pa­nies with the fore­gone rev­enue pegged at Rs 7,000 crore in 201819. By giv­ing bud­getary sup­port of a 25 per cent tax rate to mi­cro, small and medium en­ter­prises, the gov­ern­ment has hoped to al­le­vi­ate the pain of de­mon­eti­sa­tion and the hic­cups in im­ple­men­ta­tion of GST. The sec­tor also forms the back­bone of the In­dian econ­omy, con­tribut­ing nearly 17 per

Fi­nance min­is­ter Arun Jait­ley ar­rives in Par­lia­ment to present the bud­get

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