Interim budget: A statement of BJP’s intent

The party needed to stymie the Opposition’s momentum. This budget may just do that

It was clear that the interim budget for 2019-20 would be a political statement, much like the interim budgets presented in 2009 and 2014 were. To begin from the end, the 1 hour 43 minute long interim budget presented by the finance minister Piyush Goyal does make a political statement, and how. That’s because of two simple insights that the drafters of this document seem to have grasped. One, how a budget, any budget, is analysed is a function of its direct tax provisions. Not indirect tax, not government spending, but direct tax. Maybe it is because most of the commentators analysing the budget — corporate executives, analysts, journalists — are salarymen.

And two, the first 48 hours matter

(maybe even only the first 24). There is so much coverage of the budget that everyone sort of reaches what can only be called peak information, 24-48 hours after the presentation. There may be details that emerge later, but usually, these do not matter.

On both counts, this budget scores. On the tax front, the budget makes it possible for a taxpayer, albeit a smart one, who has an annual income of about ~10 lakh, to not have to pay any tax at all. In Assessment Year 2017-18, 49.3 million of the 49.8 million taxpayers earned less than ~10 lakh a year. There are other tax cuts as well — on capital gains on property sales, bank and post office deposits, and rent payments — and all are squarely aimed at the middle class. The finance ministry calculation is that 30 million tax payers will benefit.

On the time front, aided, in part, by the tax measures, the resultant increase in discretionary income in the hands of people, other announcements, such as the direct income transfer to farmers (more on this anon), and the generally benign approach to industry (by simply leaving it alone), this budget has managed to create a very good first impression. The markets were happy on Friday, are closed on Saturday and Sunday, and by Monday, the world is likely to have moved on.

The Bharatiya Janata Party(BJP)-led National Democratic Alliance (NDA) would have liked to address some key voter constituencies in this budget. The first, of course, is the middle class, which was beginning to get restive and the tax provisions should take care of it.

The second is farmers. For years now, India has been in the grips of an obstinate agrarian crisis, brought about, in small part by inclement weather, and large part by supply outstripping demand, at a time when local and global food prices are at record lows. Food inflation at the wholesale level in India, a good proxy for farm-gate prices at which farm produce is sold, has been negative for months now. The direct income transfer scheme, ~6000 a year, in three instalments, to farmers with land holdings of less than 2 hectares, is expected to benefit 120 million farm households. Assuming that each household has at least two votes, that’s 240 million votes. The scheme is to be entirely funded by the central government — making it possible for the BJP and its allies to exclusively derive political capital from it.

The third is workers in the informal sector, those hit hardest by two fundamental efforts by the NDA to formalise the economy — demonetisation and the implementation of the Goods and Services Tax. By announcing a pension scheme for such workers (including household help) — the Centre will pitch in and match the contributions of individuals — the NDA has sought to address this constituency. In his budget speech, Mr Goyal said 100 million informal sector workers are expected to benefit from this scheme.

There were other sops as well, aimed at other constituencies (such as the package for the North East), but these were the main ones. The pension scheme and the direct income transfer to farmers are effective from this financial year itself (the second, in fact, from December 1, 2018). And the tax sops will kick in from April 1. The parliamentary elections will likely be held in the second half of April and May. While voters may have been the primary audience the interim budget 2019-20 was targeted at, there was a secondary audience as well — the BJP’s own cadre and its allies. Since last summer, things haven’t gone the BJP’s way — it has lost three key Hindi heartland states, and also some allies. The momentum seemed to be with the opposition. The BJP needed a strong counter. This budget may just be it.