With an Eye on 2019 Polls, a ‘Nervous’ Budget for the Rural Poor

Guj polls showed that BJP’s condition in rural India isn’t good, which made them focus the Budget on rural areas.

Sanjay Pugalia on Budget 2018.

(Photo: The Quint)

The use of both Hindi and English in Finance Minister Arun Jaitley’s Budget speech somehow hints at the nervousness of the government. The hint became more profound when Prime Minister Narendra Modi delivered a long speech, almost trying to explain how the poor, the Dalits, the exploited, the underprivileged, the backward community, and villagers are going to benefit from the Budget.

Budget an Excuse to Increase Vote Bank?

Despite a lot of effort to garner rural votes, the Gujarat Assembly election results showed that the Bharatiya Janata Party’s condition in rural India is not very good. That is why the BJP needed a Budget to focus on the growth of villages, the poor, and farmers.

For the poor, the Budget promises a huge health scheme where 10 crore families would get Rs 5 lakh health insurance each. That is big news for the health and insurance sector. Though it seems like everyone will get the benefit of insurance, that is usually not the case. Whenever people are provided services at a cheaper rate, they feel good about it.

Budget Throws a ‘Bait’ for Farmers

The farm sector was the most disappointed sector, and in a bid to appease them the government increased the Minimum Support Price (MSP) of produce by 50 percent of the production cost. We are yet to see the fine print of the Budget, but farmers seem to be the second-biggest concern for this government.

The MSP was not increased earlier because that would raise inflation, thereby increasing interest rates and ultimately having an impact on growth. Now, if you give 50 percent benefit to the farmers, what will happen to Consumer Price Index? If inflation increases for consumers, how will it be received by your urban and middle-class voters?

Second, the government wants to do all the work from its own treasury, which means there is no big overhaul to promote private investment in the Budget.

Relief from Tax, Not From Cess

It looks like the middle-class has got some relief in terms of tax, but a new 1 percent cess has come up. This means that we now have to pay 4 percent cess instead of 3 percent on health and education. Also, the bad news for investors and markets is that Long Term Capital Gain (LTCG) tax has now been imposed.

The government’s argument is that around Rs 3.75 lakh crore is lying around without being taxed, and a mere 10 percent tax will be levied on it. Similarly, for corporates with a turnout of over Rs 250 crore, the tax rate has been reduced to 25 percent. But overall, the tax to be paid would increase.

Can They Uphold Financial Discipline?

Third, with people eyeing the fiscal deficit, the government has now promised to achieve 3.3 percent while they have breached their earlier target of 3 percent. The previous aim was breached by a margin of 0.2 percent. So, the people will definitely keep a watch on whether the government is able to comply with their financial discipline.

Apart from inflation and financial loss, oil prices pose another risk. Though oil prices cannot be controlled by anyone, but in case they go up, the entire math for the Budget will go haywire.

The government seems to be satisfied with the way global economy is progressing and how India’s economy is also in good shape. So, their idea probably was that even without a revolutionary or courageous overhaul, the economy would continue to run at the right pace. It politically suits the government to not take daring steps like demonetisation right now.

Overall, there is a lot for the villages and the poor; they can be happy. The business class and the middle-classes have not got any relief in the Budget, and there is no good news for the stock market investors either.

That means a lot of Direct Benefit Transfer will be done so that a lot of votes can be transferred back to them.

People are speculating about the Lok Sabha elections much ahead of time. But the Budget surely trumpets the coming of the 2019 elections.