(Photo Courtesy Financial Express)
Though the speculation of whether it would be a full-fledged budget, or an interim budget was put to rest earlier, after the interim Finance Minister Piyush Goyal’s budget speech, it turned out to be an electioneering exercise on the floor of the house. The budget contained various schemes and sops to satisfy almost every vote bank that could probably exist in this country.
Crisis in the agrarian sector, with the agitation of farmers from the length and breadth of the country, has been dominating the political landscape for some time now. To address the agrarian distress and woo the rural vote bank major schemes were expected to be announced in the budget. And exceeding all expectations, the Narendra Modi government launched the PM-KISAN Yojna that aims to provide direct income support to farmers at the rate of Rs 6000 per year. The scheme is expected to cost the exchequer Rs 75000 cr which would be in addition to around Rs 70,000 cr that is being spent on farm subsidies. It clearly shows that the scheme will be a huge burden on the exchequer. The agricultural sector is reeling under crisis mainly due to the limited access farmers have to the markets and various market-distorting policies that are being practiced in the sector. Even though we are happy with negative food inflation, it should be noted that it is at the expense of the farmers. The situation calls the need for structural reforms in the agricultural sector.
Finance Minister Piyush Goyal, in noticeable excitement said that India had received FDI of $239 billion during the last five years. Though the figures seem impressive, it’s a question whether this government will be able to attract more FDI to the country. Any foreign investor will be looking for ease of doing business and stability in the FDI policy. The recent change in the FDI policy for e-commerce has put a dent in the stability aspect. And even as the budget was being presented e-com majors like Amazon were cutting down on the number of items listed for sale. Considering the developments in the global arena, the country now requires more FDIs than FIIs to ensure a stable economy. FDIs would also help in employment generation, a serious crisis the country is facing.
Coming to the tax proposals, it is a welcome move with the measures announced to simplify filing of I-T returns. It could help in increasing the tax compliance rates which should boost tax collection. The icing on the tax cake here could be the raising of income tax slab to Rs. 5 lakh per annum, if it gets implemented.
With a slew of populist measures, total expenditure is estimated at Rs 27 lakh crore registering a growth rate of around 12.5 percent. The revenue receipts are projected to increase by 14 percent at Rs 19.7 lakh crore. The fiscal deficit target for FY 2019-20 is set at 3.4 percent of GDP. The numbers look ambitious with the Finance Minister even revising the fiscal deficit as a percent of GDP to 3.4 percent for FY 2018-19 from 3.3 percent.
When the various components of revenue receipts are taken into account, it could be seen that the government is expecting GST collection to grow at the rate of around 18 percent. However, the government itself has revised GST collection for FY 2018-19 from Rs 7.4 lakh crore to Rs 6.4 lakh crore. Similarly, the taxes on income is estimated at Rs 6.2 lakh crore registering a growth rate of 17 percent. This number should be read along with the Finance Minister’s proposal to raise the income tax slab to Rs. 5 lakhs. The government has also set an ambitious disinvestment target of Rs 90,000 crore. It clearly shows that it wouldn’t be an easy run for the government in mobilizing resources. In such a scenario, the Government will be left with no option but to resort to market borrowing. As per the budget documents, market borrowing is estimated at Rs 4.5 lakh crore, though the actual amount could be much higher. The increasing market borrowing by the government could crowd out private investors.
It would also be interesting to know how the Monetary Policy Committee (MPC) will respond to the budget figures when it meets barely a week from now on the 7th of February. The populist schemes and the raising of income tax slab could bring in additional demand in the market. If there is a mismatch between the supply and demand, it could build up inflationary pressures. Taking into account the inflation factor, it needs to be looked into whether the Central Bank will go for a rate cut.
On the whole, the budget looks very populist with the aim of pleasing the voters before the general elections due in May 2019. It needs to be looked into how the government will fulfill these grandiose promises and still meet deficit targets.
Deepthi Mary Mathew is Senior Research Associate at the CPPR Centre for Comparative Studies. She has an MA in Economics from the University of Kerala and is also a PhD scholar at the Gokhale Institute of Economics. She can be contacted by email at email@example.com or on Twitter @DeepthiMMathew