Any which way you look at it, elections appear written all over Budget 2018. Finance Minister Arun Jaitley has focussed on the distressed sections of the economy — mainly farmers, informal workers and the rural sector — which were drifting away from the ruling party.
The objective behind the standout proposals — and there are a few of them — appears as much to apply salve on their wounds as to ensure that the votes consolidate behind the NDA.
India Inc and the middle class have been left out of the party — the increase in turnover cap for the 25 per cent tax slab on corporate earnings will still exclude the entire listed universe — but with GST, the former has already got its bonus before the Budget.
The most outstanding proposal of all, one that this Budget will be remembered for, is the initiation of a universal health care programme for the needy. The scheme, designed to provide an annual health cover of ₹5 lakh per family for secondary and tertiary care, will cover 50 crore people, which is almost 40 per cent of the population. But it is doubtful if this government will be able to reap the political benefits — the details are yet to be fleshed out and the scheme may not roll out in time for the 2019 general elections. Unsurprisingly, there is no allocation for this scheme in the budget.
The biggest challenge before Jaitley was job creation and he has chosen to address it tangentially. He is pinning his hopes on a rural revival by increasing spending on livelihood and infrastructure creation and by giving a leg-up to MSMEs, which are potential job creators. The Finance Minister is banking on MSMEs to invest the funds freed up by lower corporate taxes, but given that most of these companies are in distress and in the red, it is doubtful if the strategy would work immediately.
No infrastructure push
The other big job creator, infrastructure, does not seem to have got significant outlays except for Railways, whose capex has been pegged at ₹1,48,528 crore. It is a bit disappointing that Jaitley has not chosen to give a push here, especially because private investment is not anywhere near revival.
The question of farm distress has been addressed with a a higher support price — farmers will get 1.5 times their production cost for all crops, but it remains to be seen if this will cheer them as the problem has been not so much with the price as with procurement by government agencies.
Improved market access for farmers gets a push with 22,000 rural haats to be turned into digitally connected Gramin Agricultural Markets (GrAMs), which will be linked to the electronic National Agriculture Market (e-NAM) network and exempted from regulations of politically controlled APMCs. An Agri-Market Infrastructure Fund with a corpus of ₹2,000 crore is also on the anvil.
Jaitley has also earned the blessings of senior citizens by increasing the exemption limit for interest income on deposits to ₹50,000 from ₹10,000 earlier, raising the deduction for health insurance premium and/or medical expenditure from ₹30,000 to ₹50,000 and increasing the deduction for expenditure on critical illness to ₹1 lakh. The Finance Minister obviously does not see the 1.89 crore middle-class salaried taxpayers who filed returns as a vote bank. The standard deduction of ₹40,000 that he has proposed is piffling.
Worse, it substitutes existing deductions available for transport allowance and medical expenses, which add up to ₹34,200. The net benefit of ₹5,800 will be eroded further if one considers the 1 percentage point increase in health and education cess.
Not surprising then that while the loss to the exchequer will be ₹8,000 crore from the standard deduction introduction, the gain from the cess will be ₹11,000 crore, leaving it richer by ₹3,000 crore!
Compliance goes unrewarded
Interestingly, the middle-class taxpayer has been let down at a time when compliance is rising: the effective taxpayer base zoomed by 27 per cent to 8.27 crore at the end of 2016-17 from 6.47 crore at the start of 2014-15.
The other constituency that has reason to be miffed is the stock market, where long-term capital gains tax has been introduced. However, in his effort to soften the blow Jaitley, may have made the proposal unfriendly: arguments and disagreements between assessees and the department lie ahead.
Taking cover behind an exceptional year owing to the introduction of GST, Jaitley has let the fiscal deficit target slip by 30 basis points to 3.5 per cent for this year and set the next year’s target at 3.3 per cent while accepting the FRBM committee’s recommendation to cap government debt at 40 per cent of GDP. This is not likely to go down well with the markets, especially because the extra spending is not seen to be rewarding the economy.
With the two main questions of job creation and manufacturing revival not being addressed well enough, will this Budget deliver the political goods for the BJP? Jaitley has chosen to leave the job to private investment aided by a revival of exports, and that appears a dicey move. He may yet get lucky if the green shoots that are visible now sustain themselves and grow.