Business Today

The Last-ditch Effort

As Budgets go, this one has a perfect focus - alleviating rural distress.
twitter-logo Prosenjit Datta   New Delhi     Print Edition: February 24, 2019
The Last-ditch Effort
Business Today Editor Prosenjit Dutta

As Budgets go, this one has a perfect focus - alleviating rural distress. That is also one of the two biggest problems facing India's population. (The other one is jobs - but as the government has found out, high GDP growth is no longer leading to higher job creation.) In the run-up to the general elections, having recently lost three state elections because of farmer disenchantment, the government decided to try the last weapon in its armoury to woo them. It opted for a massive income support scheme - which would see each farmer with a landholding of less than two hectares get `6,000 in his account in a year. This is expected to benefit 12 crore small- and medium-farmer families. In fact, the government decided to bite the bullet, miss the fiscal deficit target by 10 basis points, and activate the income support scheme from December 2018 itself (thereby revising its estimates for the agricultural sector by `21,100 crore for the current fiscal).

There were two other big announcements - one on tax rebate for those with income up to `5 lakh (it would benefit those with income up to `6.5-7 lakh per annum after rebates, etc.) and a major pension scheme for labourers, which would be rolled out in the coming year.

The government tried to cover the largest number of voters through these three proposals. Moreover, it did so with only a minor slippage in the estimated fiscal deficit target. (It hopes to close the year with a mere 3.4 per cent fiscal deficit instead of the targeted 3.3 per cent, and hopes to maintain the next year's fiscal deficit at 3.4 per cent instead of the original target of 3 per cent.)

No government can hope to solve every problem through budgetary allocations or policy interventions. But any Budget document in India as well as the Budget speech in Parliament gives a very good understanding of what the government feels is very important and things it feels doesn't need to be addressed immediately. Sometimes it also shows where a government has not been able to find a solution, and this Budget is no exception.

Commentators have pointed out that the revenue targets seem overly ambitious and fiscal deficit numbers too optimistic. They have also pointed to education and other areas (including defence) where the increase in allocation has been minuscule - even lower than inflation figures. Equally, the money allocated for farmers shows how it has failed to solve the real problem for cultivators despite its efforts last year - an impressive hike in MSPs.

Will direct transfer of income fix the problem? I suspect not. One, it is merely a band-aid and does nothing to address the issue that farming is not remunerative in most cases and this cannot be fixed without structural reforms and long-term policies. More importantly, like reservation, a direct income support scheme of this sort will raise a clamour from more sections of the population, and governments of future will find it hard to stop themselves from increasing amounts and the populace covered in every Budget.

Finally, the big issue left unaddressed is how will the government improve its revenue collections to meet these demands. The projected number seems overoptimistic and one can only hope the finance minister has got his arithmetic right.

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