Budget 2018-19: Big announcements, but little or nothing to spur growth
Prosenjit Datta February 1, 2018
This government's last full year budget was entirely predictable in parts. But it also threw up a couple of surprises. First, the predictable parts. Finance minister Arun Jaitley's speech spent a fair amount of time on rural schemes, plans to increase farmer incomes, and lots of other announcements for the poor, especially the rural poor. It also made announcements for education, with primary emphasis on SC/ST education through the Eklavya residential schools and some tax relief for medium sized companies with revenues up to Rs 250 crore (The corporate tax rate for them will be 25 per cent as opposed to the 30 per cent for the bigger companies). The long term capital gains tax imposition was also expected.
The fact that the government would slip up on the fiscal deficit target because of the teething troubles in the GST, and the low growth in GDP this year, was also expected. And the government resetting the fiscal glide map for the next financial year had also been predicted by most economists and analysts.
The big announcement, which was also the centerpiece of the Budget speech, was the ambitious healthcare programme that would cover 10 crore families (translating into 50 crore beneficiaries) with a medical insurance of Rs 5 lakh per annum. Officially called the National Health Protection Scheme (and informally dubbed Modicare), this was announced as the biggest healthcare protection scheme in the world.
In essence, it was a Budget whose announcements were squarely aimed at the angry rural constituents who gave the BJP such a scare in rural Gujarat, and whose anger is palpable in the states of Madhya Pradesh and Rajasthan, both currently governed by the BJP and both scheduled for elections this year. More importantly, most of the announcements are expected to appeal to the mass of poor and rural voters who will swing the all important general elections currently scheduled for the middle of next year. (There is some expectation that the government could announce the general elections earlier - in fact, as early as the second half of the current calendar year).
However, a perusal of the expenditure budget does not show any huge allocation increases for agriculture, healthcare or education. Also, the details on how the ambitious healthcare scheme will work are still to be worked out. A much less ambitious scheme for health insurance announced in an earlier budget by the same government has been less than successful. And how soon the new scheme will actually be rolled out is open to question.
The finance minister in part answered the question in a post budget interaction on Doordarshan by saying that all schemes do not necessarily require direct budgetary allocations - some are done through other means (read insurers, private healthcare providers for this one).
But there are two questions that crop up after this Budget speech. The first one is that apart from the Ujjwala scheme (which also is being expanded in this budget), this government's execution capabilities on other schemes has been questioned more than once. So what would be the final outcome in terms of benefits reaching the poor of all these big announcements. Number two, in many of the areas, the additional allocation (once you factor in inflation) has been minuscule. Despite the announcements, there is really little in the expenditure budget that gives any indication that the government expects to spend directly and aggressively on sectors such as education, health care or even in increasing farming incomes.
The only announcement that has any direct bearing on farmer incomes is the one about setting the MSP for all crops at 1.5 times the cost of production. That was also the election promise of the BJP in 2014, before it clamped down on MSP in order to cool food inflation. It is an interesting U-turn because the government is now signaling that it will increase MSP even if it means higher inflation. The logical conclusion is that if the inflation goes up, the Reserve Bank of India will not cut interest rates - it may even increase them.
The big disappointment in this budget was that it made no announcements on how it will spur growth (apart from increasing farm incomes through MSP, which will have an effect on increasing consumption). It had no real incentives for increasing private investment in greenfield projects which could both lead to increased manufacturing and create more jobs. It increased import duties on a host of sectors that signaled a return to protectionism. And it had no real answer on how to increase exports.
It gave a sense of Deja vu. It was a budget that was reminiscent of the UPA and its focus on winning elections through sops to the poor rather than focusing on spurring manufacturing and services competitiveness and GDP growth.