By Niharika Yadav
Come February 1st and the Modi government’s interim budget will be on show in the Parliament. Unlike the Union budget, which is the Annual financial statement of the government presenting its detailed revenue and expenditure policy, the Interim Budget is a fiscal statement for the transitional period when the tenure of the ruling party is about to end and the elections are underway. As a consequence, the Interim budget also acts as a pre-election campaign report for the ruling party to highlight the successes of its fiscal considerations. This budget is also different from votes-on-account, which is a parliamentary approval for withdrawing money from the Consolidated Fund of India to incur expenditure for a certain part of the year.
In the backdrop of the upcoming 2019 polls, agrarian unrest and the twin shocks of GST and Demonetization, the government is unlikely to let go of an opportunity to plug all loopholes that have and can affect its voter base. In fact, analysts expect Modi government to salvage the losses it suffered in the Hindi Heartland by making bold fiscal changes. This article attempts to discern the expectations from the budget by various stakeholders.
THE MIDDLE CLASS
Though it is a convention to not meddle with direct taxation in the interim budget, Modi government is expected to provide relief to the politically influential middle class by twitching certain taxation limits. In fact, after the announcement of 10% quota for economically weaker sections, it is rather evident that the government is seeking to assuage groups of voters who, it believes, can affect the vote share.
According to Anirudha Taparia, Executive Director, IIFL Wealth Management, there is a possibility that the tax exemption limit for tax payers doubles from Rs. 2.5 lakh to Rs. 5 lakh – a recommendation that was also supported by Confederation for Indian Industry (in its pre-budget suggestions to the Finance Ministry). It was also recommended to lower the personal income tax rate of 30% to 25%, while allowing for medicine and transportation related expenses. Another issue that the budget might pay heed to, as a means to target the middle class, can be unemployment. With debates on job creation raging amongst economists, it is possible that BJP targets an increase in relevant expenditures to stimulate job creation, especially to come a full circle with its promises of Make in India.
THE FARMING SECTOR
Agricultural communities across the country have been distressed due to deflationary food prices and a drop in wages. Public dissatisfaction amongst this group was visible in the mass mobilizations by the Kisan Mukti March in New Delhi in late November. Loan waivers have made their way into the farm economy through state-governments’ decisions and the interim budget is not enduring enough to bring about long term structural changes. Thus the Union government might use the budget to provide relief packages to farmers, interest-free loans and direct benefit transfers up to Rs. 4000 per acre per season, sources say. Myhtili Bhusnurmath, Consulting Editor, The Economic Times believes that because agriculture is a state subject, the Union Govt. has limited options of budgetary interventions. However it can take certain measures like ‘hike in MSP, inspiration from the MP model and targeted universal basic income for the agricultural workers.’
It is a well-known fact the BJP, as well as its ideological parent RSS, are supported by the community of small businessmen who contribute majorly to its vote share. However, Modi government’s decision to discontinue Rs. 1000 and Rs. 500 notes as legal tender impacted cash-based MSMEs heavily. Moreover, a colossal change in the taxation system left these businesses worst hit. As a conciliatory measure the government is expected to respond with budgetary changes. M A Mannan, the country manager at Corsair claims that due to variable GST rates and other factors like changing buyer behaviour, businesses are going through demand-supply-cost gaps and expect the government to plug these by either providing sops to the sector, providing easier access to credit or lowering rates for relevant categories of goods. The business community also expects the Modi government to drive a final nail in the coffin by incentivising businesses producing locally through (a) financial support, and (b) ease in regulatory compliances under its Make in India initiative. Finally, the government has still not delivered on its promises of cutting corporate tax from 30% to 25% and is likely to accommodate it in the interim budget expenditures.
IT AND FINANCIAL SECTOR
While the IT sector has seen various regulatory as well as technological reforms under the Digital India Initiative, it hopes that the election budget aids the structural needs that have arisen due to the initiative. Vijender Yadav, CEO of Accops Systems says, “Along with……initiative, there is a growing need of focus on enabling secured digital transactions right from the beginning.” He claims that a) digitisation due to Aadhaar and b) a push towards cashless transactions has necessitated funding on cyber security for biometric information and other private data.
HFCs and NBFCs have been facing a liquidity crunch since the past 6 months with the IL&FS default adding to the crisis. With this as the backdrop, this sector expects the government to come up with stimulus packages through the interim budget, experts say. Some even expect a priority sector tag for initiating lending from banks to NBFCs along with greater allocations under funds like Rural Infrastructure Development Fund (RIDF) and Affordable Housing Fund that can help in the provision of easier credit. Apart from direct changes, this sector also seeks to benefit from the above-mentioned tax exemptions for the middle income groups. This can lead to an increase in disposable income and decrease in credit demand, leading to higher credit availability for other sectors. Support to NBFCs will also translate into credit for housing developers and eventually affordable housing for home buyers, yet again targeting the swing voter base of the middle class.
THE DILEMMA OF BUDGET 2019
The government needs to take a decision on whether it has fiscal space for its election budget promises as it has flouted its fiscal deficit target of 3.3%. It will, in most likelihood, allow for fiscal slippage if it incurs the above mentioned expenditures, as warned by rating agency Moody’s.Financial Year 2019’s revenue shortfall is expected to be 1.5 Lakh crore lesser than the target. The government has been blamed for overestimating its GST collections. On an average, collections of 97000 Crore have been recorded in the first nine months which are far less from the targeted 13.48 Lakh crore. Amar Ambani of YES securities believes that the government is likely to fulfil its promises for rural and middle class communities and further shift the fiscal target of FY2019 to FY2020. In such a situation, the election budget will be a good indicator of how the Modi government adjudges its chances for the upcoming elections. Whether populist measures overwhelm interim finance minister Piyush Goyal’s budget speech, whether the government uses this budget merely to highlight its achievements or both – this budget will be a pertinent and well-timed indicator of Modi government’s judgement of itself.
Niharika Yadav is a student at Ashoka University
Image Source – Financial Express