By Niharika Yadav
The morning of 1st February witnessed the presentation of the Interim Budget 2019. Amidst the clamor of members of the 16th Lok Sabha, Interim Finance Minister Piyush Goyal began by thedeclaration – “India is solidly back on track.” The statement was a euphemism for all the table-banging, chest thumping and bold proclamations that were underway in Mr. Goyal’s ravishing budget speech. The government broke conventions as it did not just target constituencies of swing voters, but also meddled with income tax to assuage them. While twitching the indirect taxation had been a common trend amongst past interim budgets, a change in direct taxation had not been observed before. This was because the budget was implemented only for a short duration before re-elections.
The government announced the Pradhan Mantri Kisan Samman Nidhi under which farmers holding less than 2 hectares of land, would be provided direct income support of Rs. 6,000 per year. Among chants of “Jai Kisan”, the FM highlighted that the government aimed to target about 12 crore small and marginal farmers through the same. It proposed the allocation of not just Rs. 75,000 crore for the current year (FY 2019-20) but also Rs. 20,000 crore in the revised estimates of previous year’s (FY 2017-18) budget.
The FM hailed this announcement as a culminating step by the government to uplift the farmers. He reminded the listeners about the rise in MSP by 50%, issuance of soil health cards and other pro-farmer initiatives taken up by the govt. However, opposition claimed that the measure was too insignificant to lead to any tangible benefit. Politician Yogendra Yadav went on to call the measure ‘an insult to the injury of farmers’. He said that the Telangana Govt., on whoseschemes this measure was modelled after, had promised Rs. 10,000 crore per hectare to the farmers whereas this scheme allowed for Rs. 6,000 per farmer which turned out to be Rs. 3 per farming family per day – an amount that was too tiny to even buy a cup of tea. Moreover, the announcement to implement the scheme retrospectively and to meddle with the balance sheet of FY 2017-28 irked various analysts. They believed that the government overstepped its bounds in doing so as it didn’t follow the convention of an interim budget.
The government also announced 2% interest subvention for animal husbandry and fishery farmers provided they availed loans through the Kisan Credit Card scheme. A healthy credit culture was also incentivised in the budget as it allowed an additional 3% subvention in case of timely repayment of these loans.
This scheme was further expanded to include farmers who faced natural calamities. As 2% interest subvention already existed for the first year of rescheduling of their loans, the govt. proposed to allow this benefit for the entire period of disaster along with an additional 3% for timely repayment of loans.
The government sought to target communities that hadn’t received appropriate policy interest. It established a committee under NITI Aayog to identify De-notified, Nomadic and Semi-Nomadic communities and proposed other measures to ensure their development. Further, the government increased the allocation for North-East by 21% to Rs. 58,166 crore in FY 2019-20. For workers above the age of 60 in the unorganised sector, the government launched the Pradhan Mantri Shram Yogi Mandhan, which provided a monthly pension Rs. 3,000 per month, with contributions of Rs. 100 per month. While this was assured for workers joiningat the age of 29, the government mandated contributions of a mere Rs. 55 per year for workers joining the workforce at the age of 18.
The FM dodged the raging topic of unemployment amidst the outcry of fellow Lok Sabha members, by claiming that strong GDP growth and formalisation in the past 4 years implied job creation. He refused to engage with the controversy regarding methods of unemployment calculation, and relied on EPFO membership statistics that indicated an increase of about 2 crore people.
Charting the territories of direct taxation, the FM announced full tax rebate to individual taxpayers earning taxable annual income of up to Rs. 5 lakh under Section 87A. The FM went on to claim that this measure would benefit about 3 crore middle income consumers and would provide benefit of Rs. 18,500 crore. Analysts claimed that these figures were highly exaggerated as they included individuals having gross income greater than Rs. 5 lakh who invested in provident funds, specified savings, education loans, National Pension Scheme contributions, medical insurances and other deductions. Various analysts were sceptical of this assumption as bringing an income of Rs. 7 lakh down to Rs. 5 lakh by indulging in these deductions would be unrealistic for an individual taxpayer.
Tax benefits for the salaried middle class included a hike in standard deductions from Rs. 40,000 to Rs. 50,000. For individuals occupying two households, income tax on the second self-occupied house was exempted. This aimed to benefit various middle income earners who had two households on account for care for parents, children’s education and jobs. Moreover, the threshold for TDS on interest earned through bank/post office deposits was raised from Rs. 10,000 to Rs. 40,000.
The budget leapt beyond its fiscal deficit target of 3.1% for FY 2019-20 by pegging it at 3.4%. Analysts have differing views on how this will impact the fiscal health of the government. Arvind Chari, Head Fixed Income & Alternatives, Quantum Advisors, categorised the budget to be inflationary in nature as overall expenditures saw a 13% hike. This was majorly due to the income support allocations for the farmers. Moreover, many claimed that the FM’s expectation of revenue through GST collections was overestimated, and so were his estimates of growth in taxation rate of about 18% for FY 19-20. Data revealed a fluctuation in GST collections from May 2018 with collections from November dropping to Rs. 97,00 crore in November 2018 and Rs. 94,000 crore in December as compared to Rs.1 lakh crore in October. In the lack of a clear upward trend in collections, the market expected the fiscal and revenue targets to be moderate. Chari claimed that this could affect the bond market negatively. He further added, “The RBI and the MPC may view the fiscal compromise, aggressive assumptions and the potential inflationary nature of the budget and leave interest rates unchanged.”
However, Revenue Secretary Ajay Bhushan Pandey brushed aside these claims boldly. He maintained that GST is going through a phase of stabilization and despite the recent implementation, revenue trends are encouraging. Moreover, he said that due to a wide increase in tax base under the Modi government around 1 crore people have been added to the list of taxpayers. This increase along with an increase in corporate tax collection was sufficient to account for (a) loss of revenue, or (b) increase in expenditure by the government, and ensure that the fiscal map of the coming year was realistic. Opposition also pointed out that the Rs. 7 lakh crore of market borrowing in this budget, which is higher than the Rs. 5.71 lakh crore estimated for this year, can disrupt the fiscal balance. However, Pandey cleared that only about Rs. 4 lakh crore of the total was for financing the fiscal deficit, while the rest was meant for repayment of past loans.
The budget can prove to be either the Aaakhri Jumlaa, as Rahul Gandhi crudely put, or a pro-growth budget maintaining fiscal prudence. Only the upcoming year can reveal which of these possibilities stands corrected. Till then, however, we must await the nation’s verdict on who it will invite to form the next government.