What Budget 2018 Means On A Day When BJP Lost Rajasthan

Published: February 01, 2018 18:23 IST
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Hooray! Hooray! The Budget has galloped into rural India, with promises galloping at steady clip to chase out of town - or village - the rural anger that manifested itself in Gujarat and again today in Rajasthan, where the ruling BJP lost all three by-elections. The Finance Minister knew he had to promise much to rural India in an election year and he did; but with all promises that governments in India make, there is always one big problem: implementation.

The big moment of the Budget, and one that has won resounding approval, is the promise to provide support of Rs 5 lakh for hospitalization of the poorest 10 crore families. It means that the government is promising almost 500 million people (assuming 5 people in a family) treatment at private sector hospitals, paid for the by the government. This is without doubt huge - aside from getting daughters married, hospitalization costs are what bankrupt all but the better off sections of India. It is also huge because it allows poor people access to much-better-run private sector hospitals. And it must be one of the biggest hospitalization programmes in the world (Jaitley said it is the largest scheme of its kind in the world). Finally, unlike many other schemes in the Budget, this should be easier to implement given that it does not need to involve the government's cumbersome machinery. There is one problem, the Budget does not say where the money will come from.

The other big deal in the Budget and in terms of the upcoming elections - is the promise to increase the number of free rural gas connections from 5 to 8 crores. So more than 80 million families, or 400 million rural Indians, will find life easier. The way this scheme was implemented in UP before last year's election, with local BJP leaders actively involved in the distribution, should see it working more efficiently than the other big promise of providing electricity to 4 crore households. But the free LPG scheme is not entirely without problems. Recent reports have pointed out that families who got the connections found the price of replacing the gas cylinder higher than the cost of collecting fire wood or using gobar. This aspect has not been addressed by the government; so while it may make electoral sense, the long-term change-over to using gas in rural India would take longer. Similarly, getting an electric connection to a house is much easier than actually being able to use it. The problems of low voltage, breakdowns, etc. are enormous and the whole creaking infrastructure needs a lot of help. This isn't easy when the implementing agencies are corrupt and government electricity boards are lethargic. But again, it should provide a short-term contentment with the government. And there is no doubt that these policies will cause rural change over time.

The Budget also promises that farmers will get 1.5 times their input costs as Minimum Support Price and a mechanism will be configured to ensure that amount is paid to the farmer even if the mandi or wholesale markets offer less for the produce for crop in questions. How is not clear; a committee will decide but will it be created and provide the answers before April's harvest of wheat? There are also promises to bypass the AMPCs which control the mandis which are in turn controlled by traders. How easy or well this will happen is again questionable. In Maharashtra, the attempts to bypass the AMPCs hasn't been very successful so far. That may be why it Jaitley is thinking of replicating the successful Operation Flood (that did milk) as Operation Green for potatoes, onions and tomatoes. That farmers cooperative model may be a much better one to follow; giving tax relief to Farmers Producer Organizations is also a good idea.

The rural part of the Budget is clearly aimed at the short-term target of drawing farmers back to the BJP fold. This is critical given the rural anger exhibited as anti-BJP in Gujarat and Rajasthan which needs to be mollified for elections in Karnataka in April and Rajasthan, Madhya Pradesh and Chhattisgarh in December that may well be package deal with an early general election. Nothing in today's Budget would have a negative impact here; lots in it could help the party recover some ground with rural India. How much and how soon depends on how quickly the government implements these policy ideas.

Employment was seen as the other area that the Budget would do much for. After all, jobs for people was the clarion call of the 2014 Modi campaign and despite the much vaunted Ghosh & Ghosh study that claims millions of jobs were created last year, everyone knows that if farmers are the body of India, employed youth are its limbs. The Budget does try and address this - but does it do so forcefully enough? The Economic Survey hinted at a focus on job-intensive and not capital-intensive policies. The Budget really did not go far enough on this; it forayed into offering tax and other incentives to SMEs without taking the issue head on. Yes, it does reduce the tax on all companies with a turnover of less than Rs 250 crore to 25%, but does this extend to firms like partnerships which run a large number of small businesses? And from the Finance Minister's numbers, it seems that these companies would save an average of Rs 1 lakh. Similarly, the Finance Minister extended to all industries the EPF and employment fixed term scheme given to the textile, footwear (and leather for EPF) sector. Are these that going to cause a job boom? It is more probable that the drive in rural India in health, education and increased consumption would result in greater long-term job creation, but whether this would happen fast enough is questionable.

Given the huge focus on the rural sector, the urban Indian has got shorter shrift. Yes, there is going to be a standard deduction for Rs. 40,000 for the salaried class as well as an additional medical allowance and and those of us over 60 get some additional benefits, but there is nothing substantial. In fact, there is an additional cess of 1% which the Finance Minister hopes will yield him Rs 11,000 crores. This, along with increased customs duty on perfumes, mobile phones and gold, along with adding dividend tax to income from equity-based mutual funds, is not good news for the urban salaried person, whom the minister has recognized as the back bone of the tax system.

The Finance Minister celebrated the increasing number of Indians in the tax net; he also bemoaned the fact that many Indians were deliberately under-reporting their income. He pointed out that while the average salaried Indian pays Rs 76,000 in income tax, the business person or professional only declares Rs 26,000 as tax. But he did not really do much to address this issue of noncompliance, so while demonetization may have brought in more tax payers, they aren't really paying taxes. A clearer focus on this would have been helpful - perhaps asking how firms buy expensive cars, but pay little tax? Should depreciation allowance be removed for such items?

The overall Budget numbers also raise some questions about how the government's estimates for next year. The biggest question is around GST collections. The Finance Minister has said that because they only got 11 months of GST, the revenue collection is lower than they had budgeted for. While that is understandable, what seems somewhat hopeful is that there would an overall increase in GST collections next year to Rs 7.4 lakh crore from 4.4 lakh crores, which even after correcting for 9 months of actual collection, seems a stretch.

The battle for the government is to bring this schemes to fruition in the shortest possible time. Gujarat may have been saved for the BJP by Congress indiscretions, but as Rajasthan showed today, the voters who gave Modi a 25-0 victory in the state 2014 have given the Congress a 3-0 victory. And a look at the votes shows a massive swing away from the BJP. The BJP needs to reach out to rural India fast; the Budget offers the ideas, will they be delivered?

(Ishwari Bajpai is Senior Advisor at NDTV.)

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.

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