The Interim Budget 2019 has been prepared keeping in view certain international and national developments. A cursory look at the events that have taken place at the international front showcase a fluctuation in the prices of crude oil from $65 per barrel in April 2018 to a high of $85 per barrel in October 2018, eventually stabilising at $60 per barrel. Increase in the Bombay Stock Exchange (BSE) from 32000 points in April 2018 to 38000 points in August 2018 and then, stabilising at 36000 points and an increase in the rate of interest by US Fed from 1.5% in May 2018 to 2.25% in December 2018 were some of the other important domestic and international economic developments.
These developments led to a decrease in foreign exchange reserves from $426 billion in April 2018 to $396 billion in January 2019 despite the fact that India’s rank in ease of doing business improved to 77 in 2018 from 100 in 2017 and corruption index improved to 78 in 2018 from 81 in 2017. On the domestic front, unachieved disinvestment proceeds
(Rs. 35000 crore against the targeted Rs. 80000 crore) along with a shortfall in GST revenue by rupees one lakh crore and gross tax revenue of Rs. 23000 crore for FY19 compounded the problems of the finance ministry. The political compulsions after losing all the five states in the assembly elections recently necessitated the pruning down of the obsession with the reduction in fiscal deficit. Under such circumstances, the stand-in Finance Minister (FM) Piyush Goyal presented a budget, which doled out sops for all - rich, poor and middle classes, workers in the unorganised sector and farmers.
Are these extended populist measures actually going to make some difference to society or are these are merely jugglery of figures? Let us examine the announcements.
First, while announcing tax benefits, the FM stated that the “Individual tax payers having taxable annual income up to Rs. 5 lakh will get full tax rebate and therefore will not be required to pay any income tax.” It was initially perceived that the FM had raised the threshold limit from Rs. 2.5 lakh to Rs. 5 lakh. Later, it was understood that only individuals with an income up to Rs. 5 lakh are being given the benefit of rebate. Further, this calculative measure is also not going to make any big dent in the income tax receipts of the government. Thus, ostensibly the middle class failed to get any respite. Many may argue that tax free gratuity limit was increased from Rs. 10 lakh to Rs. 20 lakh to help the middle classes. But the fact remains that this move will, in actuality, help the richer sections. The workers with an annual salary of Rs. 10 lakh must have worked for 41 years or workers with Rs. 20 lakh salary should have worked for 20 years to be eligible for the enhanced tax free gratuity limit, which clearly allocates the mandate towards the rich. Similarly, it is not difficult to comprehend that measures like exemption on tax on notional rent for the second self-occupied house and roll-over of capital gains tax increase up to Rs. 2 crore from investment in one residential house to two residential houses are aimed at serving the rich more.
Likewise, an analysis of the Pradhan Mantri Shram-Yogi Maandhan scheme that entails an assured monthly pension of Rs. 3,000 to 10 crore workers in the unorganised sector who earn up to Rs. 15,000 per month is more of a gallery trick. It was declared that a worker joining the scheme on attaining 29 years of age or above will have to contribute Rs. 100 per month to be eligible for a monthly pension of Rs. 3000. According to an economic assessment that factors in an annual inflation of 5%, the amount of monthly pension of 13000 after 31 years will be equivalent to the present Rs. 700. If a deposit of ` 100 per month (Rs. 1200 per year) is made in the recurring deposit at the rate of 6% for 31 years, then it is equal to Rs. 105000 at the end of the deposit tenure. If this amount is neutralised with 5% inflation, it is expected to yield Rs. 24500. When the comparative figures in both these scenarios (Rs. 24500 and Rs. 700 per month) are placed against each other, it becomes clear that the government should give continuous pension for 35 months or three years approximately so that the full benefit of the amount set aside for 31 years is reaped. But keeping in mind the low life expectancy of people belonging to weaker socio-economic sections in India, many workers will end up only paying the amount and perish before the scheme starts offering them the yields. Further, due to lack of clarity about the government’s matching contribution in the scheme, it’s hard to find out for how long will an individual keep getting the pension.
The third major announcement made was related to the Pradhan Mantri Kisan Samman Nidhi scheme which aims at paying Rs. 6000 per year to 12.5 crore farmers with less than two hectares of land at an annual outlay of Rs. 75,000 crore. Besides being retrospective (as allocation of Rs. 20000 crore is made with effect from December 2018), the scheme may end up offering Rs. 2000 each to non-deserving beneficiaries till March 2019 as it may take months together to list the actual updated beneficiaries with the matching land records. Not only this, if the cost of cultivation of wheat per hectare (Rs. 35000) and paddy per hectare (Rs. 45000 on the basis of A2+FL which means all purchased inputs plus the imputed cost of family labour) are accounted for, then the per year costs turn out to be around Rs. 80000 per hectare. For the two hectare land holding, these costs turn out to be Rs. 160000 which makes the declared income assistance too insignificant.
When it comes to the ‘Make in India’ programme for which the allocation has been increased from Rs. 149 crore to Rs. 473 crore this year, it becomes essential to note that allocation to the Department of Industrial Policy and Promotion is decreased from Rs. 1938 crore to Rs. 1902 crore. The allocation for ‘Start up India’ project has come down from Rs. 28 crore to Rs. 25 crore. Similarly, in order to boost the export of textiles, allocation of Rs. 1,000 crore is made for Remission of State Levies (ROSL), which is actually covered up by decreasing the allocation to the textile ministry from Rs. 6943 crore to Rs. 5831 crore. The budget may act as an instrument to augment support in favour of the NDA in the 2019 elections, but it will fail to offer any respite to the ailing Indian economy.
— The author is Associate Professor in Institute of Management, C/o DAV College, Chandigarh
[The views expressed here are personal and don’t reflect those of the government]