If ever there was a Union Budget aimed squarely at the 2018-19 election season, which is packed with eight state Assembly polls and will culminate in the Lok Sabha election, this was it. FM Arun Jaitley’s 2018-19 Union Budget has the unmistakable stamp of Prime Minister Narendra Modi. It is pro-farmer, pro-poor, pro-Dalit and pro-women—the four key constituencies for the BJP.
To pay for the slew of populist schemes in the Budget, the fiscal deficit has slipped from the targeted 3.2 per cent to 3.5 per cent for 2017-18. Jaitley has pledged to rein in the fiscal deficit to 3.3 per cent in 2018-19. He has overshot last year’s target in order to fund the Prime Minister’s ambitious schemes.
The biggest of these is the National Health Protection Scheme which will provide medical cover up to Rs 5 lakh a year to 10 crore of the poorest Indians. Already being dubbed Modicare, this could be a game-changer for those who can’t afford reasonable healthcare. It will in particular give the tribal and adivasi belts access to medical facilities long denied to them.
The second big-impact scheme is to provide eight crore women free gas connections under Ujjwala Yojana. India has around 25 crore family households. Thus the scheme will cover nearly 33 per cent of India’s households — and almost all of the country’s low-income families. Farmers are the third special focus group in this Budget. They have been guaranteed a minimum support price (MSP) for their kharif crop that is 1.5 times their production cost. This will go some way towards relieving rural distress by lending certainty to famers’ incomes.
The fourth constituency targeted by the Finance Minister comprises Dalits. An allocation of Rs 56,619 crore has been made for the welfare of Scheduled Castes. Another Rs 39,135 crore has been allotted for the welfare of Scheduled Tribes.
Beyond these four key constituencies — farmers, women, Dalits and the very poor – the Budget is underwhelming. The corporate tax has been reduced to 25 per cent for companies with an annual turnover of less than Rs 250 crore. Jaitley says this covers 99 per cent of Indian corporates. What he doesn’t say is that those corporates with an annual turnover of more than Rs 250 crore (the 1 per cent that will continue to pay 30 per cent tax plus cess) account for a disproportionately large amount of corporate tax. This is therefore a deft but unwelcome sleight of hand on Jaitley’s part.
Imposing a 10 per cent long-term capital gains tax on equity shares will not generate significant revenue. Nor will the 10 per cent tax levied on distribution income from equity-oriented mutual funds please market players. The Sensex, after plunging by over 400 points early during the Budget speech, recovered ground later, only to sag again.
By keeping personal income-tax rates unchanged, Jaitley has demonstrated that this last full Budget of the NDA government is not aimed at pleasing the middle-class. The finance minister has in fact managed to extract Rs 90,000 crore in extra revenue from personal income-tax. The total tax base has meanwhile expanded to 8.27 crore Indians.
In absolute terms, the fiscal deficit has slipped from the targeted Rs 5.47 lakh crore for 2017-18 to Rs 5.95 lakh crore (3.5 per cent of GDP). Fiscal hawks will watch carefully if Jaitley’s commitment to cut the deficit to 3.3 per cent next year is sustainable given the resources needed for the several rural, health, women’s and SC/ST schemes announced in this Budget.
As Jaitley concluded his Budget speech came the news of the BJP losing three bypolls in Rajasthan to the Congress: two parliamentary seats in Ajmer and Alwar and one Assembly seat in Mandalgarh.
The political writing has been on the wall for some time. Whether the Budget will change that writing before 2019 is an open question.
The author is an editor and publisher