What you expect is not what you always get. But Budget ’18 seems to have lived up to its promise: effusive praise for its own policies, some grandstanding and lots of signalling. In short, Finance Minister Arun Jaitley’s Union Budget for 2018-19 is custom built to prepare his party for hectic political action over the next 12-18 months. Jaitley’s avowed focus is on improving ease of living in modern India; if the economy benefits, that will be a bonus.
This may sound a bit cynical but Jaitley joins a long list of illustrious finance ministers who grapple with this problem every Budget: How to ensure that the policy design satisfies all economic interests? This gets aggravated during pre-election years when neglected constituencies need handouts and aggrieved voters require hand-holding. Most FMs have settled upon a common formula: showboating, grandiloquence, throwing in a few quotes, data smokes-and-mirrors, and a string of policy announcements that sound good and feel good but might forever remain on the drawing board. The earlier government mastered this art and this government is showing no signs of giving up on it.
This Budget focuses on select voter segments: agriculture and rural voters, women, infrastructure and health, salaried employees and MSMEs (micro, small and medium enterprises). Many schemes have been announced, money allocated and pious intentions announced; time will tell whether these translate into tangible benefits on the ground.
For example, Jaitley has announced a 50 per cent increase in minimum support prices (MSP) for the kharif crop. So far, so good. However, it is common knowledge that MSP does not cover all crops and that most farmers are unable to take advantage of MSP due to a variety of reasons—corruption at procurement sites; paucity of information about MSP; lack of linkages between farms and markets; coercive tactics used by local moneylenders and politicians to buy crop from farmers at sub-MSP.
The government also recognises that most farmers do not have access to MSP levels when market prices often slide below MSP. To remedy this, Jaitley’s Budget speech promises: “Niti Aayog, in consultation with central and state governments, will put in place a foolproof mechanism so that farmers will get adequate price for their produce.” Going by the statement, it seems that it will be a while before Niti Aayog can construct a policy paradigm, launch it and then correct it for bugs. This raises concerns: Can Jaitley honour some of these promises?
Predictably, agriculture and the rural economy occupy the centre stage this Budget, given the imminent political compulsions. Outlays have been announced for agri-market infrastructure, rural roads, food processing, dedicated funds for developing infrastructure in aquaculture and fisheries as well as for animal husbandry, among others.
But here’s the problem: these announcements fall short of ensuring that funds reach the farmers. The Budget paradigm remains stuck in legacy mode, unable to shift from theatrics to improved, on-the-ground delivery mechanisms. For example, the much-vaunted crop insurance scheme has failed to settle claims in a year of severe farm sector distress.
While many commitments have been made to improve the lot of the poor, some existing schemes are being tapered down; the Mahatma Gandhi National Rural Employment Guarantee programme is a good example. Against an originally budgeted Rs 48,000 crore expenditure for the scheme during 2017-18, the government actually spent Rs 55,000 crore during the year. But the expenditure budgeted under this head for 2018-19 remains fixed at Rs 55,000 crore.
This Budget contains another path-breaking announcement: a move towards universal healthcare. As a first step, Jaitley has promised that 10 crore poor families (comprising roughly 50 crore beneficiaries) will be provided coverage (up to Rs 5 lakh per family per year) for secondary and tertiary care hospitalisation. This is a major step forward. But as earlier, there is little information on the details of the scheme or how it will be rolled out, giving rise to scepticism.
The Budget was also expected to provide some stimulus to manufacturing and employment generation. Jaitley has, thus, increased customs duty on imported mobile phone components to encourage indigenous manufacturing. However, even though the announcements are in line with the phased manufacturing programme (launched by Ministry of Electronics and Information Technology), there is no clarity how it will stimulate a move from assembling to manufacturing, which is what currently plagues mobile phone manufacturing in India.
The cynicism gets heightened because of the Budget arithmetic. Jaitley promises to exercise fiscal rectitude by accepting key recommendations of the Fiscal Reform and Budget Management Committee (which was chaired by bureaucrat-turned-politician N K Singh) and to bring down government’s debt-to-GDP ratio to 40 per cent. Consequently, after breaching the fiscal deficit target for the current year (3.5 per cent of GDP against 3.2 per cent promised), Jaitley has now committed to restrict fiscal deficit for 2018-19 to 3.3 per cent of GDP.
This is where the math starts getting tricky. Are the revenue projections in step with spending promises? For example, the Budget assumes a nominal GDP growth of 11.3 per cent during 2018-19 but projects income tax collections growing by 20 per cent, corporate tax growing by 15 per cent and GST collections rising by a whopping 67.3 per cent. As the proverb goes, this is where rubber will hit the road.
Rajrishi Singhal
Independent consultant and former business journalist
Email: rajrishi.singhal@gmail. com