Welfare budget: Unconventional

By starting his speech by saying that he was rising to present the interim Budget for the year 2019/20,  Mr Piyush Goyal has the unique distinction of breaking all conventions followed both in the states and in the Central government and presenting a budget in which he sought a vote on account but committed the government after the elections to not only huge expenditures but also substantial tax relief in income tax.

To be fair to the finance minister, it could be said when every political party big and small across the country has been demanding to pull the farmers out of their distress and also relief from income tax for the middle class, he took the opportunity of taking the wind out of the sails of the opposition by announcing some major reliefs to everybody that counted in an election.

The relief to the farm sector is staggering with Rs 6,000 per annum income transfer to small farm holders and interest rate subventions on certain types of loans to the farmers, the Finance Minister has through the budget increased aggregate demand in the rural areas.

But will this relieve the distress of the farmers? Perhaps not as the main reason for acute distress is the continuing sub division and fragmentation of holdings by the year making all farming uneconomical. Why has the government not addressed this issue even though the Finance Minister has referred to it as a cause? This  was an appropriate time to also enact a law making it impossible to register subdivisions of agricultural land below 2 hectares.

The Pradhan Mantri Shram-yogi Mandhan to provide pension to those in the unorganised sector would be welcome by one and all as it is a need of the hour. But the government is yet to enact laws governing employment in this sector without which the benefits may not reach most, like the domestic help types. From a populist point of view this will definitely garner votes to the party in power.

The committee to identify tribes which are in remote areas and are yet to join the mainstream economic activities is a welcome move as some of them adopt crime as their profession. The increase in amounts for the welfare of the SC and ST in the budget require to be spent on time as there have been innumerable complaints that money for scholarships to this class of students are overdue by even several months.

The FM has taken pride in the fact that under the mudra yojana over Rs 7.3 lac crores have been disbursed, but he has not disclosed the details of what this has achieved in terms of employment or income generation. Whereas other reports put the figure at only Rs 2.46 lakh crores in FY18.The RBI and others have cautioned the Government on its potential to become the next NPA menace for the banks. Already an NPA of Rs 11,000 crores has been reported in FY18. This is not a small amount.

While the government presents an action taken report on all the budget announcements, a perusal of the list shows that many of them are pending at various levels for action. Government does not give details of the progress year after year on the schemes which make nonsense of a single year's progress report.

The railway's operating ratio is still too high at even the expected 95%. No government wants to increase fares at the lower classes of travel. Probably unpleasant announcement of fare increases has been left out to make the Budget fully populist.

The budget aims to contain the fiscal deficit to 3.4% 0.1% more than budgeted and in the next FY it is anticipated to be 3.3%.Every Finance Minister conveniently glosses over an equal amount of Fiscal Deficit of the states which takes the total fiscal deficit of the country to over 6.5% which has been tolerated by the system because of the unaccounted incomes and wealth circulating in the country.

Having made GDP estimates a political football, the government cannot correct it upwards as was done in the year 1998.Unless the total fiscal deficit of the country is reduced to 3%, which means both the central and state governments have to eliminated their revenue deficits totally, the threat of inflation will loom in the horizon and the real tax potential of the system will remain unknown.

While alluding to the convention established over decades of not making tax changes, the Finance minister has yet yielded to populist election demand of raising the tax-exempt slab of I-T to Rs 5 lakh and offering certain other concessions in income tax largely to benefit the middle-class incomes up to Rs 5 lakh but losing over Rs 23, 000 crores. When such a major populist measure has been taken, the FM could have considered the demand of certain foreign manufacturers to reduce import duty on components to make manufacture in India profitable. It is then so obvious the FM cashed in when all the opposition parties were making diverse promises to different sections of the Indian public but seemingly left out certain necessary tax changes referring to the convention.

Devoid of the convention of presenting only a budget to run the country during the period just prior to and just after the elections, the Finance Minister has presented  as satisfy all budget clearly focussing on all those areas that have a mass appeal and would certainly bring in the votes.

By increasing the provisions for the welfare of the hitherto neglected classes of people, and more particularly the poor farming community, the FM may have contributed fiscally to increase aggregate demand in the rural areas that could have a multiplier effect so long as the money does not go into liquor and other non-essential consumption expenditure unless the transfer had been in the form of food stamps or some other such device that cannot be used at the liquor outlets. So the government can only hope for the best. In regard to the pension scheme for the unorganised sector, the beneficiaries will only be those in the working age and would not benefit those who have crossed the threshold age. Many work beyond sixty and they will also be out of it as they cannot join the scheme.

Altogether given the fact that parties are going in for promises to distribute manna when they come to power without analysing how they would meet the revenue resources a clever government has decided to ride on these promises of others and making them a governmental promise despite the fact that there is no certainty about election results at this stage. It is a do-good-to-all budget.

(M.R. Sivaraman is a retired IAS officer who was the Union revenue secretary ....)