Come Friday and last of this regime’s Budget orations: part substance-part spiel, part assessment-part conjecture, would be behind us. Facing a general election and close misses in recent Assembly polls, the government’s intentions are naturally encumbered by electoral forces, in addition to the usual vagaries of markets and the economy.
High expectations from stakeholders, who ignore the possibility of a mere vote-on-account, is a testament to the Budget’s essential narrative as a balancing act of sorts.
Nevertheless, it may be apt to understand the presumptions at play versus their underlying probabilities.
Despite the Budget, in general, being perceived as a forward-looking vehicle, it is as much an incremental planning tool. Extrapolations from the past shouldn’t be understated. Let us hence rewind twelve months back.
Last year’s account weighed towards farmers and welfare at-large: an aggressive push towards Minimum Support Price (MSP); enhancement of farmer credit; commitment to fisheries, horticulture, aquaculture; tribal education; medical colleges; and lastly, universal healthcare through Ayushmaan Bharat.
Major ignores were private sector and the middle class. Personal income taxes were untouched and mutual fund investments were hit thanks to the return of the dreadful Long-Term Capital Gains (LTCG) for equities, which was a true travesty especially in a post RERA and demonetisation world.
What has transpired since? Firstly, the areas of last year’s focus (i.e. farmers, welfare) have come across as blanks so-far: the implementation of MSP has failed to create a dent considering low market prices even post-a good monsoon and a bumper crop, farmer distress has not really muted (least of all in popular narrative), and Ayushmaan Bharat four months on is still in pilot project mode.
Second, the areas which were anyways ignored last year (i.e. private sector and middle class), haven’t recovered on their own. Indian industry is stressed, as demonstrated by record-low IIP data coming out in 2018 year-end. So are markets and investment, with high crude prices wreaking havoc on and off, a continued interest rate differential with respect to US driving capital outflows (which would only increase with a rate cut as expected now from RBI), wide internal uncertainties driven by the NPA crisis, and external concerns thanks to the ongoing US-China trade war.
Considering all these factors, and the limited time left prior to hitting election mode, I see only one thing incoming: populism, populism, and populism!
The government is incentivised to now serve its lowest common denominator i.e. reinforce the farmer and welfare themes from last year with a vengeance through populist measures, and this time not omitting the middle class. For the latter, expect income tax rationalisations, higher deductions for healthcare and investment, perhaps even removal of LTCG!
For the former, considering a rather muted to-date rise in the government’s overall subsidy bill (less than 4 percent over last five years), increases in fertiliser, petroleum, and wage subsidies under the rural employment guarantee scheme shouldn’t come as a surprise. Lastly, get ready for soft loans for the farm sector. Never mind the lack of requisite allocations characteristic of Interim Budgets…the “plans” will be nevertheless be announced.
The private sector, forgotten last year, shall be forgotten again – only paid lip service through the all-too-familiar chain of buzzwords i.e. ‘Make in India’, ‘Smart Cities’, ‘Startup India’ - schemes which have garnished standees at industry events but failed to mobilise real change.
(The writer is the Founder and CEO at Transfin, a finance and economics commentator and a former investment banker at HSBC London)
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Updated Date: Jan 30, 2019 13:35:43 IST