Budget 2019-20 key takeaways: A welfare system that may finally work, much-needed recognition for middle class

The pictures that have gone viral on cyberspace said it all. An animated Narendra Modi thumping the table as interim finance minister Piyush Goyal rattled out sops for middle class, unorganised sector and farmers in his budget speech, while a downcast Mallikarjun Kharge and a seemingly dejected Rahul Gandhi look on in the Opposition benches.

There is no empirical data yet to prove that budgetary allocations purchase votes, that too so close to the election date. After all, welfare measures depend overwhelmingly on implementation, and so-called ‘big bang’ populist measures such as assured income support to small and marginal farmers — announced by the NDA government in its interim Union budget 2019-2020 — are more of a political messaging before its impact can be felt on the ground.

But perception is a powerful political tool. The full tax rebate for middle class with income up to Rs 5 lakh per annum, raising of the standard deduction limit for salaried taxpayers from Rs 40,000 to Rs 50,000 per year, assured income support of Rs 6,000 per year in the form of direct cash transfers for small and marginal farmers who own up to two hectares of land, mega pension scheme that assures monthly pension of Rs 3,000 from the age of 60 years for workers in the organised sector, interest subvention to the tune of 2-5 percent on loans taken by farmers affected by natural disasters, a new retail trade policy department to revamp the rules and assist the trading community facing increased competition from online retails giants — all these measures cater to specific segments of the electorate bearing a specific message. The budget here becomes more of a political statement ahead of elections instead of an account of the government’s income and expenditure.

It is the fear that NDA has turned the budgetary exercise into an election manifesto that prompted former Union finance minister in UPA cabinet P Chidambaram to term it “an account for votes”, betraying an anxiety that the sops may have a positive impact on voters.

It was not a Vote on Account. It was an Account for Votes.

— P. Chidambaram (@PChidambaram_IN) February 1, 2019

His party colleague Shashi Tharoor has called it a “damp squib”, claiming that the outlay for farmers at Rs 500 per month is too low and Congress government, if in power, would have given a similar relief to the middle class. The official Congress Twitter handle has called the budgetary announcements “jumla (rhetoric)".

Budgetary warning: Budget announcements are subject to jumla risks, please read the Budget document carefully before believing. #Budget2019 #AakhriJumlaBudget pic.twitter.com/UtpmItaBIf

— Congress (@INCIndia) February 1, 2019

The apparent despondency in initial Congress reaction suggests that it perceives the government to have succeeded in its political messaging and expects a vituperative give-and-take campaign in the lead up to the elections. Congress president Rahul Gandhi, for instance, broke down the annual outlay of Rs 6,000 for farmers into a daily figure, and suggested that it is an “insult” to the farmers.

Dear NoMo,

5 years of your incompetence and arrogance has destroyed the lives of our farmers.

Giving them Rs. 17 a day is an insult to everything they stand and work for. #AakhriJumlaBudget

— Rahul Gandhi (@RahulGandhi) February 1, 2019

Beyond the political messaging and counter messaging, a few takeaways of the budget are evident. To the extent that this is an interim budget, there is always scope for caveats and nuances. But Goyal’s speech pointed inexorably to a larger trend towards which the Indian economy is moving.

One, for the first time in India, we see the structure of a welfare system that may actually work. The assured income support for small and marginal farmers — called the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) — will involve direct cash transfer of Rs 6,000 in three installments directly into the bank accounts of farmers. This has two important fallouts. One, corruption and leakages will be less. Two, there will be less distortion of the markets. Up until now, governments have transferred income to farmers through price interventions (such as subsidies or MSP) that distorted the markets by encouraging farmers to produce more of the stuff that had little takers and also resulted in corruption along the way. Direct cash transfer addresses both the anomalies.

Economists such as Niranjan Rajadhyaksha have pointed out that by benefiting around 12 crore small and marginal farmer families through the scheme, India has reached halfway to universal income support if we consider the total number of households to be around 25 crore. There are other benefits as well. Though the PM Kisan scheme puts pressure on the government’s pockets and has resulted in the NDA missing the fiscal deficit target of 3.3 percent of the GDP (it is estimated at 3.4 percent now), an increased fiscal outlay is expected to boost the rural economy.

The second key takeaway involves the middle class. For far too long the vast, amorphous tax-paying group that consists of a large section of the aspirational populace including lower, middle, and upper-working classes, independent professionals, trading and business communities, has been expected to pay its taxes “for nation-building” and expect very little in return.

The Narendra Modi government — which enjoyed huge backing from this group — has been guilty of the same tactic, treating the segment as a cash cow and taking them for granted. It is not just the hike in annual standard deduction, or income tax exemption for those earning below Rs 5 lakh per year, or raising of tax exemption on bank deposit interests to Rs 40,000 from Rs 10,000, or exemption of tax deducted at source on house rent upto Rs 2.4 lakh per year, or raising of capital gains exemption on houses to Rs 2 crore — these measures are meant for and will ease the tax burden on the middle class.

The more important and heartening thing to note was that instead of bullying the middle class, telling it that it was its “sacred duty” to pay for nation-building or adopting a hectoring tone (refer to then Finance Minister P Chidambaram’s comment in 2012 when he asked urban middle class: “When you can buy ice cream for Rs 20, why complain about price rise?”), the government spent a few words appreciating the contribution of this group.

“On behalf of all the people of India and our Government, I would first like to thank all our taxpayers for their valuable contribution to nation-building and for providing a better life to the poor and marginalised sections of society. Your tax helps provide dignity to our sisters and mothers with toilets and cooking gas connections. Your tax pays for the electricity connections to the poor who lived in darkness for generations. The tax you pay will provide health care to 50 crore brothers and sisters, and children. It is you who is ensuring respect, dignity, and a secure future to our retired jawans through One Rank One Pension. Thank you, taxpayers.” Goyal’s words, acknowledging the contribution made by taxpayers, may assuage hurt sentiments that caused a part of this section to move away from backing the BJP.

It could be an astute move, but that’s not a crime in politics.

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