Demonetisation: Ahead of Union Budget, BJP plans to firefight with welfare sops for poor

All eyes are on the forthcoming Union Budget, especially after the recently-concluded Winter Session was a total washout, and the ruling BJP is gearing up for it. The move to demonetise high-denomination notes ruled the month-long Winter Session in Parliament, where several Opposition parties came all guns blazing at the Narendra Modi government.

The government has said that that infrastructure investment needs a boost and the Union Budget in February will focus on encouraging more public as well as private spending to boost economic growth. However, Prime Minister Narendra Modi and the government is expected to focus more on the poor, the middle class and the business community, in bid to appease them. Union Finance Minister Arun Jaitley is expected to present the annual budget for 2017-18 on 1 February.

During the BJP parliamentary party meet on the last day of the Winter Session, Modi told party members government’s priority is to focus on welfare schemes for the poor, less exploitation of the middle-class and minimising harassment to the business community.

Demonetisation of Rs 500 and Rs 1,000 is an important milestone but not the end of the journey to fight black money. If the exploitation of middle class has to end and rights of the poor have to be protected then corruption has to be eliminated. "I have said this before, 50 days would be pinching and thereafter the problems would slowly ease. Nobody could have imagined the kind of success and popular support we have achieved," he said.

 Demonetisation: Ahead of Union Budget, BJP plans to firefight with welfare sops for poor

PM Modi is expected to focus on the poor and the middle class Indians this Union Budget. PTI

Speaking at an event recently, Jaitley said that India aspires to become a developed economy from a developing economy and a 7-7.5 percent GDP growth does not satisfy its requirements.

"Therefore spending more and now" is the focus, he said adding infrastructure spending "certainly needs a booster." On the impact of demonetisation on the economy, Jaitley admitted that "altering this normal is extremely disruptive" but "in the long run you will have a higher GDP, a higher revenue and probably far cleaner economy and far cleaner public life."

He further said it was "a courageous decision to withdraw 86 percent of the paper currency, replace it and then say that replacement will now be substantially and significantly in digital."

However, everything is not as hunky-dory as it seems in the BJP camp. On 15 December, veteran BJP leader and former Home Minister LK Advani, criticised the way Parliament was functioning and expressed distress. Advani invoked the party's gold standard that were set by former prime minister Atal Bihari Vajpayee and said, "Disruptions are so disappointing that I wonder if I should resign from the Lok Sabha."

That aside, BJP MPs have told the political leadership of the party that the goodwill the party garnered after the 29 September surgical strikes were being marred by the distress caused by the notebandi. According to The Indian Express, BJP MPs from eastern Uttar Pradesh warned party chief Amit Shah about the growing discontent among the populace over sudden decision to demonetise. The state goes to polls early next year, soon after the Union Budget is presented. The meeting of BJP’s national office-bearers was meant to discuss party’s strategy to spread the message among people about the benefits of demonetisation in the poll-bound states, particularly in the politically crucial Uttar Pradesh.

However, if Uttar Pradesh elections have to happen in February, they will have to be announced sometime in early January. The model code of conduct will come into effect immediately, preventing any populist measures from being announced by both central and state governments. This restriction, though, is unlikely to apply to the Union Budget, another reason why it will have to serve as the platform for such measures.

Speaking to The Economic Times, sources from the party said that they expected the next Budget to provide some sops to people inconvenienced by the currency ban. "He is going to be focused on the Budget till 1 February. It is going to be a revolutionary Budget," a source was quoted as saying.

"In the last eight years, our plan budget has been hanging between Rs 4.2 lakh crore and Rs 4.8 lakh crore, and this money has to be allocated for rural roads, education and all other programmes... India cannot take a leap forward on a mere Rs 4.8 lakh crore budget. The parallel economy is eating into our economy like termite," Shah was quoted as saying on India TV's show Aap Ki Adalat.

Describing the demonetisation step as a "multi-dimensional, far-reaching" decision taken in the national interest, Shah said, the positive fallouts of the decision have been: "it has broken the back of terrorism and Naxalism in one stroke."

Regretting that a small section of people was trying to take advantage of the situation, Jaitley said, "This Indian normal where recovery of taxes is terrorism and non-payment is a way of life...has to change. With this new normal that is being created, if we succeed in doing, India would be a happier place."

On the controversy relating to tax scrutiny of political parties, Jaitley said, "This is a complete media creation" and pointed out that no changes have been made in the law in that regard.

"Has a single change made in the last two months or so or in the last two-and-a-half years with regard to taxation of political parties? The answer is "No". "Nothing has been done, whatever was the existing system which has been existed for the last 15 years is continuing and if somebody creates a political party for the purposes channelising funds ... obviously law will step in."

However, Modi's surprise decision to scrap high-value banknotes has upset preparations for the Union Budget because of the resulting disruption to growth, revenues and asset sales, two government sources told Reuters. Officials fear the move will slow economic activity for much longer than originally expected, as millions of people continue to queue at banks and ATMs for cash and companies struggle to pay wages and suppliers.

"We had thought the demonetisation will be a game-changer," Reuters was told by one official, who has direct knowledge of budget preparations, adding the Central bank should have taken more steps to ease the pain of ordinary people. "We still have to start work on the budget."

The official added that the cash crunch had hit sectors like construction, agriculture and auto makers, hurting tax receipts and complicating the government's asset divestment programme. Two-wheeler and commercial vehicle sales declined by over 10 percent in November from a year ago, with weakness in the retail, gems and jewellery sectors also impacting factory gate duty receipts. The government is likely to miss its annual target of raising Rs 565 billion ($8.4 billion) through the sale of stakes in companies by a wide margin due to uncertainty in the markets, said the official.

The government has so far raised less than half of the target for the whole fiscal year. NR Bhanumurthy, an economist at National Institute of Public Finance and Policy (NIPFP), a government-funded think tank, told Reuters that revenue collections could fall by up to Rs 350 billion ($5.18 billion) this year. "We are facing very uncertain times," said Bhanumurthy. "The government should weigh the impact of demonetisation on growth and revenue."

With inputs from agencies

For full coverage of Union Budget 2017 click here.

Updated Date: Jan 13, 2017 20:24:50 IST