Announcing India as the fasted growing economy in last five years, and projecting to make it $5 trillion economy in next five years, Indian Government introduced the Interim Budget for the fiscal year 2019-20. Despite being an Interim Budget the government tried to provide a developmental trajectory for the entire year through its focus on majorly three sections of people- farmers, workers and the middle class.
Announcing assured basic income support for the farmers, a ‘mega’ Pension Scheme for the unorganized workers, and raising tax rebate to the middle class, the Budget was viewed being ‘populist’ by the mainstream media and got analysed keeping in mind the upcoming general election. It may be partly true- keeping in view the short constitutional mandate of the government. The government is on power for about next three months and it has to take care of the current expenditure for another three months to make financial provision for the Election and other administrative expenses, till a new government comes to power by June 2019. That is till another Interim Budget is prepared from August 2019 to rest of the fiscal year. So from February to July 2019, the current government has a mandate plus responsibility for presenting an Interim Budget for next six months. Again, point to be noted, it is a Parliamentary Convention. But a government can present a Full Budget for the entire year; there is no constitutional prohibition on it. This convention arises from a situation that the outgoing government should not impose its expenditure plans on the new government, because in an election year the new government also comes with new set of Legislature requiring their voting approval. The populist expenditure plans of the out-going government can be burdensome on the new government to meet those expenditure obligations.
The focus of the Interim Budget can be summarized to be on the Farmers, Unorganized Workers and Middle class.
The current Union Budget 2019-20 is thus an ‘Interim Budget’ with nuances and estimates of income and expenditure made for the next ‘full financial year’. People argue there should be Vote-on-Account, not even an Interim Budget! Technically, Vote-on-Account is a parliamentary process of voting for approving the withdrawal of money from the Consolidated Fund of India (Central Government’s repository of its revenue, dividends, loans and other receipts) for meeting the expenditures. The legal document generally tabled in Parliament for this approval is an Appropriation Bill. A special Vote-on-Account is introduced for meeting expenditure for the period in between the presentation and passing of Budget. After the practice of introduction of Budget on February 1, government has solved this problem of shortage of time for passing of Budget before the onset of next Fiscal year. So a separate Vote-on-Account for intervening expenses mentioned above may not be required, but yes, the regular Appropriation Bill and Finance Bill for the Interim Budget are mandatory.
Some also argue, as it is election year so only a vote-on-account for approval of expenses for a specified period should only be tabled- not an Interim Budget. It should be noted again, Vote-on-Account is only for approving ‘Expenditure’, but Interim or a full Budget is for approval on both ‘Income’ as well as ‘Expenditure’ plan of the Government. However, as there is no constitutional obligation for such limited Vote-on-Account, nor is there constitutional debarment on Interim Budget, so we have Union Interim Budget 2019-20.
The focus of the Interim Budget can be summarized to be on the Farmers, Unorganized Workers and Middle class. A new scheme is launched for providing farmers’ income support named PM Kishan Samman Nidhi (PM Kishan) that intends to give direct income to small farmers in bank accounts– Rs 6,000 in a year. Small farmers holding up to 2 hectares of land will be given this money transfer in 3 equal installments. Total amount is big- Rs 75,000 crore; but to provide distress relief to 12 crore small farmers, the share of each is tiny. Expecting some quick positive impact on the mood of farmers, government is allocating Rs 20,000 crore to disburse first installment of Rs 2,000 to each farm household from this fiscal year itself. This is unprecedented, never occurred before– a New Scheme announced in Budget for ‘Coming’ fiscal year is getting implemented in ‘Current Year’ itself! Technically, under budgeting principle it is unconventional, as its allocation for this year should have been approved in previous year’s Budget. Thus, such provisions could have been implemented ‘Outside the Budget’, if required.
Could the government have done better to provide an attractive PM Kishan scheme? Most probably not- ‘Sound Economics does not always translate into sound Polity’!
Eminent psephologist Yogendra Yadav was quick to point out- the Rs 6,000 income support for the farmer translates into Rs 3.3 per day per person for a family of 5 people. And even if we take this Rs 500 per month for an average family size of about 4 for India, it comes to only Rs 4.17 income support per day per person. Such kind of Direct Income Transfer or Universal Basic Income (UBI) scheme was mooted since long. This farmers’ basic income scheme is not universal as it does not apply to all people, only a Direct Income Transfer for a small supplementary income support to the distressed farmers. Will it be aiding enough towards achieving double farm income by 2022?
Direct Income Transfer and Universal Basic Income was debated in India as a feasible economic idea since a decade back by economists like Kaushik Basu, Pranav Bardhan and Arvind Subramanian. Former Chief Economic Advisor Arvind Subramanian had envisaged recently that direct income transfer will be reflected in 2019 election manifestoes of different political parties. In his book ‘Of Counsel: Challenges of Modi-Jaitly Economy’ he raises discussion on scrapping some existing welfare schemes like PDS to create Direct Income Transfer scheme like UBI. Keeping in view the current allocation in this Budget, if schemes like MGNREGA and PDS are scrapped, it will release Rs.60,000 crore from MGNREGA and Rs.1,84,220 crore from total Food Subsidy earmarked for the FY2019-20; that’s a total sum of Rs.2,44,220 crore! If this sum is allocated for direct Basic Income transfer for 12 crore farmers, this will provide at least a Rs 20,000 per head per year! It will translate into Rs.1667 per month- or about Rs 56 per day per person! This will be a more acceptable and meaningful supplementary income support to the farmers comparing it with the minimum poverty line equivalent monthly amount of Rs.1090 per person (at 2015-16 prices) given by Tendulkar committee (Livemint).
Could the government have done better to provide an attractive PM Kishan scheme? Most probably not- ‘Sound Economics does not always translate into sound Polity’! When the current government came to power it had mooted the idea of scrapping MNREGA scheme due to high level of corruption involved in it. Despite corruption, seeing its role in creating rural employment it was allowed to continue. Even PDS food scheme involves upto 40% leakages and significant wastage due to insufficient storage facilities. But the issues like food security for the poor, checking food inflation, keeping a buffer stock for meeting flood and drought situation are to be debated and discussed before taking any bold decision on scrapping such schemes. Moreover, in times of upcoming election, a general consensus is difficult- even it can backfire on the incumbent government. However, there are hundreds of poverty alleviation schemes which are full of corruption that can be scrapped to release resources for a comprehensive basic income scheme. Even a partial scrapping of PDS can be thought of, to reduce wastage of food.
However, the governments are realizing that UBI or a comprehensive basic income (CBI) scheme can’t be downplayed. UNICEF and Self Employed Women’s Association (SEWA) had conducted few pilot studies on effectiveness of unconditional income transfers to people in Indore, Delhi and few tribal villages of MP from 2011 to 2017. The study found that greater part of people preferred cash transfers over ration cards or PDS food and used them for raising their living standards- through agriculture, livestock, better schooling for children etc (downtoearth.com). The idea is thus clear- political entities wish to avail tangible advantage through direct income transfer scheme seeing its potential effectiveness and acceptance among people. Already some state governments have initiated steps to introduce such schemes for example– ‘Rythu Bandhu’ of Telengana, ‘Annadata Sukhibava’ of Andhra Pradesh and ‘KALIA’ scheme of Odisha.
The ‘Agriculture Investment Support Scheme’ or ‘Rythu Bandhu’ is the first direct farmer income transfer scheme in India implemented by Telengana, that provides Rs 8,000 ‘per acre’ to a farming family in a year ‘without any upper cap’ of land holding. Rs.12,000 crore allocation is provided in FY2018-19 by Telengana government for 58.33 lakh farmers to purchase seeds, pesticides, fertilizer and other inputs under this scheme. ‘Rythu Bandhu’ is extremely popular in Telengana- as it provides more money for more acreage of land holding! Andhra Pradesh has launched a similar scheme named ‘Annadata Sukhibava’ allocating Rs.5,000 crore in the state Budget on 5th February 2019. Media report suggests Andhra government is planning to give Rs.10,000 per year to a farmer family and targets to benefit about 96 lakh farmers.
Odisha government has introduced a direct income transfer scheme named ‘Krushak Assistance for Livelihood and Income Augmentation’ or ‘KALIA’ in January 2019. Rs 10,000 direct income transfer per farming family in a year is announced (without any upper cap of land holding)- in two installments of Rs 5,000 each in the kharif and rabi seasons. A total of 5 installments for five cropping seasons are intended to be disbursed: that’s a total of Rs.25,000 between 2018-19 to 2021-22. An allocation of over Rs.10,000 crore has been earmarked under the scheme- to cover 92% cultivators of the state. Andhra and Odisha governments’ schemes are intended to cover landless labourers, share croppers, and vulnerable poor households as well. Above state government schemes can potentially turn out to be more attractive than the central scheme.
The central government has tried to address farm distress through additional measures, particularly on agricultural loan front. All farmers hit by natural calamity to get 2% interest subvention (subsidy on interest rates), with an additional 3% on timely repayment on loan- so a total of 5% interest subvention can be availed. Moreover, 2% in interest subvention was also offered for animal husbandry and fisheries. This will partially help the farmers in alleviating their difficulty in farm loans.
Apart from the farm sector benefit, a social security scheme for the informal sector was announced in the Interim Budget. A ‘mega’ Pension scheme ‘PM Shram Yogi Maandhan’ for the unorganized workers was launched- expected to benefit 10 crore people, with Rs 3,000 monthly pension for those with monthly income below ₹15,000 after the age of 60 years. It requires a monthly contribution of Rs.55 or Rs.100 by the worker at the entry age of 18 or 29 respectively with a matching contribution by government. India’s 42 crore unorganized workers in the informal sector, contribute half of India’s GDP- street vendors, rickshaw pullers, domestic workers, construction labourers etc. Government claimed minimum wage of labourers of all categories is hiked by 42% in last 5 years. However, a person entering under pension scheme at the age of 18 will have to work for 42 year to reach 60 years of age. About in every 14 years real value of today’s Rs.3000 will be half, assuming a 5% average inflation. So in 42 years real value of today’s Rs.3000 will be about one-eighth. That is, Rs.3000 pension then will be worth today’s Rs.386 only. In case of a 4% inflation scenario, it will be worth today’s Rs.578. Will it be enough to cover one’s basic needs per month at that time? The fundamental idea of the scheme may be good, but the government should have come up with a better scheme to give genuine benefit to workers.
Third significant way Indian government tried to provide benefit to the people was through the fiscal policy changes- a large concession for the Middle Class tax payer. Terming ‘Moderate Taxation and High Compliance’ tax regime government announced significant tax benefit to middle class – by doubling the Tax Rebate under Section 87A of Income Tax Act. Threshold for tax rebate was raised from Rs.3.5 lakh to Rs.5 lakh income after deduction of investment income under Section 80. Maximum rebate available thus got raised to Rs.12,500. So effectively, a person after Rs. 1.5 lakh deduction under Section 80C ending up with upto Rs.5 lakh income (that is upto total of Rs 6.5 lakh income) will have pay no tax at all. It is a relief for 3 crore middle class taxpayers- small tax payers, salaried people, pensioners, senior citizens and small traders. The aggregate benefit amounts to Rs.18,500 crore of income tax sacrifice by this move.
The general taxpayers had expected relief for all, across all category of tax-payers. But Tax Exemption remains as such for other tax payers ‘without raising up the general Tax Slab’. So, persons with income above Rs. 6.5 lakh will pay tax as per the standard slab rates of 5%, 20% and 30%, at income slabs above Rs. 2.5 lakh, above Rs.5 lakh and above Rs.10 lakh respectively. A partial relief here to the middle class- Standard Deduction was raised from Rs.40,000 to Rs.50,000 and TDS threshold on interest on postal and bank deposits was hiked from Rs.10,000 to Rs.40,000. On another benefit intended for the middle class, TDS deduction on rental income was hiked from Rs 1.8 lakh to Rs. 2.4 lakh. There is also proposal to exempt tax on rental income of one’s second house. Clearly, government has tried to turn the tide in its favour through the middle class.
Amidst announcement of 1 lakh digital villages to be created, government went on enumerating its achievements in last 5 years like– success of Jan Dhan, Aadhar, Mobile (JAM) and 34 crore Jan Dhan accounts created in last 5 years; simplification of direct tax system leading to increase in number of tax returns filed; more than 1 crore people filing tax return for the first time after Demonetization and rise in tax collection to Rs.12 lakh crore; 99.54% tax returns filed approved without scrutiny and IT returns to be processed in 24 hours and so on. Moreover, GST’s significant tax reforms were also highlighted– rationalization of high taxation on multiple commodities; most consumer items falling within low 0-5% GST rate slab leading to Rs.80,000 crore tax relief to the consumers; hike in GST exemption to small traders from Rs.20 lakh to 40 lakh and GST collection crossing Rs.1 lakh crore in Jan-2019. The government certainly expects these achievements will provide tangible benefits.
However, there were certain hiccups in job creation and jobless growth– from reports of jobs to be 45 years low with highest unemployment rate at 6.1%, only seen last in 1972-73. The government seems to address this through some measures for MSME sector like 25% sourcing for government projects from MSME, of which 3% from women entrepreneurs. The government expects 25-28% savings here. Another relief for MSME sector reeling under economic crisis was provided- all GST-registered MSMEs to get 2% interest subvention for borrowings upto Rs.1 crore. The MSME sector is already under shortage of investible funds due to liquidity crunch in the banking system post-NPA crisis. As per Bank of America Merrill Lynch estimates, by Dec-2018 Indian banks had a liquidity shortfall of Rs 1.4 lakh crore, and further slated to increase to Rs1.6 lakh crore by end of current fiscal (Bloombergquint). Only Rs 40,000 crore liquidity was planned to be injected in Dec-2018 through bond purchases. On 7 February 2019, RBI’s short term lending rate to banks i.e. the Repo Rate was reduced by 25 basis point- that stands now at 6.25%. Can these short term measures infuse confidence and sufficient liquidity in the banking system and enhance investments in the MSMEs leading to significant amount of job creation? Answer is not that easy and straight forward.
The government, in an effort to roll out its benefits, has put forward a Rs 27.8 lakh crore budget pegging its Total Expenditure 13.3% higher for 2019-20 over current fiscal. It has contained Fiscal Deficit target at 3.4% of GDP for 2019-20 (about Rs 7 lakh crore) by following a strategy of under-expenditure on the targeted amount of last year, with aid from comfortable scenario on disinvestments receipts, dividends from PSUs and recovery on loans. It also hopes to reduce Debt-GDP ratio to 40% in 2024-25 from 46.5% in 2017-18. Certainly, the government through its dole-outs and roll-outs in the Interim Budget expects to ride on the growth wave with a dream to take India unto a $10 trillion economy by 2031. Will it see the light of a New Dawn?
The Authour: Shir Manoj Kumar Sahoo teaches in Faculty of Economics, School of Liberal Studies, Pandit Deendayal Petroleum University, Gandhinagar, Gujarat, India. He can be contacted at: email: firstname.lastname@example.org and Mobile:+91-9687575805.