Economy

A Critical Analysis of the Interim Budget 2019

With elections around the corner, the political parties are striving hard to attract voters. The Finance Minister Piyush Goyal on 1 February 2019 declared the interim budget for 2019–20. As we analyse the interim budget 2019, it is worth mentioning that it is a temporary budget and so the validity of the budget depends on the discretion of the new government formed after the elections. If the same government gets elected for a second term, they can choose to keep the budget or not. This is applicable for the other side too. The interim budget in this regard is the sixth budget of the NDA alliance. The budget has attracted wide range of criticisms from political experts and economists as targeting the vote bank for the general elections while not dealing with the huge fiscal deficit that the economy is facing.

The latest budget of the NDA government has already been tagged as a populist budget, devoting special attention to the marginal and small scale farmers, as well as attributing much attention to the middle class section of the society. The budget has mainly focused on three major segments of the society, namely the farming or agricultural sector, unorganised sector and salaried class. The budget also has little mentioning of the science and technology related money allocation and hardly mentions the defence expenditure, revenue and inflationary pressures on the economy.

To begin with the allocation of funds for the agricultural sector, the sector has two key proposals—the creation of a new scheme called the Pradhan Mantri Kisan Saman Nidhi and the revival of extant scheme called the Rashtriya Gokul Mission. Under the Pradhan Mantri Kisan Saman Nidhi scheme, the centre allocated a total fund of ₹20,000 crores for the FY 2018–19 and ₹75,000 crores for the FY 2019–20. The scheme provides a direct income of ₹6000 to farmer families through the beneficiary bank accounts. The scheme is expected to benefit the small and marginal farmers with a landholding less than two hectares. The scheme covers around 12,000 crore farmers. In this regard, states like Kerala and Tripura will avail more benefits as more than 95% of the farmer population in these states belong to the category of small and marginal farmers. While the Pradhan Mantri Kisan Saman Nidhi scheme caters to the needs of farmers, the Rashtriya Gokul Mission is for protecting indigenous cow breeds. The budget also proposed 2.5% interest rate subvention for farmers hit by natural calamity and livestock loss.

The budget is beneficial in terms of the provisions made for the unorganised sector and regarding tax exemptions. A new pension scheme called the Pradhan Mantri Shram Yogi Maandhan has been allocated a funding of ₹500 crores. It is expected to cover about 10 crore workers of income up to ₹15,000 a month. They will be receiving a pension of ₹3,000 every month after the age of 60. The budget declared a tax exemption for an earning up to ₹5 lakhs and for ₹6.5 lakhs if they make sufficient use of the extra ₹1.5 lakhs in terms of insurance and welfare contributions. The standard deductions are also increased from ₹40,000 to ₹50,000 and Tax Deduction Source (TDS) is increased from ₹10,000 to ₹40,000 on post office deposits and other deposits. The stamp duty levy will now follow a single point through stock exchange mechanism, thus bringing in more transparency, compliance and reducing the transaction costs in terms of state duty.

The budget proposed 2% interest rate subvention for Micro, Small and Medium Enterprises (MSMEs) and also extended Government e-marketing (GeM) platform to support domestic trade and services. The budget also diverted certain funds for R&D and AI in the form of National Programme on AI. By tying it to the already existing scheme of National Mission on Interdisciplinary Cyber Physical Systems, the Government aims to train youth for diverse skilled jobs and for the creation of fifteen Technology Innovation Hubs, six Application Innovation Hubs (AIH) and four Technology Translation Research Parks (TTRP).

On critically analysing the budget, former Finance Minister P Chidambaram is right in calling the budget as the “account for votes than vote on account,” with the general elections knocking the door. The allocation made to the farmers in terms of ₹6000 is insufficient when considering the long term agrarian crisis and debts. It is worth mentioning that this allocation is very less than the allocation made by the states of Telegana and Odhisha on similar schemes. The idea of sanctioning money only to people with less than two hectare land seems to be senseless as there is a lack of proper data on the landholdings of the farmers. The landless farmers and tenants are still left unattended in this scheme. Moreover, most of the new schemes are introduced at the cost of other well performing schemes like MGNREGA where the budget allocation has consistently reduced over the years. Also, the new pension scheme Pradhan Mantri Shram Yogi Maandhan is created by slashing the already existing National Social Assistance Programme which has been supporting more than 3 crore senior citizens, widows and disabled individuals. Also the allocation for the new pension scheme is very less when compared to the allocation for the earlier scheme. While speaking about the tax exemptions, it is true that the middle class household and salaried individuals will benefit, but the tax slab of the richer income group is left untouched.

While making huge tax exemptions and allocations, the question of revenue, especially in a situation of rising fiscal deficits, comes into the picture. Despite the fact that the tax exemptions will lead to more consumption, expenditure and liquidity in the economy, the budget failed to address the trends of inflationary pressures in the economy; thereby, again shifting the burden to the RBI. The budget made very less allocation in terms of technology and nothing was mention about defence expenditure. However, the budget cannot be criticised as completely worthless because it has promising allocations for the unorganised sector and MSMEs. The budget also created a Welfare Panel for the Nomadic Communities under the realm of NITI Aayog.

Prime Minister Narendra Modi stated, “It is essential to ensure that the benefits of development reach all sections of the society. This budget will empower the poor gives a boost to the farmers and an impetus to economic growth”. Finance Minister Piyush Goyal said, “I had the constraints of this being an interim budget. However, there was many things which could not have waited for the final budget, particularly relief for small tax payer which I have passed on”. In spite of their positive approach, the budget attracted a wide range of criticisms from various spectrum and one has to wait a few months more to see its impact on the general elections.

Picture Courtesy- Business Today



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