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In budget today, PM Modi looks to shore up political base ahead of polls

Feb 01, 2019

Finance minister Piyush Goyal will present the Narendra Modi government’s election-year budget on Friday that is expected to attempt reaching out to distressed farmers, boost jobs and give the salaried middle class something to smile about.

The interim budget is seen as the last big occasion for the ruling BJP-led national coalition to deliver on its promises comes weeks before the election commission is set to announce the schedule for general elections

Goyal is widely speculated to announce tax sops to the middle-class, special package for agriculture and small scale industries, and incentives to encourage the manufacturing sector that can absorb the millions who enter the workforce every year. (Follow live updates here)

Electoral loss in three Hindi heartland states of Rajasthan, Madhya Pradesh and Chhattisgarh came as a shock for the Bharatiya Janata Party (BJP) towards the end of 2018. The triple loss was blamed on farm distress, which was exploited by the Congress party in all three states to its advantage.

The Congress promised loan waiver in their election campaigns in these states, two of which — Madhya Pradesh and Chhattisgarh — were under the BJP rule for 15 years.

The ruling coalition has been dismissive of the Congress’s loan waiver promises; at one point PM Modi dismissed them as a “loan lollipop” and insisted that quick fixes such as loan waivers were not a solution to the problems faced by farmers.

Friday’s budget, however, is an expected to strike a balance between the politics and economics of rural distress and come up with a formulation that would help the government counter the opposition’s charge that the government didn’t care about the poor, and the farmers.

One possibility that has been debated in the run up to the budget has been an investment support for small and marginal farmers, much of it inspired by the Kalia scheme of Odisha and the Rythu Bandhu scheme of Telangana. Crop insurance scheme is also likely to be strengthened in the interim budget.

The Modi government recently announced a 10 per cent reservation for the economically weaker section among the unreserved, otherwise called the general category, youth in jobs and education. Goyal is likely to propose an investment push in education and small scale industry sectors to accommodate the new quota arrangement.

The small and medium enterprises (SMEs) were worst hit by demonetisation, announced in November 2016, and the rollout of the goods and services tax (GST) in July 2017. The sector is one of the biggest employment providers but it has been under tremendous stress. The Opposition has targeted the Modi government over loss of jobs and alleged ruin of the SME sector. The last budget before the Lok Sabha elections is likely to offer incentives for the SME sector and ease credit flow for the industry.

Goyal is expected to announce a hike in the threshold exemption in income tax to please the middle-class tax payers, who are considered a big constituency of the BJP. The existing threshold exemption is capped at Rs 2.5 lakh per annum. There has been demand to raise this limit to Rs 5 lakh per annum.

The corporates have been pushing for bringing down the peak tax rate to 25 per cent from 30 per cent. There was speculation of a similar reduction in peak corporate tax rate in the run up to Budget presentation for 2018-19 but Jaitley had not altered the tax rate.

The poll-handouts in the interim budget may build pressure on the new government that will swear in after the Lok Sabha polls. Increased government expenditure is likely to pose challenge to fiscal deficit target of 3.3 per cent of the gross domestic product (GDP) as stated in Budget 2018-19.

According to official data, fiscal deficit in April-November 2018 exceeded the target by about 15 per cent. Fiscal deficit is widely considered as a reflection of health of the economy. The economic state gets complicated given that GST revenue has largely remained subdued. GST revenue collection crossed Rs 1 lakh crore mark only twice in the financial year – April and October. Expected monthly average GST collection was pegged by the government at Rs 1.12 lakh crore.

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