Interim budget 2019: Presumptions and probabilities
Come Friday and the last of this regime’s Budget orations: part substance-part spiel, part assessment-part conjecture, would be behind us. Facing a General Election and close misses in recent Assembly polls, the government’s intentions are naturally encumbered by electoral forces, in addition to the usual vagaries of markets and the economy. High expectations from stakeholders, who royally ignore the possibility of a mere vote-on-account, is testament to the Budget’s essential narrative as a balancing act of sorts.
Nevertheless, it may be apt to understand the presumptions at play versus their underlying probabilities.
Despite the Budget in general being perceived as a forward-looking vehicle, it is as much an incremental planning tool. Extrapolations from the past shouldn’t be understated. Let us hence rewind twelve months.
Last year’s account weighed towards farmers and welfare at large: an aggressive push towards Minimum Support Price (MSP), enhancement of farmer credit, commitment to fisheries, horticulture, aquaculture, tribal education, medical colleges, and lastly, universal healthcare through Ayushmaan Bharat.
Major sectors to be ignored including private business and the middle class. Personal income taxes were left untouched and mutual fund investments were hit, thanks to the return of the dreadful Long-Term Capital Gains (LTCG) for equities, which was a true travesty, especially in a post-RERA (Real Estate Regulatory Authority) and demonetisation world.
What has transpired since?
Firstly, the areas of last year’s focus (i.e., farmers, social welfare) have come across as blanks so far: the implementation of MSP has failed to make a dent considering low market prices even post-a good monsoon and a bumper crop, farmer distress has not really muted (least of all, in the popular narrative), and Ayushmaan Bharat four months in is still in pilot project mode.
Second, the areas which were anyway ignored last year (i.e., the private sector and middle class) haven’t recovered on their own.
Indian industry is stressed, as demonstrated by record low IIP (Index of Industrial Production) data coming out in 2018 year-end. So are markets and investment, with high crude prices wreaking havoc on and off, a continued interest rate differential with regard to the US driving capital outflows (which would only increase with a rate cut as expected now from the RBI), wide internal uncertainties driven by the NPA crisis, and external concerns, thanks to the ongoing US-China trade war.
And yes, did I mention the Assembly polls misses?
Considering all these factors, and the limited time left prior to hitting election mode, I see only one thing coming: populism, populism, populism.
The government is incentivised to now serve its largest common denominator, i.e., reinforce the farmer and welfare themes from last year with a vengeance through populist measures, and this time, not omit the middle class.
For the latter, expect income tax rationalisations, higher deductions for healthcare and investment, perhaps even the removal of LTCG. For the former, considering a rather muted to date rise in the government’s overall subsidy bill (less than four per cent over the last five years), increases in fertiliser, petroleum and wage subsidies under the rural employment guarantee scheme shouldn’t come as a surprise.
Lastly, get ready for soft loans for the farm sector. Never mind the lack of requisite allocations characteristic of Interim Budgets, the 'plans' will be nevertheless be announced.
The private sector, forgotten last year, shall in all likelihood be forgotten again – only paid lip service through the all-too familiar chain of buzzwords, i.e., ‘Make in India’, ‘Smart Cities’, ‘Startup India’ – schemes which have garnished standees at industry events, but failed to mobilise real change.