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Jaitley’s Poll Vault

Author: Kingshuk Nag/Saturday, February 10, 2018/Categories: Cover Feature, Expert View

Jaitley’s Poll Vault

As had been predicted by many analysts, Arun Jaitely has unveiled a budget largely focused on rural India with an eye firmly on the next general elections and many other state elections that are slated to be held later this year. In fact, in the aftermath of the budget, there is a point of view that the elections would be advanced and held later this year. The single most striking feature about the budget is the ‘world’s largest healthcare programme’ that was announced.

Ten crore vulnerable families, or about 50 crore persons (40 per cent of India’s population), will be covered by this Modicare (Ayushman Bharat programme) who will be insured for a sum of Rs 5 lakhs (each family) for hospitalizations. This will be a major welfare move in a country that does not have a social security net. A chain of health and wellness centers across India that will provide essential drugs and diagnostic services and one medical college and hospital in a cluster of three districts each will add to the health focus of the budget. The present coverage is a measly Rs 30,000 per annum and it is not wrong to assert that in case of serious illnesses the poor have to sell-off assets to generate funds for treatment.

The second most important feature of the budget is a move that proposes to bail out farmers. The minimum support price (MSP) of kharif crops will henceforth be 50 per cent more than the cost of production. In a country where on an average three farmers commit suicide every day, this move does not come a day too soon. Other features of the Jai Kisan budget are a slew of measures to augment rural infrastructure like roads and infrastructure for agricultural marketing like small gramin markets to sell farm produce close to villages (outlay: Rs 20 billion). A push for fisheries and animal husbandry and operation green (outlay: Rs 500 crore) to boost potato and onion production form important part of the budget.

Agriculture credit is also to be increased by 10 per cent from Rs 10 trillion to Rs 11 trillion. State-of-art food processing facilities with 42 food parks will also boost the rural economy.  A sum of Rs 1,200 crore has also been provided for a National Bamboo Mission. Jaitely is betting that these measures will boost the rural economy and increase consumption which, in turn, will lead to kick-starting growth. Rural consumption has tapered off in the last two years. Companies which cater to the rural economy are likely to find their fortunes boosted.

Massive disinvestment

Gujarat where the ruling BJP lost a large number of seats in the rural part of the state in recent months obviously has guided the finance minister. Nobody can fault the minister but the question that economists are asking is where he will get the money to finance these ambitious programs. Possibly the massive disinvestment program is what Jaitely is depending on. The FY 2017-18’s target at Rs 72,500 crore has already been exceeded at hit Rs 1 lakh crore. The FY2018-19’s target is set at Rs 80,000 crore. As many as 40 Public sector companies will be disinvested from, to yield Rs 46,500 crore, while there will be strategic disinvestment from 24 companies (including Air India) to raise Rs 15,500 crore. Another Rs 11,000 crore will come from listing public sector insurance companies on the bourses. In fact, all the State-owned insurance companies are going to be merged to form a mega insurance company to give a boost to the insurance business.

However, economists have traditionally likened divestment to ‘selling the family silver’ to cover current expenses and don’t favour it as a measure to raise resources. The finance minister is also expecting that by next year, the collections from GST will stabilize and increase. In the present year, GST collections have been short by Rs 50,000 crore according to finance secretary Hasmukh Adhia.   

Fiscal deficit targets – as had been anticipated – will not be met. Targeted at 3.2 per cent for 2017-18, it will end up at 3.5 per cent according to Jaitely. Even for 2018-19, the target has been set at 3.3 per cent and 3 per cent is expected to be achieved in 2020-21. Not a word has been said by the finance minister about oil prices. Nearly 80 per cent of India’s petroleum needs are met by imported crude. Thus, international prices – which are now rising – will have an impact on the budget. Rising oil prices not only lead to inflation but also cut down growth. International oil prices are now hovering around $68 per barrel and are expected to go up further.

Doubts over Modicare

Doubts are also being raised about implementation of Modicare. Where will all the money required for the health programme come from? Moreover, where is the physical infrastructure (hospitals) that will be required? Analysts aver that the huge burden of running Modicare will devolve on the state-owned mega insurance company that the government wants to create. By listing on the bourses the company will raise funds required to run the programme. But the criticism against the program is that it would benefit only the insurance companies – and not the insured persons like it has happened in the case of crop insurance. There have been a lot of complaints about how genuine claims of afflicted farmers have been ignored in the crop insurance scheme.  Part of the costs of implementing the programme will possibly come from the additional 1 per cent cess that is being imposed on income tax. Presently at 3 per cent, this cess for education and health will go up to 4 per cent.  In the budget, however, only a measly Rs 2,000 crore has been provided for Modicare.    

 On the move to raise farm output prices too, doubts are cast about the exact mechanism to compute farm prices and the formula to do this. Will the farm costs take into account the imputed cost of the labor provided by the farmer himself (treating it as wages for the free services provided), is the question that is being asked? Agricultural economists aver that computing farm costs to the satisfaction of all is not an easy job.

In a move that will not only raise resources but also encourage production in India, the finance minister has raised the customs duty on certain products whose imports will be costlier. This includes cell phones, some TV parts, juices, toiletries, cosmetics, gems & jewelries, footwear, furniture, toys and games, silk fabrics, wrist watches, pocket watches and many other things. For a country whose import bill is more than what it exports, nobody can complain about these imports becoming costlier.   

Not a budget for the middle class

This is clearly not a budget for the middle classes or the market. Although the finance minister reintroduced standard deduction and allowed a flat Rs 40,000 exemption from taxable salary for employees, the gains will be offset by the increased cess on income tax. Albeit expected,   long term capital gains tax (LTCGT) has been reintroduced at 10 per cent even as the securities transaction tax has been retained. This has caused some disconcert in the equity markets. There has been no across-the-board reduction of corporate taxes – only companies with a turnover of Rs 250 crore or below will benefit from a lower tax of 25 per cent. Even they will have to bear the burden of the increased cess on health and education. However, the corporate sector is taking hope from the focus on the farm sector which they believe has potential in boosting growth. They are also enthused by moves like increasing the funding for digital India and smart cities and infrastructure like railways) will ultimately help the corporate sector in many ways.

So all in all, this is a budget for Bharat. But will it deliver on its promises is the million dollar question.    

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Kingshuk Nag
Kingshuk Nag

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