The upcoming interim budget, to be presented on 1 February is likely to focus heavily on rural and farm sector spending. It will be the last budget of the current government.
It is assumed that the losses sustained by the ruling Bharatiya Janata Party (BJP) in three crucial Indian states including, Madhya Pradesh, Rajasthan and Chhattisgarh are expected to cast a shadow on the budget-making process, which is already underway.
Pre-election budgets are interim exercises in which new tax measures are usually not announced but spending is presented for the whole year, giving the outgoing government a chance to present its vision for the future.
Higher social sector spending and a focus on lifting rural incomes are likely to dominate the February budget. The government has already set in motion a plan to double farmers’ incomes by 2022. There could be more on that in the budget given that the electoral setback for BJP is being largely attributed to rural distress and farmer anger.
The budget for FY18 had set aside Rs 2.36 lakh crore for the creation of livelihood and infrastructure NSE 0.00 % in rural areas across a number of schemes run by different ministries and departments.
BJP had in its manifesto for Rajasthan promised a universal basic income (UBI) and it is likely that this will find some reflection in the national budget. UBI had been floated in the Economic Survey presented by former chief economic adviser Arvind Subramanian as an effective tool to lift people out of poverty. Any call on such a scheme, even in limited form, will only be taken in keeping with the resources available and delivery mechanisms.
“There would be some impact of the (election) outcome,” said a government official. According to Finance Minister Arun Jaitley, infrastructure and rural development will be focus areas going ahead in the interim budget.
Spending on agriculture, for procurement, is expected to go up to broadbase in terms of crop coverage and geography.
The New Minimum Support Price framework that provides a cost plus 50% price could see some tweaks amid ground reports from most states indicating that it has not been very effective.
According to a Kotak report, “Average crop prices over the past few years show that market rates of major farm products have remained largely stagnant over the past five years. MSPs have increased steadily at a CAGR (compounded annual growth rate) of 6% for rice, 6% for wheat and 5-9% for pulses but market prices have increased at a much lower CAGR of 2.5% for rice, 2.7% for wheat and (-)1.1-(-)1.8% for pulses, capped by higher supply.”
Allocations are likely to go up for infrastructure creation, particularly in rural India, besides a special focus on medium and small enterprises that are said to have been hit by demonetisation and the goods and services tax (GST).
Economists, however, do not see the government losing sight of fiscal consolidation despite the spending focus.
HDFC Bank chief economist Abheek Barua said, “The government is unlikely to walk the path of fiscal profligacy. There has been considerable effort on the consolidation front and it is unlikely that they would give up on the commitment. There could be additional spending for the farm sector.”
*Source: economic times
