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Narendra Modi’s last big delivery before the hustings could well swing the narrative back in his favour, but still won’t ensure a 2014 repeat


Fisc be damned. The final big delivery of the Modi government has turned out to be a neatly timed package aimed to assuage the concerns of the rural and middle class, the biggest and the most-fickle vote bank of the country. Ahead of the 17th Lok Sabha elections, the interim vote-on-account Union Budget has turned out to be a craftily designed welfare-oriented Budget with a streak of populism weaved in.

As expected, for the second year in succession, the government has missed the fiscal deficit target with the revised estimate showing a slippage from 3.3% to 3.4%. For FY20, too, the government has proposed a target of 3.4%. A side note to that, if one were to combine the deficits of all the states, the number as a percentage of GDP is more than 6.4%! While former finance minister P Chidambaram tweeted that the government had thrown the Fiscal Responsibility and Budget Management Act out of the window, the bond market itself reacted positively. The 10-year benchmark bond yield, which had surged to 7.62% pre-budget, came off to 7.46%, a clear indication that bond investors weren’t too perturbed about the slippage, yet.

After the three successive routs in the assembly elections and growing rural distress, taking a leaf out from KCR’s scheme for farmers, the government has rolled out “Pradhan Mantri Kisan Samman Nidhi' scheme for small and marginal farmers who own less than two acres of land. Under the plan, that will cost the exchequer Rs.750 billion, farmers will be given an annual dole of Rs.6,000 in three equated installments. Acknowledging the impact of falling agri commodity prices and weakening food inflation, stand-in finance minister Piyush Goyal stated that the scheme will be effective from December 1, 2018 and the first installment, for the period up to March 31, will be deposited directly in the bank accounts of farmers.

While the Rs.17-a-day dole has been criticised by the PM-in-waiting, Rahul Gandhi, as “an insult to everything they stand and work for,” the scheme will bring joy to potential NDA allies, the KC Rao-led Telangana Rashtra Samiti and Naveen Patnaik-run BJD in Orissa. While the Union scheme pales in front of the Telangana's Rythu Bandhu, which offers farmers Rs.10,000 per acre annually, and Odisha’s Rs.25,000 for a farm family over five seasons, it will be double bonanza for the farmers in these states. However, the political gains in these states could possibly be pocketed by local leaders given that the BJP lacks presence in these states.

That the Budget’s tone and slant was aimed with the elections in sight is evident with Chidambaram sarcastically mentioning that the Budget was “not a vote on account but an account for votes.” The barb was in response to the doubling of the lowest income tax slab from Rs.250,000 per annum to Rs.500,000 per annum, which can go up to Rs.650,000 with investment in provident fund and other tax saving instruments. Later in a televised statement Prime Minister Narendra Modi said the steps will benefit over 120 million farmers and over 30 million salaried professionals. "It is good to see more people being removed from the shackles of poverty. Our Neo-middle class is rising and so are their dreams... Interim budget a trailer for what will take India towards prosperity after Lok Sabha polls," stated the PM. In what is clearly seen as an outreach to the informal sector, hit the hardest by the botched-up demonetisation exercise, the government is offering a monthly pension of Rs.3,000 for workers in the unorganised sector, with a monthly income of up to Rs.15,000, after they retire at 60. Besides, the gratuity limit has also been doubled from Rs.1 million to Rs.2 million from the next financial year.

The other big sector that was dealt a fatal blow during the note ban, too, has found a reason to cheer. Under Section 54 of the Income Tax Act, the benefit of rollover of capital gains (up to Rs. 20 million) will now be available for investment in two houses from the earlier one unit. Besides, TDS deduction threshold for rent has been increased from Rs.180,000 to Rs.240,000.  The lower GST on homebuyers and two-year exemption from notional rent on unsold inventory could come as relief to builders saddled with an estimated over 700,000 unsold units across eight major cities.

While there is nothing much for the industry, which is yet to see firm signs of a capex-led investment revival, a possible rate cut could well be in the offing from the RBI, thanks to benign food inflation and a dovish Fed outlook that has calmed the nerves of emerging markets investors.

But for now the BJP will not be too worried about what the industry needs, but rather ensure that’s its 2014 statistics remain intact, According to the Centre for the Study of Developing Societies data, in 2014 elections, the party had garnered 24% of poor votes, 31% of lower middle class, 32% of middle class and 38% of upper middle class votes. But considering that prior to 2014, the party's highest vote share among the poor was 18% in 2004, when it lost the elections despite being in power; the jury is still out on whether the feel-good budget will deliver the numbers for Modi.