Union Budget 2019: Unethical Political Stance

by Anup K. Sinha

Budgets in India have recently become a mega event where the ruling government makes many announcements which are sensu stricto not related to the Budget at all. However, this year’s Union Budget presented by Piyush Goyal was arguably the most political in content and most arrogant in style in recent times. It was expected to be a low key, vote-on-account Budget by a lame-duck government, where routine, essential expenditures would be passed in Parliament. Days before the presentation there was a press report that the NDA would present a full-fledged normal Budget. The Finance Ministry clarified that it would be an Interim Budget. What was presented was a regular full-scale Budget. In this sense it was a departure from an established democratic convention. This reflected two reasons for the different approach. One was the opportunity to score important political points just before the parliamentary elections. The second was sheer arrogance in the sense that the current government seemed sure of being re-elected. Not only that, Piyush Goyal went into a long policy discourse on what the government would do till 2030.

The NDA Government has been struggling with the economy for quite a while. It has manipulated macroeconomic data on more than one occasion to suit its interests. The National Statistics Commission and the National Sample Survey Office have been reduced to impotency where the Niti Ayog holds the whipping hand. The Reserve Bank of India has been under attack ever since the devastating demonetisation of 2016. Farmers have been upset over non-remunerative prices, high cost of inputs and high levels of accumulating debt. Never before were so many farmers seen marching to New Delhi to protest so many times as happened in the last few months. Farmers have been committing suicide at an alarming rate. The banking sector has been in deep trouble with astonishing levels of fraud and non-performing assets. The middle class and small trading communities have been struggling with stagnant incomes and an ill-designed Goods and Services Tax (GST). The only group happy seemed to be the big family business units and large corporations who had a free hand in exploiting the economy at will. None of the boastful commitments made by the government, especially the Prime Minister, such as doubling of farm income by 2022 was taking discernable shape. These are just the more important economic problems facing the nation. There are equally deep social wounds that are searing.

In such a context the government was under quite a bit of pressure to try and hoodwink the people one last time, with the help of a pliant media. Hence the Budget was filled with sops for farmers, traders and the middle class. There were no new tax proposals. Expenditures in certain areas were hiked significantly. The fiscal deficit target was relaxed a bit. The new allocations of expenditures and the tax sops have been large enough to increase the deficit by more than 0.5 per cent of the Gross Domestic Product (GDP). Hence there have been some compensating expenditure cuts along the way.

Let us consider the proposals that are directed to the middle class. The income tax exemption slab has been raised to Rs 5 lakhs. This means that someone making around Rs 6.5 lakhs per annum may avoid income taxes altogether by making permissible investments in life insurance and the public provident fund. The standard deduction has been raised to Rs 50,000 and the Tax Deduction at Source (TDS) on rental income has been raised from Rs 1.8 lakh to Rs 2.4 lakhs per annum. Similarly, TDS on bank interests has been raised from Rs 10,000 to Rs 40,000. As far as small traders are concerned, the GST exemption limit has been raised to Rs 50 lakhs and businesses with turnovers less than Rs 5 crores have to either pay a flat rate or file quarterly instead of monthly returns. Another announcement by which traders and the upper middle class might benefit is the exemption of imputing notional income from rents on a second home, if used as residence and not put on rent.

For workers in the unorganised sector, which is very large in India and growing, the Budget has announced a pension scheme where a person earning less than Rs 15,000 per month can pay Rs 100 per month into a pension scheme that will give the person Rs 3000 monthly pension after attaining the age of 60 years. This is on top of the health scheme already in operation announced last year. For casual workers an additional amount has been earmarked for the MGNREGA.

As far as farmers are concerned, the government has announced (Prime Minister Kisan Samman Nidhi) that every farmer having less than two hectares of land would be paid a sum of Rs 6000 in four quarterly instalments directly into their bank accounts. This tantamounts to a partial universal basic income which is distributed independent of income and wealth. Farmers indulging in fisheries and animal husbandry as supplementary sources of income would also get certain benefits in terms of higher interest subvention on loans taken for the purpose of these activities. In the midst of all these announcements, Piyush Goyal proposed to allocate Rs 750 crores for the Rashtriya Gokul Mission for the welfare of cows!

There are a number of problems with these announcements especially when coming from a government that takes delight in manufacturing data whether it is numbers for the GDP, or employment, or manufacturing output, or poverty. First of all, each of these numbers is meaningless unless the NDA comes back to power and presents exactly the same Budget for the full year. It is true for only three or four months at the very most. It is unethical to make people believe all these proposals will come to stay. Even if we assume that the NDA returns and the Budget stays exactly the same, the fiscal deficit target has to be corrected in the next Budget since a fiscal slip is not forgiven by the real financial masters who rule over democratic governments: the risk-rating agencies like Standard and Poor’s or Moody’s. Plummeting risk ratings for investments can bring down elected governments. Their adverse appraisals can have severe impacts on the economy. Yet no one knows for sure, why a three per cent fiscal deficit target is treated as the magic number. Hence taxes are bound to rise in 2020 and expenditures rationalised.

The second issue that needs to be highlighted is the fact that the middle class might be happy from a short-term tax benefit, but their real worry is the lack of employment opportunities, the systematic informalisation of work and the growth of the casual labour force. It may be recalled that less than 10 per cent individuals in India are actually liable to pay personal income taxes. Hence the electoral impact of this is likely to be small. The third issue pertains to the small traders getting some relief from the complicated process of paying GST and complying with frequent returns. While this may create some breathing space for some small traders, but many are already in the red and have been forced to go out of business after the introduction of the GST.

The fourth issue is the unorganised sector pension scheme for workers below Rs 15,000 income per month. The size of this workforce is huge. Identifying their actual income is nightmarish since salary slips or payment receipts are not kept. There is huge scope for gaming the system, while deserving workers are left out. Even if this problem could be solved, the sheer budgetary allocations to be kept aside would be enormous in the future.

The fifth issue regards the farmers and the introduction of a variant of the universal basic income scheme. This has been implemented with retrospective effect from December 2018. This has some procedural implications. A new scheme was introduced in the current Budget but it began from the previous Budget! Even if we do not get into the procedural complications, there are huge confusions about what happens to share-tenants or agricultural workers and whether the two hectare limit is on ownership or operation. By any standards, an additional Rs 500 per month would hardly make any tangible difference to a family of poor farmers.

The political stance reflected in the Budget is unethical. First the beneficial schemes announced with aplomb may not see the light of day as the full year unfolds. Second, if the NDA returns to power, it will face enough budgetary difficulties next year, unless it raises taxes paid by the rich by a substantial dose. If a new government is installed in New Delhi it may find it politically difficult to discontinue popular schemes, but will face the same budgetary difficulties. It is myopic to a very large extent. The government is accustomed to juggle phony numbers conjured out of a black box. This time too there is no exception. It remains to be seen how many voters fall for the falsehoods this time. The answer to the question may well determine the future of India’s fragile and fractured democracy.

Dr Anup K. Sinha is a former Professor of Economics, Indian Institute of Management, Kolkata.